KUCHING: The dominance of monopoly and oligopoly market structures has a big bearing on price pressures in the country’s small open economy.
Explaining, Dr Dzul Hadzwan Husaini, senior lecturer at the Faculty of Economics and Business in Universiti Malaysia Sarawak said Malaysia heavily relies on imported goods for consumption.
“Fluctuations in exchange rates and international market prices can significantly impact the cost of these imported goods, leading to inflationary pressures.
“This reliance on imports exposes Malaysian consumers to price fluctuations in essential items such as fuel, food, and machinery, thereby contributing to the overall high cost of living,” he said on Tuesday. (March19).
The prevalence of monopoly and oligopoly market structures exacerbates price pressures, he said.
In such market conditions, a limited number of producers or sellers hold significant market power, allowing them to influence prices to their advantage.
“These dominant firms can exploit their market power by setting higher prices without facing significant competition. Consequently, consumers are left with fewer choices and must accept these inflated prices, further driving up the cost of living,” he said.
Moreover, in monopoly or oligopoly markets, producers may engage in collusive practices to maintain high prices collectively.
Through tacit agreements or explicit collusion, these firms can artificially inflate prices, thereby squeezing consumers’ purchasing power and contributing to the overall high cost of living in Malaysia.
He said addressing the high cost of living in Malaysia requires a multi-faceted approach, including measures to promote competition, reduce reliance on imported goods through domestic production and diversification.
Also by implementing policies to mitigate the market power of monopolies and oligopolies.
“By fostering a more competitive and transparent market environment, Malaysia can alleviate the price pressures faced by consumers and improve overall affordability and standards of living,”he added.
According to Dzul the implementation of a minimum wage policy can contribute to cost pressures in the market, ultimately leading to higher prices for goods and services.
The imposition of a minimum wage policy can inadvertently lead to an increase in the cost of production for businesses across various sectors.
While the intention behind such policies is to ensure fair wages and improve the standard of living for workers, the reality is more nuanced, he said.
One significant repercussion of minimum wage laws is that they may not accurately reflect the value of certain positions or the productivity of individual workers.
He said in some industries or regions, the mandated minimum wage may be higher than the prevailing market rate for certain jobs.
As a result, businesses are compelled to pay wages that may not be commensurate with the actual value added by employees in these roles.
“Furthermore, small and medium-sized enterprises (SMEs), which often operate on narrower profit margins, may face particular challenges in adjusting to higher wage requirements,” he added.
These businesses may lack the resources or bargaining power to negotiate lower prices for inputs or pass on increased labour costs to consumers.
Consequently, they may be forced to absorb the additional expenses or reduce their workforce, neither of which is conducive to long-term sustainability.
Also, the ripple effect of minimum wage increases can extend beyond direct labour costs.
Suppliers and service providers to affected businesses may also raise their prices to compensate for higher wages paid by their clients.
This chain reaction ultimately leads to an overall inflationary impact on the cost of goods and services throughout the economy.
In essence, while minimum wage policies aim to uplift workers and reduce income inequality, they can inadvertently contribute to price pressures in the market.
To mitigate these effects, policymakers should consider implementing measures to support affected businesses, such as targeted subsidies or tax incentives.
Additionally, efforts to enhance workforce productivity and skills development can help ensure that wage increases are accompanied by corresponding improvements in output and efficiency, thereby minimizing the inflationary impact on prices.
While subsidies and price controls may offer short-term relief by artificially lowering consumer prices or reducing production costs, they often fail to address the underlying factors driving price pressures and can result in long-term inefficiencies and wastage.
Furthermore, subsidies and price controls may stifle innovation and productivity growth by disincentivising firms from investing in research and development or adopting more efficient production methods.
“When prices are artificially controlled or subsidised, there is less pressure for businesses to innovate or improve their operations to remain competitive. This can hinder long-term economic growth and exacerbate price pressures as inefficiencies accumulate over time.
“This includes implementing measures to enhance market competition, improve regulatory frameworks, and invest in infrastructure and human capital development,”he added.
By fostering a conducive business environment and encouraging innovation and productivity growth, governments can address the root causes of price pressures while promoting sustainable long-term economic development.
