1 thought on “The government’s ‘temporary’ energy price cap is bad economics”

  1. Posted 23/10/2017 at 05:59 | Permalink

    This is a live argument in Australia as well as the UK. There has been a public loss of faith in the market to deliver promised benefits. Mr Prior’s economic arguments (and cute quotes) don’t do justice to the problem. The arguments put forward are all unexceptional in the context of ‘normal’ markets. But this is not a normal market. It is a market for an essential service. The best definition I have for an “essential service” is one where demand is involuntary, largely inelastic (at least in the short run) and there are no substitute services. These conditions impose little competitive discipline on the supply side which can continue to incur inefficient costs which are simply passed through in prices. Competitors become caught-up in out-spending their rivals (eg. marketing costs) rather than focusing on lowering their own costs. It becomes an arms race which benefits no-one — least of all, customers.

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