Outlook: Supermarkets

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GIVEN THE head of steam that has built up over "rip-off prices", no one should be surprised that Britain's supermarkets have been referred to our newly named Competition Commission. Even the supermarkets themselves are welcoming the new probe, believing, perhaps wrongly, that it will lay the issue to rest once and for all.

There are two key issues for the Competition Commission to address. One is to show that the supermarkets are indeed overcharging shoppers. This is going to be hard in the extreme to prove. And secondly, if they are, what can be done about it.

On the first point it could be argued that consumers get the supermarkets and the prices they deserve. For example a recent survey by the Henley Centre showed that British consumers are significantly less bothered about prices than their counterparts in France and Germany. Yes, German prices are lower, but then consumers have to shop in grim environments that would not look out of place in Poland. If Britain wants foie gras and creches, it all comes with a price.

Supermarket prices could almost certainly be lower but finding a reasonable way of achieving this goal doesn't come easy.

Regulators could force breakups and disposals but by disrupting economies of scale, this could prove counter productive. Alternatively, the government could introduce price capping but does anyone really want to go back to that kind of command economy approach? There are precedents for this. British Salt, owned by Staveley, is subject to an RPI minus 2 price cap which is monitored by the OFT every five years. It is one of the few examples of price regulation outside the privatised utilities. But think of the practical difficulties of applying price regulation across 10,000 or more products.

Another no-no is for the Government to relax planning regulations in an attempt to generate more competition. The resulting building frenzy would destroy more town centres and provoke the environmental lobby.

One solution that might work is for the regulators to look at local monopolies where three of four supermarkets typically have a town stitched up. The government could restrict local market shares which might force Asda and William Morrison, for example to target more markets outside their northern strongholds and Sainsbury's to attack markets further north.

Whatever happens, it is perhaps no bad thing that the lordly supermarkets are having the frighteners put on them. In itself that might help keep prices lower.