How free is the Free Market?

Australia's oil price:

The story of our oil industry is one of declining competition and increasing profit margins in petrol marketing. Ever wondered why petrol prices rise steeply at Easter, cup weekend and Queens Birthday weekends?

Prior to 1988 there existed a Prices Surveillance Authority (PSA) endorsed maximum wholesale price for petrol. Retailers (service stations) were able to negotiate discounts from this price depending on their relative bargaining power. In addition, an owner dealer operating a service station and selling large volumes of petrol was often able to negotiate a permanent discount of say three cents per litre off the retail price from supplier A, simply by threatening to buy petrol from another supplier, say supplier B. At the time, an independent operator like Solo was able to get even larger discounts, and pass them on, by operating on the basis of high volume low service and low retail prices.

In 1988 the oil companies introduced their system of rack pricing. Such a system soon eliminated what was possible before its introduction. In reality rack pricing is a discipline where petrol suppliers list their prices publicly. Effectively, petrol companies tell each other what price they are charging their outlets. The discipline is maintained so long as no oil company undercuts the other.

"Apart from the effect of public disclosure on independents ability to bargain, petrol prices have also tended to rise because the major oil companies have been aligning their rack prices at the maximum wholesale price set by the PSA. Doing this increases both wholesale and retail profit margins. The ACTU has calculated that this increase in wholesale margins involves a $600 million transfer of income from petrol consumers to the oil companies." [From an AGE report 28/08/1990]


So you thought diamonds are rare? Some fifty years ago a little known company called De Beers approached the leading firm of advertising agents at the time with a brief; to prepare a campaign that would make the "precious" diamond synonymous with romance. The result is history, of course. In the meantime it has brought the De Beers company unimaginable wealth. Nothing happens now in this industry without the involvement of De Beers, controlled almost exclusively from a glass and granite building in Botswana. It is to this building, for sorting and packing, that the diamonds are sent, from mines at Jwaneng, Urapa and Letlhakane. The Jwaneng and sister mines are so valuable, and contain so many diamonds that De Beers are required to leave them untouched and under guard because to develop these mines would flood the market, threatening De Beers carefully controlled prices.

The communications industry:

Most people generally argue that making a phone call to anywhere in the world should be more expensive than a local call. Decades ago this was true. However today's use of fibre optics and satellites make nonsense of this argument. One minute of long-distance time actually costs about 4 cents today.

As regards international calls, 3 cartels exist. One in Geneva, the International Telegraph and Telephone Consultative Committee (CCITT) has always blocked development of international private circuits that could compete against them. A 2nd is Intelstat, to which we have given the right to vet the launching of all or any new communications satellites. The third cartel is the accounting rate system.

The rates system is described thus: The country that makes the overseas call collects the costs (and profit). The countries that receive the call naturally wish to be compensated. Checked by CCITT and reviewed between telephone companies, this system divides the overseas phone call charges. This is why phone call charges vary so wildly between nations.

In 1980 the US decided to break up this cartel and hence the global move since, toward telecommunications deregulation. Some sources suggest the three cartels are overcharging telephone users some 10 billion dollars world wide.

In Australia, if the ratio of outgoing calls to incoming calls was, say, 6 to 1 it means money flows out of Australia to other countries. With such a ratio the outflow of money would be enormous. This monopoly inflates the price of telecommunications. [Sourced from Asiaweek]


It is a similar situation today with land. Access to land is the ultimate "non free" market. Access is restricted to those who can buy their way in. In almost every country now, land, our common inheritance, is enclosed. Whilst a "land price" exists, a truly free market just isn't possible. Ever imagine a society with no land price?

Land price is the enemy of free markets.

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