Competition between companies is essential to keep prices down and not drive up inflation further, says Competition Authority.
Source Freepik
Author: Redaction
Margarida Matos Rosa, head of the Competition Authority, evidence that "more competition in product markets leads to lower prices through downward pressure on profit margins and costs", and that "this relationship implies that competition can reduce prices and contribute to curbing inflation", highlighted that "reforms that increase competition in labour and product markets can reduce the degree of price stickiness and, as far as it is concerned, help stimulus or stabilisation policies to be more effective".
Danger in administrative price control is a concern, and the PCA says that "in times of inflation, there is a greater propensity by governments to implement administrative control", the PCA judges that the measures may translate into "risks to competition, as price controls distort price signals in the market and may unintentionally lead to supply shortages and disruptions in the value chain".
According to the regulator, "the price cap can act as a focal point for collusion if it is set too high in relation to companies' production costs", however, it reports that "imposing a cap at an artificially low level that does not allow companies to recover their costs can trigger the exit of companies, particularly smaller ones", in addition to "weakening the incentives for competitors to enter the market". "Price controls", it concludes, "distort price signals in the market and can unintentionally lead to supply shortages and disruptions in the value chain".
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