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Business and the University

Salient: In the letter we printed you are quoted as saying 'there's price fixing going on and I have evidence to prove it.' What would be a more accurate representation of your words?

McDougall: Something like— 'the evidence is there before everybody's eyes.' You just have to look at retail stores down town and ask — "how come the prices are the same?".

How much price fixing goes on in New Zealand?

I think we should talk about 'collusion' instead of price fixing' because I think that's a more accurate description. It's a matter of either the manufacturer or the retailer establishing a price and then no one moving off that particular price. The problem arises when somebody wants to price under the established price There's a couple of examples which have been brought up in the courts, one of Wholesale Grocers in Christchurch who had their source of supplies cut off because they were pricing their cigarettes below the standard price. So in this sense they were constrained from carrying on their business. Why shouldn't a retailer have the right to charge under the price if he wants to?

Well ultimately it serves his own interests to charge a common price.

Not necessarily, because some retailers can make money by charging lower prices and obtaining a higher volume of trade. The consumer benefits because they then have the choice of either paying the higher price at one store or the lower price at another store with the possibility of getting less service. The important thing is the consumer has a choice

Is the price collusion going on to such an extent that it's illegal?

Well I think it is to the degree, if we could have a look at retailers and say 'how many of them have actually tried?', we've got examples which come to the surface like Wholesale Groceries, but one suspects there are times when a retailer has tried to reduce prices and has been, let's say persuaded, not to reduce the prices. Those are the ones we don't know about.

What can be done about illegal price fixing?

Rather than get into technical details, if you have a look at the Trade Practices Act it says that any constraint of trade with respect to prices is not legal. A number of parties can do something about it. I think the government should be the major party to take action. Comparing New Zealand and Canada, the Canadian Government has people who monitor prices all the time to ensure price collusion does not occur in the trade. Resale price maintenance has been outlawed in Canada and also in Australia. The governments are doing more than paying lip service to these laws.

The person who wrote the letter signed himself Ralph Nader, the Consumers' friend, implying that the individual, like Ralph Nader, should be the person who attacks this price collusion. Do you rather think it's the job of government?

Yes, the individual could do it but its like trying to roll doughnuts uphill. While people may talk to you on an informal basis, documentation is difficult. The individual doesn't have the power that government does.

Well if the government fails to act in this situation, what should the individual then do? It seems that you've chosen to ignore it.

I don't see much hope for individual action in this situation. Possibly action could be taken by the Consumer Institute acting for individual consumers. But power structures are important in these types of situations and in spite of all that we say about individual freedoms sometimes there's little the individual can do. He can take on one company or one retailer and that's just one case. It would probably take a considerable amount of time and effort to change this existing situation.

If we could get into the other part of the controversy. There's a question here, "Whose interests does the Department of Business Administration serve, those of the owner or those of the consumers?" Would you care to answer that one?

Yes, speaking as an individual I think members of a university should be serving the student first. Our primary role is one of education and we should be doing our best to see that we give a student the best education we can offer.

I assume that the questioner is making the point that objectively, by failing to act on this price collusion, the consumer is suffering but the Department of Business Administration as a whole is not. When you talk about serving the interest of the student, I think it does touch on what do you want the qualified student to do? Do you want him to just produce more textbooks, become another lecturer or teacher or an expert in business administration or do you want him to actually serve the interests of society? Many people assume that the role of university should be to produce people who can make some sort of change to society.

Yes, I think that's a fair comment. My personal objectives are to provide students with the tools so that they can become more efficient marketers. I don't see a conflict with this objective because consumer interests should be the major focus of all marketing decisions. If you don't serve the consumer you are not going to stay in business. In this way you serve society by satisfying the consumers' needs without the constraint of any collusion. You can serve society by offering goods and services in an efficient and effective manner from both the consumer's and the firm's viewpoint. From my point of view, the changes to society can be made by improving the existing marketing structure.

If this price collusion could be dispelled would there be greater competition in marketing practice?

Yes, there would be.

And you're convinced that greater competition does lead to more benefits for the consumer?

Yes, If business firms are encouraged and required to compete by government then the consumer should benefit. The important factor is that the consumers are offered the choice without constraints and they decide whether to purchase or not. In this situation consumers, collectively determine what is bought and because of this, what is sold.

Just as a general statement of your own beliefs, would you mind being described as a capitalist?

No, I'd rather be described as a firm believer in the free enterprise system. That implies a couple of things, one of them, the paramount one, being that the consumer has a choice. Anything that constrains the consumer in his choice I'm against. But if you want to call me a capitalist.....

Well it is possible to have a choice under a socialist economy.

Yes it is possible to have choice, I think the choice is limited and I'd rather see a system where choice is determined by the consumer, not some regulatory body.

How much research money does the Business Administration Department get from outside concerns?

It gets money from a number of different sources. We received a grant of, I believe it was $25,000 to carry out research into business administration areas in New Zealand. It's probably the most significant amount of money we've received. Individual members of the department also receive grants for specific research which would be from particular business organisations and various University Grants.

Do individual members get a grant from say Shell, to do research into Shell products?

The usual situation is one where the member is interested in doing research into a particular area. If he requires funds he will look at the various sources available, 'one of which is business firms. Whether he gets money from these firms depends on the relevance to the firm, his capabilities and the amount required. For example, I ran a research project on air travel in a course on Business Research and I asked Air New Zealand if they would pay for some of the costs. They said "yes", paid for the costs and I sent them the result of the survey.

Do you believe that university compromises role in receiving these grants?

I don't think so.

Although you told me that you said in the lecture that the main reason you didn't do a Ralph Nader crusade on price fix inf was that you had more important things to get on and do, you didn't say what they were.

The first one is education. I spend the majority of my time talking with students because that's my main priority. I also spend a fair amount of time keeping up with events in my field so that happily I'll be a better teacher. And incidently if you went out on a Ralph Nader type crusade into price collusion you'd be spending a lot of time and effort on the project. Also. If you keep stirring things up you're going to have difficulty dealing with these guys downtown in a number of situations. One being if you want research money for a particular project and you've been whacking these guys on the one side they're not going to give it to you on the other side.

I think we reached a contradiction where I asked you whether education should try and encourage people to make some impact on society with a view to improving it. And you said you train people to do better business administration so they know how to make better profits, through not price fixing. That's one way of looking at it but its been tried throughout this century and it obviously hasn't worked. When you're out in practice it's a lot easier to indulge in this sort of price collusion and not worry about competition. Profits may go down 5% but its a lot easier life than the cut throat business in the United States and Canada and so on. Don't you see that education could encourage people not so much to perfect their own marketing practices but to have a marketing practice which protects the consumer?

There's a number of ways you can get at this. I think we have to discuss basic ways we could market goods and services so at least you understand the alternatives. Then we can say given the alternative marketing methods, which are the most effective in terms of such things as consumer benefits, quality of life and a number of other factors. I happen to think the free enterprise system offers the most alternatives and I favour this particular method. I think the most effective changes can be brought about by modifications of the free enterprise system particularly in terms of making the system more efficient. If you offer the consumer what they want and you do it more effectively than the next individual, you'll make profits and the consumer will benefit. Your comment about the present system not working is a value judgement. You may think the more inefficient "easy going" system is the answer but I don't.

And you think its quite moral of course, to make profit out of an item?

It's not only quite moral, it's a necessity.