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In the staffing business, if our workers comp went down, we didn’t give anything back to the customers, who were already willing to pay that price. Plese tell me who would want to be first.

We all know gas prices go up because of the Dick Cheney-led conspiracy controlling prices.

But did you ever wonder what causes them to go back down?

It's because of the competitive pressure created when margins are excessive.

If worker's comp rates go down for all staffing services, Kelly and Snelling will both have their costs decrease by the same percentage. Since both companies have a high fixed cost of being in business, a slight increase in sales translates to a highly disproportionate increase in profits.

In my own business, for instance, with admittedly very high fixed costs, $1000 in increased sales translates to well over $500 in net profit.

Both Snelling and Kelly can make a lot of money by stealing business from the other. Each is under intense price pressure from their customers, who often price shop the competition, and who may very well be aware of the drop in costs.

The only way prices don't come down is if the staffing businesses conspire to keep them up, which is illegal and seldom works very well anyway. The conspiracy gets set up because the conspirators are greedy and unscrupulous; and these are the people you expect to keep their word to the other conspirators and not cut prices to make more money for themselves?

Besides, what is to stop Joe Smith, manager of the local Kelly, from quitting his job and starting his own service, with lower rates used as a way to get business quickly?

The higher the excess profit margin, the more incentive there is for others to enter the field and grab some of that gravy.

You really ought to be aware this is all Free Market 101 and was covered in detail by Adam Smith in 1776.

You omit a few things. Not all workers comp goes up the same. There are “frictions” to entrance into a market or industry, such as availability of capital, availability of labor, industry-specific knowledge, legal restraints such as non-compete agreements. Gas prices jump up and drift down. No one wants to be first. Most businesses don’t face a store on every corner. Sometimes a billion dollars or more is required to begin an enterprise, and what if the market conditions change in the meantime?
Competition by price is for fools and losers. Perhaps we learned this in a higher level course, or by the hardest experience.