A Lesson in Economics

I'm an academic at heart, and so it's time to conduct a lesson in Economics. Today's topic is: Price Fixing

I'm staying in a semi-resort. Or at least, no one lives here but the tourists. There are no restaurants where the locals eat, no shops that the locals purchase from. We (the foreigners), are a captive market.

Given the high prices that the local businesses are paying for a beach-front location, they need to make a pretty steep profit. To do this, they appear to have all gotten together, and planned things out - to their benefit, and not that of the consumer.

There is no competition here, at least on price. Vendors agree on prices, and then agree to compete on everything but price - food quality, music, and other value added services.

However, in all cases of price-fixing, there is a very big incentive for one of the group to cheat - because if they drop their price just a little bit, and can attract more customers, then they win bigtime.

And that, is exactly what happens here on the beach.

Internet is 40 rupees everywhere, however, once, in the confines of their shop, it is often possible to haggle them down.

Likewise, a bottle of water can be haggled down to 22 rupees from 25.

However, in all cases, they tell you to keep it a secret (making the sssh noise, and putting their finger over their lips), pledging you to secrecy.

The thing is, it's not that they don't want you to tell other customers. It's that they don't want their competitors to hear - or the outcome would certainly be either violence, or a price-war...

It's interesting to note that the one place where the price-fixing works (and is completely haggle proof), is when trying to get a rickshaw or cab back to town. As the taxi drivers all hang out at one spot, it is impossible to make a private below-standard-rate deal with one of them without their peers hearing.. And thus the threat of group backlash is enough to keep everyone in line.

That's it for today's lesson.