Earlier in February, the Consumers Association of Singapore (CASE) received more than 400 complaints about price hikes of face masks, hand sanitisers and thermometers. One of the retailers that came under scrutiny was local store 3 Stars, which was reportedly selling a box of 20 masks for a whooping $138.
Fortunately, prices of such medical consumables have stabilised since then. However, we are starting to see bumps in prices of food items. Anecdotal reports of certain food items, such as threadfin and squid, have increased by 30%. A tray of 30 eggs has gone from about $3.90 to $5.50.
These incidents beg the question: Are price hikes acceptable during a pandemic, even if they are logical?
What Regulates Prices? The Rule Of Supply & Demand
Prices of goods or services have always been regulated by supply and demand. If demand increases and supply remains the same, it leads to higher prices. Or if supply decreases and demand remains unchanged, prices would also rise.
In normal circumstances, most of us find that it makes sense to use supply and demand to regulate prices. When buyers find a product too expensive, they can choose not to buy it. For sellers, a rise in price makes them more willing to sell it. Thus, as long the market price falls within the acceptable range of both buyers and sellers, a transaction will take place.
What Are The Causes For Increased Prices During COVID-19?
Here are some factors that could explain the increase in prices that we have seen.
Increased demand: In general, demand at the supermarket is surging due to the increased amount of time spent at home. For instance, NTUC FairPrice has seen an increased demand for frozen food such as poultry, processed food and vegetables.
Supply chain disruptions: As a nation that imports over 90% of the food we consume, our trade flows are significantly disrupted by air and sea connectivity. Wholesalers are saying that the cost of bringing food into Singapore has gone up to about 30%.
Supply shortage: Lockdowns and movement controls around the world means farmers and workers are staying home. This reduces the operating capacities of farms and factories.
Is It Fair To Use Supply & Demand To Regulate Prices During The COVID-19 Pandemic?
Generally, consumers are used to the occasional price hike during festivals such as Chinese New Year. Think about bouquets during Valentine’s Day, haircuts right before a festive period, or hotel bookings during peak periods.
Then, is the COVID-19 pandemic a justified context for price hikes?
Some may think that there’s no problem with this. After all, it is simply the workings of the market economy – sellers are just responding to increased demand or a fall in supply.
However, we also need to account for fairness in markets. According to economist and Nobel Prize winner Richard Thaler, consumers have firm standards of fairness and will penalise unfair behaviour even if they don’t benefit from doing so.
To put things into context, if a supermarket raises prices due to the increase in demand for groceries to maximise profit, such exploitation is likely to be seen as unacceptable. It might make some consumers unhappy, partly because we are all grappling with the pandemic and trying to stay sane in partial lockdown. To add on, higher prices can be impactful for the more price-sensitive families, putting the most vulnerable in further struggle.
In such instances, such actions controls the access of different groups of consumers to such goods. Those who are more well off can easily buy 100 trays of eggs, even if they are sold at exorbitant prices. For those who are earning less, buying even one tray of eggs can be tough with a price hike.
Others might think to regulate a limited supply of eggs, a seller might choose to sell eggs at a higher price instead. This ensures that only those who need it will purchase, while discouraging panic buying. But once again, it penalises the poor, while still allowing sellers to profit from the situation.
Lastly, it is less justifiable for sellers to increase prices if the goods sold are considered essential and if buyers do not have many alternatives. During this circuit breaker period, most of us are only allowed to visit their nearest supermarket. That makes it less fair if your neighbourhood grocery store increases prices, given that your next alternative is not viable, and online grocery shopping isn’t an exact substitute.
Are There Any Instances That A Price Hike Is Acceptable?
Some might feel that an increase in prices is more justifiable if it is to incentivise more workers to work now. Certain businesses essential services might be facing a shortage of workers now, such as supermarkets or food delivery platforms.
For instance, NTUC FairPrice reinstated a service fee of $3.99 for all online orders. It aims to increase its online capacity by 30% and has hired more workers to do so. However, it doesn’t mean that price hikes will always be passed on to the workers.
Another reason that we may be more accepting of price hikes is if it was due to an increase in costs. Cost-based reasons such as increased production costs and shipping charges are more justifiable, as compared to excess demand conditions.
What Can I Do As A Consumer?
While the knee-jerk reaction to an increase in price tends to be feelings of injustice, it is important to understand what the underlying reasons that are driving the prices up.
While small price increases are unlikely to change our purchasing patterns, consumers can still take action when they come across exorbitant and unjustified prices. You can report to CASE at 6100 0315 or submit a report here.