The “fair-price” markets

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The Bolivian government regularly organizes “fair-price” markets in some of the most important cities in the country. In these markets or ferias one can buy agricultural products for significantly lower prices than in regular markets. This week, for example, you can buy a bag of potatoes for Bs. 35 in the “fair-price” market in La Paz when the price for the same item is Bs. 50 in regular markets. You can also buy a kilo of chicken for Bs. 13.50 when the regular price is Bs. 18. The Vice Minister of Rural Development argues very proudly that with these initiatives, “families will save half the money they would normally use in groceries.”

Sounds fishy, doesn’t it? It sounds too good to be true and so it probably is. If I am a producer or distributor of agricultural products, why would I take my product to the “fair-price” market when I can get a much higher price elsewhere? Doesn’t make sense, right?…unless…unless, somebody is covering my loss… If the government pays me the difference then, sure, I will sell at the “fair price” any day. And that is what I bet is happening: the government is subsidizing the difference between regular prices and “fair” prices. And voila, that is the magical trick about these “fair-market” ferias. They are just another transfer or subsidy paid with the taxes collected from everybody else in Bolivia.

More importantly, the idea of “fair prices” in itself (as opposed to regular-market-determined prices) is particularly revolting. Why are regular-market-determined prices not “fair” as well? This is an old and common misconception: if an entrepreneur makes profits, then the price at which he/she sells must not be “fair.” What proponents of this idea often forget is that in competitive markets (like agricultural markets) the only way to make money as an entrepreneur is by convincing customers to buy the product from you. And you can only do that if you offer good quality at a competitive price. Given that buyers are not obliged to buy the product from you, whenever they do one can conclude that it must be because they are better off after the purchase: they get the product they want at a price that makes the purchase worth it. In other words, a transaction such as the sale of a bag of potatoes makes the seller and the buyer both better off. There is nothing “unfair” about that.

What is truly unfair or, at the very least, deceiving, is to organize “fair-price” markets by subsidizing products with tax money paid by everybody else.

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