Picture two village shops. If both shopkeepers are doing nicely out of selling the same product at a high price, they may decide to keep their prices the same even when the wholesale price falls. This is known as tacit collusion. Both retailers have an incentive to co-operate with each other at the consumers’ expense.
But each shopkeeper also has an incentive to lower the price to make more sales and more profit. If another shop opens, this temptation will grow stronger. If a dozen shops open, it is almost certain that one of them will start a price war. Unless, that is, they form a cartel – which would be illegal.
Once again, the government is getting dangerously close to entertaining the idea of price controls
British supermarkets are certainly not a cartel. As Dominic Lawson notes in the Sunday Times this week, Tesco’s profit margin is 3.8 per cent. Aldi’s profit margin is just 0.25
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