There was hope that the common man would get some respite this year, but due to bad management and missed signals, oil prices in Pakistan have not fallen as much as they should have in light of falling global prices. The other sector where global oil prices should have made an impact is car prices. Falling world steel prices, a weaker Japanese currency and low transportation costs on account of the drop in oil prices could have made cars cheaper in Pakistan. However, much like oil suppliers, local assemblers are reluctant in sharing the benefits with consumers. The demand for cars is robust and continues to grow. It may even be inelastic, and will grow no matter whether prices rise or fall, due to population pressures and rising consumerism. This means that even though suppliers can make prices lower, they don’t have an incentive to, as they will still sell, even at the higher price. The burden is thus on the consumer, who needs the wheels, and has no choice but to pay the suppliers’ price.

But that’s not all. It’s not like the car dealers are just acting on market signals. They are a cartel, and monopolies are never a good thing. They are bad for the consumer and bad for competition. Despite criticism by the State Bank of Pakistan on their business practices and a Rs140 million penalty on their authorised dealers by the Competition Commission of Pakistan, car assemblers are still operating as a cartel to keep prices high.

This is very simply a market failure. The allocation of goods and services is not efficient and can be improved by regulation, if only the car dealers would submit to government directives. The automakers are also struggling because of the rupee’s devaluation against the dollar and the yen in the past 10 years and the rising costs of inputs — electricity, taxation, wages, etc, which is chronic. They see the falling oil prices as a much needed break too. This is where the government comes in. If oil prices have dropped, electric bills have bloated. If energy and taxation is not streamlined, manufacturers may not want to meet their end of the bargain.