Friday, 16 October 2015

A train is delayed somewhere in the DRC. Should an industrial economist be annoyed?

There was a decline in the price of cement from US$35 to US$26 last weekend in Kamina in the south of the DRC.  According to the Fédération des Enterprises du Congo, the cause was the arrival of a train carrying goods.  Transport arrivals, delays, and breakdowns can cause major shifts in prices in the country.

There are a number of ways to think about the issue from a business perspective.  The sudden, large changes in prices make it more difficult for companies to plan, and increase risk.  There are also implications for an efficient allocation of goods.  When the central supplier first puts goods on a train, they don't know for sure what the prices will be when the goods are sold.  There probably won't be a stable price over time.  The distribution of goods across the DRC's territory is unlikely to be the best possible, from the point of view of maximising profits.

Industrial economists - who study markets that don't work perfectly - should be annoyed if the loss of profits for all companies combined is more than the cost of putting on more frequent trains (or mending roads).  This might be the case if there is a problem with financing railways and roads, for example, or lack of information on company preferences.

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