A Microeconomic Analysis of BUA Versus Dangote Price-Fixing Conflict
In Nigeria, we're operating oligopoly where few firms produces for millions. They dominated the markets, determine the supplies in low quantity and also determine the price above margin which in itself is abnormal situations. While in real monopolies, monopolists control only one tool. Either price or supply, but here they control both. And this is as a result of huge FAVOURs they enjoyed from the authorities through policies they lobbied. That’s why we are in a perpetual inflation as huge amount of money is chasing few goods produced by these Oligopolistic firms.
Economics Science, is divided into two categories. They are: Microeconomic and Macroeconomic. Microeconomic studies individual households, and business decisions. It also focused on demand and supply, and other variables that determine price levels. In a nutshell, microeconomics tries to analyze human choice, decision and the allocation of resources. On the other hand, Macroeconomics, studies the decision made by government as a whole, such as decision of a government in regards to inflation, price stability, unemployment and so on.
Macroeconomics, takes into account the economy as a whole. As such, it takes a bottom line approach to determine the course and nature of an economic phenomena.
Recently, a competitive -war broke out between the two dominant producers of the Nigeria sugar industry; Dangote & BUA. In microeconomics, the war is known as “Price War”. It is a situation where two rival firms reduced the price of their commodity in order to increase their revenue and market share. Normally, they did that for a short run. Whenever the war is intense, the rival firm usually react by setting a price lower than the price set by the other rival firm. They’ll keep on with that until they reach a point known as 'PERFECT COMPETITIVE PRICE', where none could either reduce or increase his price. And if one increase his price, he will loose his customers to his rival. And if he reduce his price, he will surely incur loss.
So, no matter what transferred, the consumers are the gainers. Surely, they will only go for a commodity with a lower price, since that the commodities are identical and can serve the same purpose. But, was the action of BUA emanated from his empathy for the poor? Probably, and from the Microeconomic point of view, no, but only a strategy employed to gain more dominance in the industry, and also, to increase revenues and market share.
This is the standard economic theory in regard to the ongoing war.
Adam Smith, who is known as the father of modern capitalism, lived all his life on a philosophy known as “SELF LOVE”. With this, he meant that, man is naturally selfish. He loves himself more than anyone else. In his quest to better himself, he can extend to benefit others. But his intention was to better himself not them. And in the cause of that, he’ll count his gain from the people he bettered.
For instance, when a private school is established, the school contribute in three ways; providing employment, imparting knowledge to the pupils, and above all, served as a means of income generating to the proprietor. So, here, the proprietor brought what will bettered his society, but his intention is to MAXIMIZE HIS PROFIT. That is why the SCHOOL FEES usually vary from time to time.
This is a typical example of our modern CAPITALIST. They can go extra mile to better themselves in the expense of the poor masses. And they usually hide in the veil of WELFARISM, while in reality, maximization of their profit is what matter them, not the welfare of the society.
Adam Smith, in his Capitalist Bible, “The wealth of a nation” gave a best description of the capitalist, where he said, “It is not from the benevolence (kindness) of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest”. So, with the action of BUA, he will reap at least three things; increase his revenue and market share, attract the customers of his rival and gain a big place in the heart of his customers.
In every game, there are two players. One may be smarter or wiser than the other. In this saga, BUA is smarter than his rival. For his single statement made to his dealers is capable of destroying his rival in the industry. His statement, "HIKE PRICE AND LOOSE YOUR LICENSE" portrayed his rival as a WICKED being. While in reality, he was only employing market politics to do away with his rival in either way.
But if we are little bit away from looking at the action of BUA from a face value, we can agree that, he did the right thing by choosing to go for a small profit and increase his sales, and also put smile on the faces of his final consumers. And he’s smarter than his rival.
Dangote Group, in their quest to retaliate the action of their rival, they filled a petition to the Minister of Industry, where he accused his rival with operating in impunity, acting contrary to laws laid by the National Sugar Policy by selling their products locally instead of otherwise. As such, he wants the them to closed the firms of his rival!
This is purely a case of dominance. And it is in nature of human being, they don’t want to be competition in whatever they do. But, to be frank, Dangote exhibit selfishness in this his reaction. Instead of seeking for government assistance to defeat his rival, he should’ve reacted with pity and a sense of sacrificing some of his profits to retain his customers, thereby reducing his price lower than the price set by his rival! As such, his customers would be retain, and he will have surely boxed out his rival out of the market. But calling for government to shut down his rivals industry will do more harm than good to his market in the eyes of their customers. Because, people always chose to reside with those they believe to be oppressed.
In this game, people view BUA as a Hero and Dangote as a villain. So, if he truly want to retain his hard earned reputation as business-philantropist magnet in order not to lose his customers, he must act wisely. For a mistake at this stage will surely hunt him in the future. Price war is nothing new in free market economy. It is just a strategy employed for industry dominance.
The Keynesian prescription of the saga is that, at the end, government must come in, to address the issue in contention, in order to safeguard it's national development, which is correcting inflation, generating employment and stabilizing the market/economy, thereby, creating an enable environment for other investors in the sector and to facilitate more competition in the Industry.
By doing this, it will create more job opportunities and stabilize the price of commodities since that each of the firms would be wary of increasing their price to avoid loosing their customers to their rival.
Sagir Ibrahim is a Student of Economics in Bauchi state University, Gadau. He writes from Bauchi State, and can be reached via ibrahimsagir1227@gmail. com