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Anorak | Where Is The Evidence That The Power Companiers Are A Cartel?

Where Is The Evidence That The Power Companiers Are A Cartel?

by | 11th, November 2013

nPower bonusesTHIS is an interesting call:

Paul Massara took to his personal Twitter account to vent his anger over the ‘cartel’ claims minutes after they were made by several MPs in the House of Commons.

“Lots of wild talk about cartels but no evidence and the facts don’t support. Where is the evidence ????” he wrote. “Put up or shut up.”

The interesting thing about it is that no one as yet has in fact presented any evidence showing that there is a cartel in action. All we’ve been told is that they all put their prices up at the same time so therefore they musty be.

Ah, but, sorry, it doesn’t actually work that way. The problem is that you’ll see prices moving in exactly the same way if it is a pure and competitive free market or a cartel. The patterns of change will be the same: everyone will be changing their prices in the same direction at roughly the same time.

In order to see whether you’ve got a cartel running you need to go and look at the returns to capital being made. That’s where the evidence would be: that the companies were making so called “supernormal”profits. That is, profits that are consistently, and all of them should be making them, above the cost of capital of those companies. And, at least as far as I know, this isn’t true.

That’s what makes that call so interesting. There might be evidence out there that they are a cartel: in which case it will lie in that profit number, not the behaviour of the prices. And no, it won’t be the total number of the profits: it will be the profits in relationship to the amount of capital that is being used in the business. But it would be interesting if some of those screaming about this were to offer up their evidence of it happening.

 

 

 

 



Posted: 11th, November 2013 | In: Money, News Comment | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink