If we restrict supply, can we really reduce prices? Basic economics suggests precisely the opposite. So, does capping the number of bakeries and requiring special permits for selling bread actually lower prices?
Following the New Year, bread prices rose in several Turkish cities, reigniting the classic debate over whether this was an actual “price hike” or merely an “inflationary adjustment.” A few days ago, the Minister publicly called upon market actors to take responsibility, detailing a calculated production cost of 61 kuruş per loaf (1).
Conversely, the President of the Turkish Bakers Federation argued that costs vary significantly across provinces and districts, claiming that producing bread for 61 kuruş is unrealistic when factoring in total operational overhead. He added that in certain provinces, intense “unfair” competition had driven prices down to 60 kuruş before their intervention restored them to 90 kuruş—arguing that “this should not be mischaracterized as a 50% price increase” (2).
Meanwhile, the President of the Bread Producers Federation claimed exclusive authority to determine bread prices nationwide, insisting that no bakery should sell below the federation-mandated threshold. He maintained that bakeries were not seeking excessive profits, but rather needed floor prices to break even without resorting to substandard methods, framing this price-fixing effort as a measure against “unfair competition” (3).
The Turkish Competition Authority has previously investigated these chambers and federations, formally warning them via an open letter (4). That notice—still hosted on the Istanbul Chamber of Bakers’ website—explicitly stated that coordinating to enforce uniform or minimum retail prices violates competition law (5).
Yet, confusing the landscape further, a 2014 Court of Cassation ruling reportedly warned that “substantial penalties, damages, and license revocations would apply to bakeries selling bread below the provincially established tariff” (6).
With a ministry, an administrative authority, two trade federations, and the judiciary pulling in different directions, the Minister posed the central question: “If public municipal bakeries sell 250 grams of bread for 62.5 to 75 kuruş, why are private bakeries charging 1.00 to 1.25 TL?” (7).
A concurrent press report revealed that the Ministry is considering four interventions:
Directing municipalities to tighten bakery licensing,
Incentivizing horizontal mergers among existing bakeries,
Imposing a geographic quota of one bakery per 15,000 residents,
Introducing a restrictive permit scheme for bread retailers, modeled after licensed tobacco and liquor shops (8).
Before rushing to adopt these measures, they should be scrutinized through the lens of Regulatory Impact Analysis (RIA):
The Desired Objective: Preventing bread price hikes and lowering consumer costs.
Parties’ Conflicting Assumptions:
The Ministry: Bread is overpriced because municipal bakeries produce it at 61 kuruş; therefore, private retail prices must fall.
The Bakers: Operational costs are high, margins are thin, and unregulated neighborhood producers engage in underground, substandard production that undercuts legitimate businesses. Therefore, official prices must increase, and discounting below the chamber’s tariff must be banned.
Much like the classic Nasreddin Hodja tale, both sides claim they are right. However, assuming that municipal bakeries (often subsidized by public infrastructure) and private commercial bakeries share the same cost structure is fundamentally flawed.
Accurately Diagnosing the Problem: As I noted in my 2012 article “Abundance, Scale, and Competition” (9):
“…A common misconception is assuming that any market with numerous players is automatically competitive and efficient. Bread production illustrates why this is untrue. At one extreme, modern industrial plants produce over 200,000 loaves daily; at the other, small neighborhood bakeries produce around 10,000. In these smaller shops, non-economic behavior is frequent—such as an apprentice quarreling with his master and opening an identical shop next door. This yields an oversupply of sub-scale bakeries. To survive without triggering cutthroat price wars, firms cut capacity rather than lowering prices. Production that a single efficient plant could handle is dispersed among dozens of sub-scale units, piling on redundant fixed overhead. Consumers end up subsidizing market inertia. Abundance without scale does not yield efficiency; it frequently incentivizes cartelization.”
The root issues are threefold: (i) irrational market entry by sub-scale operators, (ii) inadequate municipal hygiene/labor inspections, and (iii) severe structural inability to achieve economies of scale.
Assessing the Proposed Policy Options:
Restricting municipal permits: While market entrants may act irrationally, there is no evidence that municipal bureaucrats will allocate permits more efficiently. Restricting entry shields inefficient incumbents from competition and creates an artificial license value (akin to taxi medallions), which inflates investment costs and ultimately drives retail prices up.
Incentivizing bakery mergers: Achieving economies of scale is sound, but forced consolidation requires public funding. Subsidizing sub-scale firms to shut down means taxpayers—who already pay higher bread prices due to market inefficiencies—would now pay twice by funding exit subsidies or tax holidays.
The 1:15,000 population quota: Arbitrary population caps ignore geographic layout, logistics, and localized demand. Furthermore, grandfathering existing sub-scale bakeries as “acquired rights” while banning efficient new entrants prevents modernization and guarantees upward pressure on prices.
Restrictive permits for bread retailers: Regulating bread retail like tobacco and alcohol is a disproportionate administrative burden. Unlike excisable luxury goods, bread carries no excise-smuggling risk. Imposing retail licensing costs on corner grocers (bakkal) will merely shrink distribution channels, reduce retail competition, and make it easier for wholesale bakeries to coordinate cartel pricing.
Meanwhile, it’s worth considering the following actions:
Enforce standards, do not restrict entry: Municipalities should strictly penalize failures in hygiene and labor standards rather than capping licenses. Substandard operators will naturally exit, enabling compliant producers to expand output.
Active antitrust enforcement: Any consolidation or capacity exit increases the risk of explicit price-fixing. The Competition Authority must vigorously deter collusive pricing coordinated by federations and chambers.
Clarify maximum price vs. fixed price: Authorities must formally clarify that officially declared tariffs represent a price ceiling (tavan fiyat), not a mandatory minimum price, preventing trade chambers from using judicial decisions as a pretext to penalize discounting.
Avoid unnecessary retail licensing: As long as bread complies with food safety packaging rules, retailing should remain free of bureaucratic permit fees.
- http://www.tarim.gov.tr/Haber/856/Bakan-Celik-Ekmek-Fiyatlariyla-Ilgili-Sorumlulari-Goreve-Davet-Ediyorum
- http://aa.com.tr/tr/ekonomi/turkiye-firincilar-federasyonu-baskani-balci-ekmek-fiyatlari-illere-ilcelere-gore-degisiklik-arz-etmektedir/514090
- http://www.ensonhaber.com/ekmek-fiyatlarinda-degisiklik-olmayacak-2015-12-06.html
- http://rekabet-hukuku.blogspot.com/2013/02/baskan-ekmek-ureticilerini-uyard.html
- http://istanbulfirincilarodasi.org/firinci-esnafinin-uymasi-gereken-rekabet-kurallari-hakkindaki-duyuru/
- http://www.sabah.com.tr/ekonomi/2014/09/21/1-liranin-altinda-ekmek-satan-firinlar-yandi
- http://www.tarim.gov.tr/Haber/856/Bakan-Celik-Ekmek-Fiyatlariyla-Ilgili-Sorumlulari-Goreve-Davet-Ediyorum
- http://www.haberturk.com/ekonomi/ekonomi/haber/1189596-ekmek-satisi-ruhsata-baglanacak
- https://www.barisekdi.name/hukuk-iktisat/97-cokluk-buyukluk-ve-rekabet.
(*) The views and suggestions presented in this article are entirely personal and not binding on any individual, institution, or organization.
(**) You can access the previous articles on this subject via the following links:
