Saturday, October 20, 2007

Flaherty's Pricing Statements

You may have heard that our Finance Minister has made some noise about how Canadian retailers should be passing on the effects of the dollar's rise.

I would argue that the market is the only mechanism that is going to channel the effective savings of the strong CAD into lower prices in local stores, but let us remember that moral suasion is indeed a valid policy instrument.

Generally it's discussed of in terms of banking, but such suasion - more correctly known as 'leaning on someone', or perhaps even 'blackmail' - might well have a small effect.

The problem is that it's not a credible threat. What's Flaherty going to do if Wal-Mart doesn't cut prices sufficiently to his tastes? Create some sort of behemoth legislation? Don't think so.

In sum, competition is going to lower prices, not politicians.

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