A while ago, the Kenyan government imposed a ban on public transport vehicles that weren’t roadworthy according to a new set of rules. As there were a lot of cars that didn’t meet the requirements, only a few were left to ply the routes.
The cars that were compliant took advantage of the situation and hiked the fares. Although the issue was resolved in a few days, there was a lot of chaos during the short time. Many people were forced to walk to and from home.
Amidst all of this, I couldn’t for the life of me understand why prices would go up when there was low supply.
For one, the demand for the transport services was still the same - the number of customers hadn’t changed. Had the cost of transporting people had gone up? No. Actually, one could argue that the cars would use less fuel since fewer cars on the road meant less traffic.
Absolutely nothing had changed. So why did the prices go up? Competition or rather the lack of it. If a business raises their prices in a market where there are alternatives, customers will just seek their services elsewhere.
Alternatives
The value of competition is hard to quantify; it’s hard to notice it’s impact/importance until it’s gone.
Competition means that there are alternatives. Without alternatives, the market is at the mercy of a monopoly. They can raise the prices as they wish and the quality of services/products they provide might actually go down or not get better.
In the US, the government uses anti-trust laws to regulate the market. This is the reason why mergers and acquisitions have to be vetted before being approved. In some cases, they even get rejected.
Governments need to ensure that there is a suitable environment for competitors to thrive. A competitive market regulates itself instead and this saves the government the hassle of having to step in every time.
As a consumer, you aren’t obligated to use a bad product because it’s an alternative. Most of the times, we are locked to use things that we started using first and don’t give the others a chance.
Good examples of this might be Chrome vs Firefox on the browser end and Google vs DuckDuckGo/Bing in the search engine space. Once you’ve tried a service, the responsibility lies with the provider of tbat service to make you come back. Whoever doesn’t impress you will have to make themselves better or else they risk the company falling to the ground.
As long as this continues, the market is healthy and the government is happy. Hopefully, you also don’t have to pay exorbitant prices for public transport again.