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Monday, October 3, 2022

For 58,000 euros, Robert Golob “discovered” what we all already know – that prices on the market are different at different retailers or what everything is wrong with the government’s comparison of food prices

By: Jože Biščak

The essence is, of course, hidden in the fine print. There is a tacit acknowledgment that the government’s price comparison of basic foodstuffs is methodologically inadequate, unprofessional, unnecessary, and merely a populist move by the team at Gregorčičeva Street 20.

It is written as follows: “Both the contractor and the customer therefore do not assume responsibility for any damage that may occur to any natural or legal person as a result of using the Food Price Comparison website.” So, if you find out during shopping that the information on the website is not true, the government and April 8 (the company that conducts the price survey) do not accept responsibility. In other words, the government will put you in the penalty box. It is the same with merchants who cannot bring claims for damages due to misleading and inaccurate information. Because if something goes wrong, the merchants are to blame, since “we have no influence on errors on the part of the traders”, it is written (errors are therefore already attributed to the traders in advance). Then why the comparison? There is no other explanation than that the authorities want to show people that retailers (greedy capitalists, private individuals) are to blame for raising prices of basic foodstuffs.

Prime Minister Robert Golob announced this already in the spring, but at the time he said that the comparison would reveal the “high margins” of merchants. Apparently, it soon became clear to him that this mission was impossible because the retailers would have to reveal a large part of their trade secrets to the government, so the decision was made to go around the shops and compare the prices of the groceries. Well, now it turns out that they have compared the incomparable. Tilen Majnardi, economist and marketing expert, wrote: “This unfortunate monitoring of prices will end in some kind of lawsuit, because in the part of comparing the incomparable, disregarding quality, origin, disregarding different rating systems, benefit systems of individual merchants, certain merchants are being directly harmed.” So, a government food price index would be good for a sensationalist journalistic piece at most, but definitely not for expensive serious research paid for by net taxpayers’ money. As the Finance journalist Petra Sovdat wrote, this is about one of the most easily earned money of all easily earned public contracts to date. Retailers have also already responded.

For more than a hundred years, economists, statisticians and market researchers have been trying to “invent” a reliable method for comparing prices. To this day, they have not. Among the approximations that are most useful (but with a whole range of methodological reservations), two stand out: the total value of the selected basket and the price index. The government (or the company April 8) resorted to the first method, which is supposed to be the most understandable for consumers: what is the value (expressed in money) of the selected basic foods in the basket. This method has some conditions that are not easy to achieve.

The most important condition is that the same products must be compared. Therefore, when comparing type 500 flour, it is best to compare this product from the same manufacturer in stores. According to the government comparison, for example, there was no price difference (0.99 euros) for Mlinotest flour type 500 in four stores, while two stores did not have this flour. This is one of the disadvantages of this method: the offer of competitors is not always necessarily the same. It is quite possible that merchant A has a product in his offer, but merchant B does not.

To overcome this, they resorted to the same products. So, the flour type 500 from different manufacturers. According to this comparison, Intes’ type 500 flour was the most expensive, and the cheapest was the kilogram of flour used by retailers under their own brand. Of course, you cannot get TUŠ flour in Spar, you cannot get Spar flour in Mercator. A comparison is thus completely impossible.

Another problem with this method is how to make expensive and cheap products participate equally in the basket. In the government comparison, the difference in price is even more than 1 to 20. This can have a significant impact on the total final price of basic foods in the basket, especially when you compare different producers for expensive products (meat), where the difference (nominal value) is significantly greater than with cheaper products. The government’s comparison did what should not have happened: it compared high-quality products from one retailer to low-quality products from another retailer.

The third challenge is the “eternal” N. It is true that the government compared six retailers with each other, but only in Ljubljana. This means that the price comparison has some “useful” value (if it has any), only for residents of the capital, because the prices of the same retailer for the same product in Ljubljana can be different compared to Murska Sobota or Koper. They may differ even between stores of the same merchant in the capital.

The government says that this comparison is a “soft price regulation” (???) and that they will resort to full regulation if prices continue to rise. Which is a “declaration of war” on the market, which is the only one capable of shaping prices based on supply and demand.

Although the developers wrote in the first report that the basket for each trader is designed to contain the cheapest products of the trader, this is useless for a normal sane person. If you wanted to show which merchant really has the cheapest basket, you should also consider merchant cards (loyalty cards), because these are precisely the essence of an individual merchant to attract consumers with low prices. Therefore, the comparison showed only one thing: that basic foods have different prices in the market.

Thank you, dear government, but you really did not have to do that. We already knew that, and because of that, there was no need to throw 58,000 euros of net taxpayers’ money out the window. You do not have to take us for idiots and those incapable of deciding which retailer to buy from. There is no need to fear that the merchants would now agree and coordinate prices. They really will not cartel agree on the price of a bread roll. However, there is a very serious danger that the company that carries out the price list would collude with the retailers. When comparing the incomparable, the possibility of fishing in the mud is immeasurable, not to mention the price comparator on the website, which is completely (intentionally) incomprehensible.

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