As far as our political system is concerned, I'm not a fan. Left, Right, it's all the same, all part of the same corrupt system, the only major difference being from whom they take the money and to whom they give it. Then there's the independents and minor parties - in particular Nick Xenophon and Barnaby Joyce. They often hold the senate ransom to the highest bidder - in other words they sell their vote to whomever is willing to fill their constituent with the most plundered loot. Then there are the times they come up with various schemes and impose them on the population, the most recent being a move to stop petrol outlets from reducing petrol prices. Yes, you heard me: they're arguing for higher petrol prices and using "competition" to justify it!

Independent Senator Nick Xenophon and National Party Senate Leader Barnaby Joyce are combining to stop major oil firms and supermarkets from offering reduced petrol prices, in a bid to force out smaller competitors operating in the same locality.

The two senators are jointly sponsoring a private members bill which would require oil companies and firms, such as Coles and Woolworths, to charge the same price at two or more of their outlets if they are within 35 kilometres of each other.

Senator Joyce says the move will ensure greater competition and stop the larger operators from forcing out the smaller outlets and then charging whatever they want.

"This is a great step for our nation to make that," he said.

"We are piece by piece trying to build up a platform that says in our nation you have the right to go into business and not to be forced out by guerilla-like tactics of people around you."

Yikes. More like a great step backwards, Sen. Joyce! These two have obviously fallen victim for the neoclassic theory of competition where the only thing that matters is the number of competitors. Unfortunately the real world doesn't work exactly as the neoclassical models say it does - in fact, when the oil companies in 'cohesion' with the big retailers drive down the price of petrol it's a good thing as people now spend less of their income on petrol and therefore have more to spend or invest elsewhere, increasing their wealth and wellbeing. Yes, the smaller competitors will cease to exist because they are no longer competitive, but that's not necessarily a bad thing. The only way these "larger operators" can force out their competitors and then maintain their position is by improving their products and/or narrowing their profit margin to the point that competitors cannot enter. Whether or not they're charging above marginal cost is irrelevant; if other companies still can't compete, it's because their efficiency or productivity is such that it's not possible (profitable) to compete. This is a win for consumers who don't care who or how many firms provide them with their petrol, only that it's the cheapest possible.

These large firms are not able to "charge whatever they want", contrary to what Sen. Joyce believes. I think a real life example of how "predatory pricing" is nothing more than a myth that politicians use to justify additional regulation is called for here. I'll quote from Leeman in "The Limitations of Local Price-Cutting as a Barrier to Entry (1956)", who points out that Rockefeller himself failed to successfully utilise "predatory pricing":

"According to a widely accepted view, he softened up small competitors in the oil business by a period of intensive price competition, bought them out for a song, and then raised prices to consumers to make up his losses. Actually, the softening-up process did not work...for Rockefeller usually ended up paying...so handsomely that the sellers, often in violation of promises made, proceeded to build another plant for its nuisance value, hoping again to collect a reward from their benefactor...Rockefeller after a time got tired of paying..."blackmail" and...decided that the best way to hold the dominant position he wanted was to keep profit margins small all the time."

The reason large rather than small firms dominate so many markets isn't a result of "predatory pricing" but rather the result of taking advantage of economies of scale. They are then forced to maintain low prices for fear of potential as well as actual rivals. As long as competition is free, the only thing that can prevent this from happening is governmental interference.

Unfortunately Sen. Joyce and Xenophon missed this lesson. Thanks to their guerrilla-like tactics and the strong-arm of the government behind them, we are now forced to accept higher petrol prices than would exist in an unhampered market. A great step for our nation indeed!