Suggested Retail Price distorts market – DOJ

MANILA, Philippines – The Department of Justice (DOJ) called on concerned government agencies to review the policy of imposing a Suggested Retail Price (SRP), saying it restricts competition and reflects undue market interference.

In a 23-page report issued on July 12, the DOJ-Office for Competition (OFC) headed by Justice Assistant Secretary Gerenomi Sy said it found out that there are no adequate rules or guidelines covering the imposition of SRP.

"The study finds that while public welfare justifies government intervention against deceitful business practices, the misapplication of the SRP creates unintended consequences,” the DOJ-OFC said.

As a form of price regulating mechanism by some government agencies, the SRP amounts to undue interference in the market and restricts competition because it lacks basic guidelines such as prescribed period and standards, it added.

To balance public protection with the importance of a competitive market, price controls should be enforced only in emergency situations, the department's study said.

Sy noted that the SRP has been applied by the government to cover non-emergency situations and a broader range of products.

“Suggested retail price should just be a suggestion – not an imposition by the government,” he said.

DTI and DA practices

In the case of the Department of Trade and Industry (DTI), there are enforcement procedures against non-compliance with SRP such as a 30-day advance notice to the agency to increase prices.

The agency can also issue a notice to explain to business establishments with prices above government recommendations.

But, as the DOJ-OFC pointed out, the DTI's requirement for retailers to seek clearance for planned price increases negates the recommendatory nature of the SRP.

On the part of the Department of Agriculture (DA), it has publicly stated that it may charge with profiterring producers, sellers, distributors, and retailers who violate the SRP.

The DOJ-OFC argued, however, that such warning may discourage small retailers such as sari-sari store owners and small vendors from determining reasonable prices for their products.

"The above findings could result in over-regulation of market prices which prevents natural supply-demand correction, promotes black markets, and inhibits industry growth and product development," the study showed.

Fears of over-regulation

Over-regulation and intervention of the government in market prices, according to the DOJ-OFC, may lead to "allocative and productive inefficiency."

“When government controls prices and sets the ceiling low, it could increase demand which may lead to a shortage of supply. Likewise, since retailers cannot set their own prices, they could be tempted to hoard products, refuse to sell, and create an artificial shortage,” the study showed.

It could also discourage new investors from venturing into an industry where SRP for a product is imposed. This restricts effective competition, the study added.

"Price control distorts competition and does not help the market determine the optimum prices of goods. It is only in certain cases like calamities or emergencies that intervention is essential to prevent abuses by suppliers,” Sy explained.

Cartels

The DOJ also pointed that even with the SRP in place, cartels in basic commodities such as rice, garlic and onion still exist.

This is one of the reasons that lawmakers have pushed for a comprehensive competition policy, the Philippine Competition Act, that is expected to be signed into law by the President Benigno Aquino III.

“We have pending cases against the rice, garlic and onion cartels that the SRP has failed to prevent or deter,” Justice Secretary Leila de Lima said in the report. – Rappler.com

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