Sharing the school uniform surplus
Posted December 9, 2008on:
The Commerce Commission appears to have found an unusual source of anti-competitive behaviour: schools forcing parents to use a monopoly supplier of school uniforms. Apparently schools often accept payments from clothing manufacturers in exchange for exclusive rights to sell the school’s uniform. Then the manufacturers extract large rents from their monopoly position by charging high prices to parents.
The Commerce Commission is concerned about the monopoly position that the manufacturers have but, recognising the convenience of a single contractor, recommends that the schools use a tender process to ensure value for the parents. The problem with this suggestion is that the school’s incentives are not aligned with the parents’ incentives. Schools place a higher weight on the revenue received by the school, while the parents place a high weight on having low priced uniforms.
What I don’t understand is why the schools choose to raise revenues by selling monopoly rights to their uniforms. Surely the school and the parents both want high quality, well funded schooling and are natural allies here. The parents also want cheap uniforms, but neither of them have an incentive to pass surplus to the clothing manufacturer. The obvious solution would be for the parents to pay the school the money that it would have received from the most ‘generous’ clothing manufacturer, and for the school to then award the clothing contract to the cheapest manufacturer. That way the school would be no worse off, the parents would be better off and they would not have passed surplus on to the manufacturer.
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