“That hardly explains why you are sending out blank pieces of paper.”
“My dear Mr Holmes, your knowledge of the marketing of books is obviously as inadequate as your understanding of insurance! The bookshelves of young ladies groan under the weight of such self-improvement books, but the dear young things themselves take very little trouble to read them. I was emphasising this point to my publisher by sending him what I proposed to be pages eighty and eighty-one of my next work. The new availability of better-paid work for women in the form of typing and telephony makes young ladies an attractive market for my private writings and accordingly my works sell in large numbers.”
My heart sank further as Holmes seemed to have no rejoinder. Sensing his advantage, Peters continued.
“Maybe, Mr Holmes, the advancing years have taken their toll on you, and you are no longer so in touch with what goes on in the world as you once were when you were able to make deductions based on the latest fashions in bowler hats. Perhaps you should leave the stage at a time when people still ask you why you are retiring, rather than wait until they ask you why you have not yet retired. As you put it, Dr Watson,” he said, turning to me, “‘of all ruins, that of a noble mind is the most deplorable.’ Indeed,” he continued, brightening as a sudden thought struck him, “I might even pen a self-help book for those whose grasp of reality is perhaps not what it once was. I suspect I may be able to start including blank pieces of paper at an earlier stage in the book than in one marketed to young ladies.”
Holmes rose to leave - I had never seen chagrin so deeply etched on his features - but he suddenly seemed to have an afterthought. “I also have the envelope sent this morning to The Price Comparer from the house of Mr Schlessinger, the chief executive of Domestic Equitable Finance. This too has come to me through irregular channels.”
“I would not wish to read the correspondence of a...” Peters began, a look of extreme alarm suddenly evident on his face. But Holmes had already slit the seal from the envelope dispatched by Mr Schlessinger and drawn out a piece of paper. Again it was blank.
“I can only assume,” said Peters, who suddenly recovered his poise at the sight of the blank piece of paper, “that Mr Schlessinger also writes self-improvement books and he too thinks it somewhat improbable that his readers will get through more than the first few pages. After all, if purchasers of self-improvement books were able to sustain their interest in books beyond the first few pages, they would not need instruction in self-esteem. I was not aware that I was in competition with Mr Schlessinger in this arena as well as in insurance. I shall have to consider a new business strategy which will enable me to respond to this challenge.”
Far from being chastened by this second setback, Holmes took a third envelope out of his pocket.
“And this envelope is from Mr Green of Amalgamated British Co-insurance,” he said. Holmes opened it.
Again, there was no writing on it.
But there was a picture of a pair of scissors.
At its sight Peters issued a groan and fell forward in a faint, banging his head on his desk as he did so. There was another bump as he slid out of his chair to lie prone on the floor.
I examined him briefly. “Just shock,” I diagnosed. I opened his collar and poured the contents of a carafe of water over his face. He soon sat up, still groaning though incapable of speech.
Holmes, meanwhile, had recovered all his habitual mastery.
“While we wait for Mr Peters to recover,” he said incisively, “I shall explain to you the turn of events. Governments do not allow the number of participants in a market to fall below three, as a market with only two players makes striking agreements on price too easy for its participants. Fixing prices between three players requires skill, certainty and mutual trust. It is clear that Mr Peters here, Mr Schlessinger of Domestic Equitable Finance, and Mr Green of Amalgamated British Co-insurance, the latter of whom neither of us has yet met, were using The Price Comparer as their vehicle for communicating prices and they were playing the children’s game of Rock, Paper, Scissors to decide who should have the lowest price.”
“How did they trust each other enough to play a game like this?”
“They all went to the same preparatory school, and I expect that was where they learnt to play the game. The blank pieces of paper that we saw Mr Peters and Mr Schlessinger had sent would have been beaten by the scissors that Mr Green has sent. It seems at first sight a strange device for grown men to use, but was in fact a skilful choice as it left no doubt as to who should have the lowest price. It required them only to trust the Chief Executive of The Price Comparer to give to the winner of the game the lowest price on the market. The other insurers were then obliged to fix their price above the level of the lowest provider until the game of Rock, Paper, Scissors had next produced a decisive result.”
“How often would Rock, Paper, Scissors played between three people deliver a decisive result?”
“The mean, mode and median number of days over a period stretching back sixteen months was thirteen days. When a game of Rock, Paper, Scissors is played by three people across one round only, it will deliver a decisive result on average one game in nine and on one occasion in three that decisive win will go to the person who had had the previous decisive win. This was why I emphasised the importance of my statistical analysis of how long each company offered the best price. When there was an indecisive result, or the previous winner had another decisive win, the prices stayed as they were. It was only when one player who was not enjoying the advantage of having the lowest price defeated both the other players that the prices changed and a new company had the opportunity to be the cheapest player on the market and statistically that would happen once every thirteen days.”
“So would no other device have served as well?”
“In other industries, companies have sought to use the phases of the moon to achieve a similar effect but this produces periods of price advantage that are too regular in length to go unnoticed by the authorities. Rock, Paper, Scissors has the great advantage that the cheapest company will remain at the lowest price for irregular periods over the short term, but all three companies should come out roughly even over any statistically significant period.”
Mr Peters during this time lay blinking between us, but now he sat up.
“Gentlemen,” he whispered hoarsely, “I have heard Mr Holmes’s exposition of business practices in the insurance market. I was not aware of Mr Holmes’s interest in economics, but his exposition confirms my view that people outside the commercial world know the cost of everything but the value of nothing. I can assure you, gentlemen, that operating in the way that we do is the only way to ensure that there continue to be three players offering household insurance on the market.”
He paused for breath. I passed him a glass of water, which he sipped from, and then croaked: “If we merely competed on price - and, in the end, that is what our market research has determined is what lies behind quite ninety-two-and-a-quarter per cent of purchasing decisions - one of the three players would doubtless be undone by being so unfortunate as to buy a series of poor risks and would be unable to compete with the other two. As it is, the situation actually improves competition since it ensures that the British consumer is offered three different, highly viable insurance companies offering competing insurance products at an acceptable price.
“How did the three companies know when there was a decisive result in the game of Rock, Paper, Scissors?”
“My dear Mr Holmes, it obviously escaped your attention that The Price Comparer’s announcement in the newspapers always featured under a heading with the word ‘ADVERTISING’. If there had been a decisive winner in the game of Rock, Paper, Scissors, then that winner’s identity was disclosed by one of the letters A, D or G in the word ‘ADVERTISING’ being in a different font from the others. Thus, tomorrow the A of ‘ADVERT
ISING’ would have been in Cheltenham Condensed rather than the Cheltenham Bold used for the other letters whereas, had there been no winner, all the letters of ‘ADVERTISING’ would have been in their normal Cheltenham Bold. Your failure to register this, Mr Holmes, confirms my view that there will be a market for a new work designed for those whose mental powers are not what they were.”
“And what happened when there was a decisive game?”
“Whoever had won the game would adjust their price to the lowest price previously quoted while the other two companies raised their prices by a minimum of five per cent. Sometimes, one of the insurers would raise their prices by more than five per cent if they felt they had achieved a sufficient degree of brand loyalty with their product offering.”
“This whole contrivance must have required collaboration from the chief executive officer of The Price Comparer.”
“Carfax had fagged for all three of us at school,” said Peters serenely, “and is used to doing what he is told. And I would stress to you again, Mr Holmes, insurance companies use the premia they gather from consumers to make investments which they hope are profitable. They do not make their money from the coverage of risks. The practices you identified are merely our own way of insuring the otherwise perilous survival of our industry.”
“And they meant you have more money in premia to speculate with, and the combined result of your insurance and investment operations delivered massive profits,” responded Holmes. “A rigged market suits only the suppliers and you have been using the premia that were in excess of what your total business needed for coverage of risks, to fund a spree of speculation to benefit your share-holders.”
“What are we to do next?” I asked.
“We will need to avail ourselves of the telephone services which running an insurance company so beneficently provides,” said Holmes, “and summon Mr Schlessinger and Mr Green to a meeting. I doubt that they will be prepared to come here so we will ask them to come to Baker Street. Mr Lawler’s visiting card, unusually for the card of someone in government, includes a telephone number, and I am sure he too will be able to attend to discuss our next steps. It might also be advisable to have Mr Keynes from The Economic Journal present. It would focus the minds of the chief executives wonderfully if a representative of the press were present. I shall also ask Professor Marshall, as he might like to see how his theories work out in practice.”
Within an hour, Holmes, Keynes, Mr Lawler, the three chief executives and I were crowded into the sitting-room at Baker Street, although, somewhat to my disappointment, Professor Marshall sent a telegram saying that he was too busy to attend as he had a graphic presentation on endogenous economic growth to prepare. In spite of Professor Marshall’s absence, this was the largest gathering in the humble rooms at Baker Street that I ever saw apart from visits from the Baker Street Irregulars. Mrs Hudson was hard-pressed to provide chairs for all of us.
When we were at last all seated, Holmes provided us with a summary of the price-fixing conspiracy that he had uncovered.
The evidence of the three envelopes and the witnessed confession of Mr Peters meant that there were very few queries on the facts, although Mr Schlessinger and Mr Green both made comments that the price-fixing arrangements ensured the viability of the household insurance market. Schlessinger, an Australian with an unctuous air, was particularly loquacious:
“Without intervention by the competitors on the market to ensure a minimum level of profitability, the consumer would be less well-served. A robust level of profitability is the consumer’s best guarantee that their claims can be met.”
He paused and looked around at us before concluding his speech with what sounded like the peroration of a plea to a jury.
“It is not,” he continued in a voice swelling with emotion, “just the consumer who benefits from the somewhat irregular arrangements that our three companies have made to ensure the viability of all three of us. In addition to providing a service to our consumers, we pay large amounts in taxes to the Exchequer, we provide employment to a huge number of people across the country, we perform numerous good works in the community, and we fund research foundations whose sole purpose is to push back the boundaries of ignorance and increase the sum of human knowledge.”
Mr Green and Mr Peters nodded vigorously in agreement as Mr Schlessinger concluded his speech.
“Your arguments for acting as you do,” said Holmes drily, “sound remarkably like suggesting that governments should pay people to dig mines into which large sums of money are deposited. The shafts could be filled in and other companies would tender for the right to dig down and recover the sums buried below. This too would provide employment to large numbers of people and all the parties involved would pay the government large amounts in tax.”
I saw Keynes looking as though he wanted to comment on Holmes’s deposition but it was Mr Lawler who was the first to speak.
“But companies like those which Mr Holmes describes would not necessarily fund research into matters which may be of the greatest national importance. In my position as Chancellor of the Exchequer,” he began, “I am obliged to take a broad view of economic and commercial interests. Furthermore, this government has an election to fight, and it is difficult to do so with so much unhelpful criticism of its economic policies in the press. Some research through a new foundation funded by the insurance companies, which, though obviously independent. would not be actively hostile to the government, would be of great benefit. Your good relations with International Publications could ensure that such research received wide circulation. Such coverage would be most helpful at this time.”
“I am sure that an independent research foundation of the kind you describe could swiftly be set up,” said Green.
I think all three of the chief executives were hoping that that would be the sum of Mr Lawler’s demands, but the Chancellor continued. “The insurance companies may also feel that at this difficult time a government investigation would be somewhat unwelcome to them. A donation to my party would be of significant assistance in ensuring that a government not hostile to the interests of the insurance companies is re-elected. The party in opposition may take a less commercially enlightened view of the goings-on of today if they should come to power after the forthcoming general election.”
Not many minutes passed before a deal along the lines laid out by Mr Lawler had been agreed.
Holmes, perhaps inured to Mr Lawler’s venality and low cunning, made no further comment while Keynes, when asked if he would like to head the new research foundation, declined. He said he would prefer to focus his attention on some of the radical economic ideas he had heard espoused by Holmes. “I have learnt from Mr Holmes that money veils the true drivers behind the economy and I would like to conduct independent research of my own into this.”
Holmes patted him warmly on the shoulder. “Who knows, Mr Keynes, you might find that governments spending money they don’t have is the way to deal with some of the vicissitudes that they find barring the way of economic development, however implausible such a theory may at first sight be.”
“I regard all your comments on economics as ground-breaking contributions to the science. I will certainly make sure that they are thoroughly investigated,” said Keynes.
When Mr Lawler turned to me on his departure, I half-expected the offer of some government-funded sinecure of my own to buy my silence, but he merely thanked me for my own contribution to the investigation before he, Keynes, Peters, Schlessinger and Green disappeared into the night. I returned to Queen Square, as ever in awe of my friend’s intellectual prowess.
It was a few days later that I received a summons from Holmes. “Come at once if convenient. If not convenient, come anyway.”
On my way to Baker Street, I picked up an evening newspaper with the dramatic headline that the Prime Minister had resigned.
I read the article beneath the headline with the keenest interest. In his resignation letter, the Prime Minister thanked his colleagues and his party for having given him the honour of leading the country. He stated that he had grown weary in office and was unwilling to fight another election or to serve another term as Prime Minister. He recommended Mr Lawler as his successor and the paper noted that the endorsement from the out-going Prime Minister made the selection of Mr Lawler by his party something of a formality.
“This country,” read the leading article, “needs fresh and energetic leadership. Mr Lawler’s ability to wrestle with the most intractable problems makes him the outstanding candidate. The economic policies he has followed as Chancellor of the Exchequer, which were recently endorsed by the newly formed but highly respected British Forum of Independent Economists, are bearing fruit to the benefit of us all.”
The article was a lengthy one and near its end Mr Lawler was quoted as saying:
“It is an honour to receive an endorsement from a man who will without doubt be regarded as one of our great Prime Ministers. It is fortunate that this country will shortly have a general election where the people will have the opportunity to choose their government. I am happy to say that the party of which I am a member is well-resourced to fight such an election. If chosen by my party as its leader, I would not wish to serve as this country’s Prime Minister without having a mandate of my own from the British people whom it is my honour to serve.”
The article lent further speed to my haste to get to Baker Street, but when I arrived I found the contents of the living room I had shared with Holmes for so many years in the process of being boxed up.
The Redacted Sherlock Holmes - Volume 4 Page 5