The liberal market ideology is often depicted as the overarching power of corporations over the unassuming consumers.
In its ideal form, market forces determine prices based on the elasticity of supply and demand, and both consumer and business meet their goals when both these factors reach a price equilibrium.
While pricing interventions by the government are common even in the most liberal of economies, the players that populate the market play their roles, as much as possible, in ensuring fair trade within free trade.
Governments have long played their role in optimising the facilitation of fairness and balance between consumer and commerce, yet liberalisation does dictate a limitation of state intervention – businesses are to be provided a lot of room within the boundaries of the law to compete within the market.
This is where the fine balance when economic policy and regulations should be formulated at the national level. While strong intervention may benefit internal commerce, it also goes against global trade norms, often resulting in reciprocal isolation, leading to opportunity losses for both businesses to profit, and consumers to gain better choices from a competitive market.
Playing the global game requires gradual transformation of nations towards playing by global rules. In Malaysia, national structures and policies have certainly progressed towards that direction.
Most important to this piece is how we use the freedom given, as businesses or consumers, within the boundaries mentioned above.
In an ideal world, all items we buy are priced without any positioning – the seller takes a set profit for any item or service offered, and the buyer happily accepts the transaction.
In a realistic competitive market, however, there is a fine line between being unfairly opportunistic and intelligent marketing. The power of global marketing has allowed much larger access to faraway markets, yet also opens up opportunities to misleading the public without consequence.
Price positioning, for example, is the business practice of quotating retail prices that match a particular perception of value by the consumer. While true difference between a product’s quality is virtually non – existent, the “perceived” value of the product or service can be changed through supplementary services that add value to the customer’s experience.
Premium food and beverage is a clear example of this. Coffee may not differ much in terms of raw material cost but the vast difference in pricing between premium cafes and your local breakfast outlet is due to total cost of sales – which may include branding, location, ambience, service and other factors that add to the customer experience.
However, the question remains – where do we draw the line between profiteering and price positioning? It is often very difficultto regulate, and stricter regulation is clearly not the answer for the same reasons mentioned above.
For example, it is widespread belief that the recent tax and subsidy restructing has led to continuous rise in living costs. While the adjustment period at the initial stages may have caused cost distruptions due to procedural adjustments, analysts have also looked at the angle of profiteering from the fear of price increases.
Also, the foreign exchange fluctuations seen over the last two years have added a multi- factorial dimension – making it increasingly difficult to tackle the true root cause of rising costs.
With that said, a higher level of information maturity would be crucial as we move further towards market liberalisation. While the government is working further to improve regulation and maintain balanced economic policies, all stakeholders – consumers and businesses alike – purchasing behaviour and decisions are made based on well balanced information.
We will explore more the roles of businesses and consumers in the next articles.
The writer is the chief executive officer of Malaysia Automotive Institute.