Saturday, 9 April 2016

What does lipstick tell us about the European Union?


BBC Radio 4’s flagship news programme, Today, has run a series of how the European Union has changed the way consumers buy stuff.  The series name is “Europe in 10 Objects” and can be found buried with the Today programme’s website.

At 7h44 on Monday 04 April 2016, the piece looked at how health and safety regulation has changed the European Union has regulated the market for lipstick.  “Red lips, red tape.”

A summary of the report


The industry is worth £17bn and employs over 1 million people.  British exports increase 5% per annum.  Europe is the biggest market for British brands.  France has a bigger industry with the biggest names. A UK industrial body, Cosmetic Executive Women [own site], considers itself more creative.

In 1976, the European Economic Community issued the European Cosmetics Directive.  The Directive listed the ingredients that each member nation had to ban, leaving each member nation to legislate the ban into action.

In 2009, the Directive was replaced by the European Union’s Regulation on European Cosmetics.  Unlike the Directive, a Regulation is a binding legislative act that member nations must apply in its entirety throughout the European Union.  It supercedes national law.

The Cosmetic Toiletry and Perfumery Association said that the industry generally welcomed the Directive and the Regulations.  Whilst one might argue that the European consumer might begrudge the cost of regulation filtering to the price of the product, but the Association’s spokesman claims that the global consumer rather likes the quality and, in particular, the safety of European products… and wants their own national government to adopt the same standards as Europe.

But the Regulations apply only to over-the-counter sales, not mail-ordered/distance-sold/internet-sold sales.

Thus, the industry perceives a risk originating from “counterfeit” goods.

Commentary

The piece does what it needs to do quite well.  But what does it mean for the ordinary voter?

The Regulation does what regulation is supposed to do: protect the producers from competition amongst new producers.

Most voters will assume that regulation is intended to protect consumers from malpractice by producers.  Some regulation intends to do protect consumers as such: the Sales of Good Act 1979 is a particularly good example (note that the Act is not the result of a European Directive).

Some other regulation intends to protect consumers from the risks of “health and safety”.  Although it’s not in any producer’s interest to kill customers (it’s very bad for repeat business), regulation normally assumes that producers will murder (or manslughter) their customers unless there is regulation to ban the practice.  This is a daft assumption.  Even people-smugglers based in Africa want their customers to survive, because it’s good for repeat business: images of bodies floating in the Mediterranean tend to make it back home, making it harder to drum up business.

But whatever the ostensible reason/excuse for regulation, the more common effect of regulation is to erect bureaucratic or artificial lawful barriers to entry of rival producers into an established industry.  For example, the cost of proving compliance with health and safety practice is extensive documentation, which is an expensive overhead.  So having competitors tied into this paper chase ensures more of a “level playing field” amongst participants in the marketplace, typically with no provable gain to the consumer (but a nice higher-than-it-needs-to-be-price).

When a new entrant chooses not to participate in the paper chase, existing rivals are typically the first to cry “counterfeit”.

Imagine two identical lipsticks.  Same product, same ingredients, same proportions, same manufacturing process, same direct cost, even made in the same factory.  Only the corporate machine and the branding for each product is different.  One has a big marketing budget, carefully calculating advertising messages that manipulate the customer’s emotions, and convinces them to pay more than, say, 4,000% over the direct cost of production.  It’s brand is something like YvesStPosh.  The other has no such marketing budget, and simply advertises on the internet - complete with its list of ingredients - and sells its product for, say, 100% over the direct cost of production.  It’s brand is something like RyanStick.

Which of these two products is going to be held out as the counterfeit?

When an industry likes regulation, it’s a fairly clear sign that the industry sees regulation as a barrier to entry into their market by rivals.  By definition, this means that the industry operates like an oligopoly - perhaps even a cartel - against the consumer’s interest.  The regulator has set the rules of the de facto union, creating a sense of solidarity without also creating an apparent conflict-of-interest, meaning the participants of the industry feel less exposed to game theory/prisoner’s dilemma/red-and-blue game.

So, on the face of it, the Regulation on European Cosmetics appears to be well set to protect the incumbent producers from new entrants, necessary against the economic interest of consumers, by preventing new entrants from revealing just how consumers are being fleeced.  In the real world, customers of lipsticks are probably paying a higher price than they objectively need to pay when buying lipstick over-the-counter, especially for celebrities’ brands.

Sources

http://www.bbc.co.uk/programmes/b075pb4p#play, zoom to 1h44.Programme remains available to stream until 03 May 2016.

The video clip alternative (2mins): http://www.bbc.co.uk/programmes/p03pqshy.

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