Free market (7) - Lower fixed cost

Many small business find it difficult to survive. They have to pay high rental and credit to run their business. These high cost have to be passed to their customers in the form of higher prices.

As business premises and credit are under the control of a few people, they are able to increase the rental and interest rate on loans. They make excessive profit and cause a heavy burden on the small business and the consumers.

These high costs can be controlled by the government through legislative measures, e.g. to set caps on rental rates or the cost of capital, or to provide alternative sources of supply through the public sector.

Many years ago, HDB provide shops at affordable prices. It allows the shop keepers to offer their goods and services at lower prices and make a reasonable profit. If they overcharge and make a larger profit, another business will be set up to provide an alternative at a lower price.

This is competition at its best, in bringing the prices down to a reasonable level, based on the cost of doing business plus a fair margin of profit.

In America, the anti-trust law is designed to ensure that there is fair competition and that any business is not allowed to grow so large that they can dominate the market and have unfair pricing power.

We also need controls to ensure that property owners and bankers do not take an excessive share of the value chain, at the expense of the customers, workers and the small business owners. It is desirable for these business costs to be controlled, to promote a healthy competitive market.

Tan Kin Lian