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[Opinion] Living Necessities

Posted May. 02, 2008 03:06,   


In the novel “The People of Wonmi-dong” written by Korea’s famous female writer Yang Gui-ja, Gyeong-ho’s family saves money frugally through rice sales business and sets up their own mom-and-pop store called “Gimpo Store.” Watching their neighbors succeed, the Kim’s running their own store “Brothers Store” in the same neighborhood begins selling rice and briquettes. The two families finally began a cut-throat competition. People living in the area are really happy since they could buy products at lower prices. Making matters worse, a grocery named “Fresh Store,” appears between the two small stores and sells a variety of food and seaweed. The two families finally form an alliance and go against the newly built grocery.

Consumer prices may fall if department stores, large-scale discount stores and mom-and-pop shops compete against each other as stores in the novel do. One of the nation’s largest superstores, Homeplus, cut the price of its private label instant noodle or ramyeon by 20 percent in late February when instant noodle makers raised prices amid growing flour prices. Homeplus’ strategy can be understood as teaser pricing. Many consumers, who drop by Homeplus to buy cheap instant noodles, would buy other products, too. American distributors are struggling to outdo competitors through innovative strategies. It is not difficult to find large-scale discount stores with well-assorted stocks in any small city. Discount stores in isolated areas and large cities sell same products almost at the same prices due to the effective U.S. distribution system through which any stores can sell necessities at lower prices.

In April, the consumer price index increased 4.1 percent from a year ago and the index for living necessities surged 5.1 percent. At the request of President Lee Myung-bak, the government made a list consisting of 52 living necessities including instant noodles, soju, private education and mobile handset fees so as to stabilize prices a month ago. The government chose the items which are frequently bought and account for a large share of spending of households with a monthly income of 2.47 million won or less, which form lower 40 percent of the population. Out of the 52 items, prices of 41 items increased in April. Also, a series of service charges jumped. Consumers with less disposable income cannot dare to go out during a series of holidays this month.

Some experts worry that the government may introduce price control measures which were adopted by past governments. But, the presidential office said, “We cannot and should not control prices. We’ll just manage prices.” That means the government would lower tariff quota to provide more products for the people, and prevent manufacturers from increasing prices more than the cost increase of raw materials or cornering and hoarding. A slogan of “Price Stabilization” is hanged at the main entrance of the Bank of Korea. However, the central bank cannot stabilize prices on its own. Korea needs to reform its distribution system to lower prices of living necessities.

Editorial Writer Hong Kwon-hee (konihong@donga.com)