Competition, pricing, inflation, interest rates and the EU SIngle Market

In business school I was taught that when a company is thinking of a new product or service, it must estimate costs, then research what the market is willing to pay, if larger, price at max. But many companies use a costs + % profit expectation = price system.

In Economics I learned that prices go up when companies see more demand and decide easier to raise price than expand capacity. Of course, in Services expanding capacity is ceteris paribus and in theory easier/cheaper than in Manufacturing.

In practice market structure (and enforcement or lack thereof, of competition law) plays key role in pricing decisions and in inflation. I suspect that is one of the reasons the Euro interest rate set by ECB is 1.5% in order to curb inflation compared eg to USA (0-0.25%): Less competitive markets than eg the US ones. That merely what I suspect. . As well as more regulations that tie the hands of business to adjust to the ups and downs. And of course a very imperfect 19 year old EU single market!

I even recall some analyses ib the last 2-3 years that said that EU single market works better outside the Eurozone than inside! Makes one wonder!

An alter way of making PIIGS & others more competitive

Want to reduce the prices of PIIGS and other economies exports & tourism to make them more competitive?

Why not help them avoid the cut of the middlemen in the European and world markets?

What do liberals (European term) and Leninists have in common?

What do the liberals (in the European not the US meaning of the term liberal) and the Leninists have in common, in iterms of ideology?

It's their distaste for private monopolies & cartels!

But whereas liberals think that they can be avoided via competition, anti-monopoly and antitrust legislation, Leninists prefer the state ownership model, for monopolies and business in general!

Updated! Industrial Producer prices hikes among Eurozone members: Cause for concerns

The update include some comparison of March 2011 compared with March 2010 IPPIs with March 2011 compared with March 2010 inflation numbers (as released by Eurostat back on April 15).

Eurostat published today (May 3, 2011) the stats re Industrial Producer Prices (Industrial PPI) for March 2011.

Along with the stats published re February 2011 vy Eurostat on April 2011 (a few days before the ECB rate hike from 1.00 to 1.25%), these stats, for the EU27, as well as the Eurozone and individual members should cause IMO much concern. I have partly already tweeted and blogged some of my concerns.

1) These include a concern of mine that these stats show low integration and lack of adequate competition at least with respect to industry in the EU and its Single Market and even more importantly, in the Eurozone and among its members. Because while the prices of industrial inputs are higher due to hikes in world prices of energy and some foods, the very high Industrial PPIs show that firms choose to pass on a very large part of those down the line, ie to the whole-sellers and these may eventually reach the consumer thus a major concern re CPI (ala inflation) which is already high in the Eurozone by ECB standards (ie 2% target).

What is also notable, and I have to trying to understand why, is that the IPPI for NL and Belgium, ie two economies with a strong industrial capacity and quite integrated, one would think, to their neighbour Germany, are exhibiting, compared with same month last year (February 2011 to February 2010 and now March 2011 to March 2010) very high numbers.]

Let's have a closer look, trying to think systemically:

In March 2011 compared with March 2010, industrial producer prices gained 6.7% in the Eurozone and 7.4% in the EU27. For February 2011 vs February 2010 the corresponding numbers were 6.6% and 7.1%. Note that the IPPI is higher for EU27 than the Eurozone16 and the increase compared to February in March is higher for the EU27!

Also note that (Eurostat, April 15) Eurozone annual inflation (provisional) was 2.7% in March 2011up from 2.4% in February and EU annual inflation (again provisional) was 3.1% in March 2011, up from 2.9% in February.

What will these high Industrial PPI numbers for the Eurozone and EU mean for inflation in a few months from now? And why are they so high?

But what do the IPPI numbers show re the EU single market for industrial goods, especially at the Eurozone's core (Germany, NL, Belgium, etc)? Note that whereas Germany's IPPI was Feb2Feb 6.3% and March2March 6.1% (ie without any effect by ECB rate hike later, in April), the NL's IPPI was respectively 10.3% and 10.8%! For Belgium, another close neighbour to Germany, only the Feb2Feb stat is available for now: 10.2%!

At the same time February annual inflation in Germany had registered at 2.2% and 2.3% in March (Eurostat, April 15). Thus head to head annual Industrial PPI for March stood about 380 basis points above annual March inflation in Germany (down from 410 bp in February).

In NL, annual inflation stood at 2% in February and again a privisional 2% in March. Ie 830 and 880 basis points when compared to the NL annual Industrial PPI for February and March!

Thus the NL spread is about double the Germany one! Why?

In Belgium, inflation was 3.5% both in February and March, ie 670 bps (not IPPI available yet for March in Belgium)! Again, why such large NL and Belgian spreads compared to Germany?

Now add Denmark, another close neighbour yet not fellow Eurozone member, the IPPI jumped from 5.8% Feb2Feb to 9.3% March2March!

What could be driving these large hikes and the wider differences even between neighbouring economies except, I assume, inadequate Single Market integration and inadequate competition? If you have a different explanation, feel free to add it via the comments or a tweet @nppolicyanalyst!

2) Most hikes are largest in the EU27 than in the Eurozone

Industrial producer prices on the domestic market, % change compared with March of 2010

Eurozone (vs EU27)

Total industry excluding construction 6.7% (in the Eurozone) vs 7.3% in EU27
Total industry excluding construction and energy 4.5% vs 4.6% in EU27
Intermediate goods 7.9% same as in EU27
Energy 13.0% (in the Eurozone) vs 14.1% in EU27
Capital goods 1.2% vs 1.3% in EU27
Durable consumer goods 1.8% vs 1.9% in EU27
Non-durable consumer goods (in the Eurozone) 2.9% vs 3.4% in EU27

Note the 3 areas of major differences between the Eurozone and EU27:
1) Total industry excluding construction 6.7% (in the Eurozone) vs 7.3% in EU27

2) Energy 13.0% (in the Eurozone) vs 14.1% in EU27
3) Non-durable consumer goods (in the Eurozone) 2.9% vs 3.4% in EU27

Can you offer an explanation why?

What a global economy needs!

Doesn't a "global economy" need global competition laws and a global Competition authority?

Improved transparency and predictability of proceedings in EU Antitrust

According to IP/10/2, detailed explanations concerning how European Commission antitrust procedures work in practice have just been published by the Commission's Directorate General for Competition (DG Competition) and the Hearing Officers on the Europa website.

The goal is to further enhance the transparency and the predictability of Commission antitrust proceedings. The explanations are outlined in three documents, namely

1) Best Practices for antitrust proceedings,
2) Best Practices for the submission of economic evidence (both in antitrust and merger proceedings) and
3) Guidance on the role of the Hearing Officers in the context of antitrust proceedings.

The documents will make it easier for companies under investigation to understand how the investigation will proceed, what they can expect from the Commission and what the Commission will expect from them.

They will be applied by the Commission provisionally as from today, Jan. 6 2010, but stakeholders are invited to submit comments on the documents within 8 weeks with a view to adjusting them in the light of comments from interested parties.

Competition Commissioner N. Kroes commented:
"The Commission has consistently given high priority to due process and fairness in antitrust proceedings. These three documents provide companies with further certainty and transparency about the relationship between them and the Commission during an antitrust case. I warmly invite all stakeholders to provide us with their comments on how to yet further improve our practices."

More info

EU Competition law cases: decided and under review

EU: The European Commission has published a compilation of competition law related cases, decided or under review.

Reference: MEMO/09/380 Date: 09/09/2009

EU: Competition the French way and other national "customs"

During the EU Summit which aimed to promote a new Draft Treaty for the EU, a reported French effort to weaken the foundations of the principle of free market competition in the EU (and to thus allow states more room for giving state aid to "national champions") seems to have been averted.

Of course, France is not the only EU member to have its own specific a-la-carte demands or wishes in the EU.

Eg. the UK does not want a common Foreign Policy and more EU competences in taxation issues.

Poland, one of the 6 "large" countries members of the 27 member EU, wants the members' votes in the EU Councils to be determined via a square root of each country's population calculation.

Etc, etc, etc!