The government’s price stability scheme is now in place. Beyond the distractions which are preventing many from objectively seeing the bigger picture, it is an undeniable fact that inflationary and competitive pressures have, for some time now, been forcing companies to reassess their pricing strategies, with the situation remaining conditioned by margin compression, along with growing consumer sensitivities, triggered by an ongoing cost-of-living squeeze.

While there is a tendency by some to attribute price increases to corporate greed as opposed to inflation-led cost increases, businesses know only too well that they cannot afford to be insensitive to consumer sentiment and need to offer competitive prices despite mounting costs. That businesses can simply increase prices without any consequences is a misconceived assumption. Clearly, should businesses outprice themselves, consumers will change their shopping preferences resulting in loss of business.

Against this backdrop, one should note the emergence of comparative price advertising. This sort of unprecedented hard discount marketing is destined to intensify due to the anticipated, and now imminent, market entry of yet another prominent supermarket chain operator. 

Building a business on a customer-centric culture is a sine qua non, recognising that business success and consumer satisfaction are intrinsically linked. Within this context, and beyond desired selling margins, setting prices is not a simple cost-plus exercise.

It is certainly a cardinal consideration but prices are ultimately determined by market forces of supply and demand. Essentially, this necessitates a market pricing strategy which involves setting prices based on those of similarly competing products that already exist in the market.

All this is very much dependent on the market structure. The main determinants of this structure are the number of firms in the market, along with the degree of concentration, plus the number of buyers. Collectively, they do not only determine the structure and level of competition in a market but also influence the pricing and profit levels.

It is here pertinent to ask why are profits sometimes being designated as something necessarily wrong? In essence, the real issue is that some people seem to be confusing ‘profit’ with ‘profiteering’. Profit is indispensable in building the foundations and sustaining the operations to keep companies running competitively while motivating and rewarding shareholders for the risks and potential return on their investments.

Companies may, and rightly so, also want to operate on values that go beyond profit. Nevertheless, let there be no qualms about it, if companies repeatedly fail to make a profit, they will not survive.

In stark contrast, profiteering arises out of greed and opportunism, more so when left unchecked for any exploitative practices. So, let us be critical and condemn profiteering and any inaction by the authorities in securing a competitive and level playing field for all and not that of turning a profit, which is a basic prerequisite for the proper functioning of companies.

While the competition office needs to be well placed to swiftly address any practices deemed anti-competitive, the fundamental control needed is that of ensuring a fair and unrestrained environment for businesses to compete, where consumers can choose and benefit from.

The EU average VAT gap was 5.3%, with Romania and Malta topping the list with gaps of 36.7% and 25.7%- Norman Aquilina

Confidence in the competition office’s ability to regulate effectively and proportionately is essential and in the interest of all. Within this perspective, it is unhelpful for anyone, more so when coming from the powers that be, making unsubstantiated generalisations on the presence of cartels, leaving such accusations subject to speculative discourse.

Nonetheless, this does not mean that there do not exist shades of competition which need to be more carefully kept under scrutiny and, whenever necessary, brought to book. These can be broadly classified as either restrictive or unfair competition, which, to varying degrees, favours anti-competitive practices to the detriment of either or both consumers and legitimate businesses.

There are even some ‘businesses’ that base their competitive advantage on the ability to evade their fiscal and regulatory compliance obligations. If there ever was a need to indicate the extent of this, the European Commission’s ‘VAT gap in the EU report 2023’ is certainly one. The figures within this report represent revenues lost mainly to VAT fraud, evasion and avoidance, among other drivers.

Based on compliance year 2021, the registered EU average VAT gap was 5.3%, with Romania and Malta topping the list with gaps of 36.7% and 25.7% respectively. It is in such instances where proper market surveillance and enforcement need to come into play.

Clearly, we should not be advocating an economic policy of laissez-faire. Indeed, consumer protection is best attained through the promotion and proper functioning of a well-regulated yet unrestricted competitive marketplace. To achieve this, regulation should not be seen by businesses as an obstacle to a free market but recognised as a vital part.

By ensuring no malpractices are left unchecked and market forces prevail, we would not only be safeguarding the legitimate interests of business because competitive market conditions are key to guarantee more affordable prices, better quality, broader choice and innovation for consumers.

This is the lasting approach that is needed and not a short-lived market intervention that is superficial and much less impacting than meets the eye.

Norman Aquilina is group chief executive of Simonds Farsons Cisk plc and a council member of The Malta Chamber of Commerce, Enterprise & Industry.