[Opinion] Price Collusion in Apartment Complex

“When business owners within a single industry meet, they are bound to say something about collusion or price manipulation that goes against consumer interests.” This is an insightful remark made by 18th century economist Adam Smith, not a tip from the head of the Fair Trade Commission or a consumer advocacy group today. In his book “Wealth of Nation,” the renowned economist defines collusion among suppliers as a threat to efficiency of a market economy, since it is free competition that serves as a driving force of efficiency.

▷ Suppliers, always wanting to sell more, fuels competition for better quality and products. Profit-oriented businesses develop new technology and products and find ways to use production resources more effectively. It’s not suppliers’ good will or conscience but money-driven calculation that leads to introduction of quality products at low prices. No one likes being in fierce competition, however. Weather they are individuals or enterprises, they do not welcome new players. That’s why businesses are tempted by an idea of making profits through collusion instead of competition.

▷ Collusion among suppliers, which aims to avoid competition, is an illegal act in itself. But more importantly, such a promise is hard to be carried out, not only economic theories assert but also market cases prove. For example, a supplier will see a chance to make big money by offering lower prices than the level it agreed with its competitors. So such a promise is almost impossible to be carried out. In particular, when there are many participants and it becomes hard to tell which one sells at how much, the price cartel is bound to yield little effect. Case in point is the Organization of Petroleum Exporting Countries, or OPEC, which has failed to maintain oil prices high.

▷ It was reported that the Fair Trade Commission has launched an investigation against residents in an apartment complex who are seeking collusion to raise apartments prices. Apart from controversy over the legitimacy of the investigation – whether the agreement not to sell apartments at low prices is collusion or not, the collective act is not likely to persist. For one thing, the residents must know too well that such an alliance is not something to be proud of.

Kim Jong-won, Guest Editorial Writer, Economics Professor at Hongik Univeristy

jskim@hongik.ac.kr