Saturday, June 21, 2008

Lack of Competition in Alberta?

Ryan Dahlman asks in Prairie Post (Saskatchewan) HERE: “Moped anyone?” and rants about the Alberta motor insurance industry’s price hiking behaviours, in the course of which he asserts:

The capitalist, free-market system is rearing its ugly head. Adam Smith's invisible hand has really helped the automobile insurance industry overpowered the weak grasp of the Alberta provincial government.

Like any major bank or oil company, billions of dollars of profits aren't enough, the Alberta Insurance industry wants more

Of the facts of the charges I know nothing and neither does Ryan Dahlman give his readers any. He quotes no annual accounts, gives no numbers, and is short of detail while eloquently long on accusations.

But if what he alleges are true, I can see a flaw in his involvbing the name of Adam Smith in the behaviour attributed to the car insurance, banks and oil companies of Alberta.

If all car insurance companies are hiking prices, then competition must be pretty low of non-existent, which is itself a sufficient condition for this behaviour to continue. It is also not a feature of market economies.

It’s not clear why Ryan thinks that increasing the ‘grasp of the Alberta provincial government’ will remedy this situation. Governments that collude with non-competitive market practices are culpable (it’s illegal to give or to receive bribes).

I am also surprised that there is a lack of price competition among insurance firms in Alberta (in Scotland they are at each others throats on price, plus the pressures of the on-line insurance price comparison sites bombarding drivers on tv).

The capitalist, free-market system” is not “rearing” any head at all. That’s the problem in Alberta. Monopoly practices are not part of “free market” systems. Even when BP was state-owned in the UK it faced competition from private rivals. But if private ‘rivals’ are cartels or monopolies, that has nothing much to do with ‘free markets’. It’s usually caused by politicians legislating to ‘regulate’ markets, which often creates mini-monopolies, or CEOs colluding in loose cartels.

If premiums rise amidst competition, then profit margins may be under pressure from smash compensation pay-outs. Are Alberta drivers noticeably reckless compared to the rest of Canada, or are they paying for insurance losses in other states?

As for “Adam Smith's invisible hand” being to blame, this is a gratuitous insult to Adam Smith, thrown in from some misunderstanding of Ryan Dahlman’s knowledge of Adam Smith’s use of the metaphor. It certainly had nothing to do with markets, monopolies or otherwise, as revealed almost daily on Lost Legacy.


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