Is the competition in the tofu market unfair–> prices that are TOO low?

We have often stated that the tofu market is close to being perfectly competitive, because there are many, many small firms making tofu and it is a relatively homogeneous good. But I have just realized that the level of competition among the tofu manufacturing firms may be undesirable and may ultimately lead to lower quality tofu and/or a less competitive market as firms merge or quit.

The reason is that most tofu is now sold in supermarkets, which are oligopolistic. Therefore when the supermarkets purchase tofu from the makers, they have a strong bargaining advantage and can force the makers to sell them tofu at very, very low prices. (The market is “monopsonistic”, because the “buyers” (supermarkets) are few and large-scale.)

Consequently, over the last ten years, the price of a block of tofu has fallen from Yen90 to Yen70, even though demand for tofu is rising!  (In 2016, annual consumption of tofu per household reached 81 blocks, up from 73 blocks in 2006.)

Therefore the government, citing the Antimonopoly Law (monitored by the Fair Trade Commission),  has decided to curb excessive competition over tofu prices. It seems rather paradoxical that a Law against monopolies is now being used to reduce competition, but it can be compared to regulations against predatory pricing.

The government has declared that the supermarkets must trade fairly with tofu manufacturers and not force them to lower their prices. The government is probably concerned that almost half of tofu manufacturers have quit the market. There are now only about 3300 firms, compared with about 6500 firms 20 years ago.

The situation is analogous to the global clothing market, where large clothing shops (eg H&M, Zara) can force the competitive clothing makers (who come from many, many countries such as Bangladesh, Vietnaam, Honduras etc etc) to supply them with clothing at very, very low prices. The unbalanced bargaining position means that clothing makers are often working long hours at low wages in unsafe conditions. This can be viewed as unfair, but there is no international government to remedy the problem.


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