I have a huge issue. People received a lot of money in stimulus and saved a lot of money by being at home. Indeed the credit card companies were worried as balances had been paid down so much. Now the public could have just accepted their new and better financial position and continued on. But no. They had to rush out and spend all the money burning a hole in their pocket. And that caused inflation.
I was just reading the comments on a NYTimes about the housing crisis. Almost every comment was about how it’s all the fault of private equity. Even though it’s obvious the people claiming it’s all private equity are the same people apoplectic at the thought of a townhouse going on down the street.
It’s always someone else’s fault and it’s always people clinging onto a comfortable lie rather than confront their own complicity.
People spending their stimulus money was actually the point of giving it to them, it's just that they got more than would have been optimal, given foreknowledge of the outcomes.
You've missed the role of market power here. As Flavio Menezes and I have shown, firms with market power will increase their profit margins when demand is strong. That doesn't require any assumptions about increasing greed or increasing market power, and fits with the way a lot of people understand "price gouging".
Menezes, F., and J. Quiggin. 2022. Market Power Amplifies the Price Effects of Demand Shocks. Economics Letters 221 11090.
When the "market power" comes not from an actual monopoly on a product or service (like owning all the railroads) but merely from being the owner of a brand-name that consumers strongly prefer (Apple, Coke, Nike) we have an entirely different situation.
People treat "rising Coca-Cola Corp profits" as the same sort of thing as "rising flourmill profits while people go hungry." It's bananas. A sack of sugar is more or less the same price it ever was.
If you want to do something about these "undeserved" corporate profits - and if you want to "save" Americans from busting their budgets on these "inflated" products - figure out why Americans are so committed to buying things with these particular labels, and why they are so unwilling to switch to generic products or other, cheaper brands.
That is the broken element of the system. Consumers are supposed to change preferences in response to changing prices. Right now, they don't. They keep eating beef over pork & chicken even when the price doubles. They keep buying Doritos brand cheesy tortilla chips over Great Value.
So - why are people so addicted to brand names, to the point that it's distorting the economy? Maybe the 24/7 immersion in advertising and social-media marketing content has something to do with it. We could try to do something about that. We could also simply nationalize Coke & Doritos, acknowledging that their essential services to the American people are too important to be left in private hands.
Either way, I'll keep shopping mostly at Aldi & Lidl and local produce stores & I'll keep eating better than all of you!
As one who remembers the 70s, I’d say the reason aren’t changing preferences in response to changing prices (I’ve seen stories that suggest they actually are in many cases, but that aside) is that (noticeable) inflation hasn’t been around long enough to make generic/brand-less stuff fashionable again.
Huh. I don't remember the 70s, but I do remember the 80s, and one of the things that I remember was getting these kids magazines that were trying to instill, like, "good economic sense" in kids, and they were hugely, hugely, hugely negative on brand-names. Just like one of the primary messages of this magazine was, "You're a sucker if you buy brand-name."
I had never thought of that as a reaction to inflation in the 70s.
Speculating: one reason might be that while nobody likes paying more for the same stuff ... if you are well off then you can afford it. Maybe American's are just pretty wealthy and willing and able to pay the brand premium (even if they will also loudly complain about it). There still are plenty of people _do_ by generics or in bulk or whatever too.
Ugh, look that's an interesting academic paper showing that there are conditions under which a market dominated by a small number of companies may respond to an inflationary shock by increasing prices under very particular assumptions. It's not even clear how large such effects would be or if it's likely in any given market.
But beyond that the mechanism is entirely via a bunch of companies solving for the new Nash equilibrium assuming every company in the market profit maximizers and all having common knowledge that they all have a certain form for their supply schedule.
In other words, if you *ever* feel that some economic predictions are dubious because they make unrealistic assumptions about rationality you absolutely shouldn't find this compelling so it's pretty hypocritical for most of the left (I don't mean to include you here I don't know what you argue elsewhere) to cite this paper as evidence.
Look, the normal assumption of rationality is pretty innocuous because it doesn't require that everyone or even most people are even sorta rational only that on average they are nudged in the right direction. But this result depends not only on all the corporations being rational but believing all the others will always choose the Nash equilibrium. That's a really strong assumption.
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To be clear it doesn't mean there is no such effect but I absolutely want theory and experiment that with less fiddly assumptions.
Ahh, I see I'm used to that being used to mean the original post in a thread meaning the original comment...too much time on YouTube I guess.
But no, I don't think that's correct. The post argues that greed is a constant in the economy, and that there are other things about the economy that are known causes of inflation (and not just based on models but also genuine empirical results about the real economy). And note that the theory given in the paper explicitly depends on the prior existence of an inflationary shock so there isnt any hypothesis that doesnt recognize that the factors like those mentioned caused some of the inflation. And I explained in my post why the use of a nash equilibrium is a much more tenuous claim than the usual kinds of rationality assumptions used to derive most macro.
It's like asking why you see a given level of temperature increase in some physical system in a case where you have some well understood physical mechanisms that do predict an increase in temperature but you don't know quantitatively that they predict it all. If someone comes along and says maybe this other novel phenomenon which I can show may happen in some situations that seem dubiously realistic under some other assumptions that may not apply here and without an estimate of likely size in this situation is really responsible for most -- or even a significant amount -- of the effect your response should be skepticism. Assume horses not zebras. Sure, it's not like they are a crackpot of anything but the burden is on them to give some stronger evidence before you should start treating it as plausible.
Interestingly, your analogy applies pretty well to global warming. A simple model based on CO2 alone suggests we should be seeing a lot less warming than we do. It's amplified by feedbacks from water vapor, which are less well understood. If someone wrote a post with an estimate based on CO2 alone I think I'd be justified in pointing out that they had overlooked the feedbacks.
Market power doesn't *at all* fit with the way people understand price gouging. The common understanding of price gouging is literally just like post-hurricane, natural disaster type situations. That's it. Firms that have created long-term competitive advantages (i.e., market power) are not "price gouging" when they raise prices. That's just making up new definitions for words.
Which has absolutely nothing to do with the topic being discussed. At all times, market power allows soaking the public. During overstimulation, even businesses with robust competition raise prices. This is the mechanism by which employment growth is stimulated. So great, let’s fight against monopolies. But let’s not pretend that rising profits caused by stimulus, are anything more than the necessary means to an end.
But isn't this a question of scale? Yes, firms will raise prices in an overstimulated environment, but they will raise prices *more* if they have significant market power. This seems incredibly relevant.
I think that question is more complicated than it seems. Were they maintaining unduly low prices prior to overstimulation to avoid being branded a monopoly? If not, it just feels like every business is different with a different shape to the SED curve.
I'm not sure scale matters here ... but the short-term dynamics of how firms behave here is interesting. If "everyone" is raising prices, maybe that gives licenses to other firms who otherwise don't have the same market pressure on the cost or demand side to change anything to go ahead an change it. And if all their competition is behaving the same way, in the short term that works until a new equilibrium settles. How stable is that until some other firm comes along and decide they can gain market share by undercutting prices? Well with more firms in the market it happen fast. But with a few players, each a bit more conservative and high costs of market entry to limit startups, maybe they just maintain the higher costs, at least for a while.
The paper assumes that demand increases while cost remains constant. That doesn't really have anything to do with inflationary dynamics, where demand is increasing for all products at once. The authors are assuming that the increase in demand and production in the one industry has no impact on input costs, even though the demand for the end product is going to increase demand for those inputs, and thus, their prices. This is the problem with trying to model macroeconomic effects with partial equilibrium analysis. If they had increased demand and costs by a similar amount, they would have found no effect on margins at all.
Note that in the *actual* prove gouging scenario that people think of -- input costs go up and prices go up by more -- the authors show that this is *less* likely when firms have market power. That is the standard textbook result, that when talking about industry wide cost increases, competitive industries increase price by more than less competitive ones.
I was under the impression that monopolies set higher prices than competitive markets? Where could I find this "standard textbook result" you're referring to?
Right, they do. But this isn't about whether prices are higher in equilibrium, it's about how prices change when costs change.
For increases in industry-wide costs, consider than in a competitive market firms are already charging marginal cost. If their marginal cost goes up and they don't raise their prices, then they will go out of business. So all the firms raise their prices to the new marginal cost, to 100% of the new input cost. That's the textbook result.
By contrast, a monopoly faces downward sloping demand. It maximizes its profits by setting marginal revenue equal to marginal cost. Exactly what the cost pass through rate will be depends on the shape of demand. But to take linear demand as an example (and which is a good approximation for any small change), if price = a - b * quantity, then revenue = price * quantity = (a - b * quantity) * quantity = a * quantity - b * quantity ^ 2, and marginal revenue is the derivative, a - 2 * b * quantity.
Assuming a constant marginal cost, c, the previous equilibrium quantity was quantity = (a - c) / 2 * b, price = (a + c) / 2. If you double costs, then price' = (a + 2 * c)/2. And the difference between the two is c / 2. That is, only 50% of the cost increase is passed on. That's the second textbook result.
I recommend Carlton and Perloff as a good introductory text on industrial organization. Deriving these are pretty early exercises.
Thanks for taking the time for an explanation, that makes a lot of sense. Monopolies don't increase prices as much when their costs increase, which makes intuitive sense since they start from a point where price is already partially decoupled from costs.
But in the competitive case, it makes sense that the market passes the costs directly on to consumers.
But it doesn't make sense in either of these cases to raise prices beyond the increase in input cost. So why is that what it appears Kroger did? Is that just a poor decision, which would then need to be followed by price cuts to remain competitive? Or is it factoring in future expectations about inflation? Or is there something else at play here?
Depending on the exact structure of demand, the pass through rate can actually be more than 100%, although that isn't common. There is some research that suggests pass through of firm-specific costs in retail grocery might be above 100%. Basically if as the price changes demand is getting less elastic fast enough, that can happen. My recollection was that it grocery it had something to do with the fact that people tend to stock up when prices are low, so people visiting when prices rise have less elastic demand. But that's just from memory.
Putting that aside, it certainly could be any of those things. But the most likely explanation would just be that demand was increasing. That itself might have caused the input prices to go up, since as the grocery store sells more, it has to buy more. But it would be unusual for that to be 1 to 1 as how elastic supply for the input is isn't necessarily the same as how elastic the supply of grocery services is. Or it's possible that both input costs and demand were going up.
Thanks for lots of comments. The empirical evidence is right there in the OP, with the statements about enhanced margins being set up to be refuted. The OP presents the theoretical claim that this should be understood as demand-pull inflation, with no role for price gouging. I point out that this theoretical claim is not supported by economic analysis,
I'm not educated enough about economics to follow the argument in this paper. My folk understanding is that a firm with market power is constrained in its pricing by political concerns--basically, you want to raise your prices as high as you can without attracting regulatory or public scrutiny. And so if there's some macro event to give cover for higher prices--e.g. a supply shock caused by a pandemic--then you can go ahead and crank those prices up over and above whatever the price would be in a competitive market, exacerbating the inflationary pressure.
Is that consistent with the argument in your paper?
In all but a small number of industries, firms with market power are constrained by the demand facing them, not by governments. Demand is always downward sloping; if you raise prices, you sell less. As a result, there is a profit maximizing price, above which you lose more revenue from increasing prices than you gain.
People tend to jump to thinking about "necessities", but incremental purchases are almost never necessities. Sure, you will die of thirst without water. But there are many lower value uses of water, such as watering your lawn, filling up a kiddie pool, taking an hour long hour shower. Even a firm facing no competitors at all will start losing these lower value uses as its price goes up. At some point, raising the price loses enough sales that it stops.
Just consider the intuition here. Most firms have products that are differentiated from their competitors', so they have some market power. Maybe some high profile industries could be pressured to keep prices lower than the profit maximizing level by political pressure. But every firm across the economy? It's just not plausible.
See my explanation of the paper above. It makes a relatively rudimentary error by looking at the impact of increasing demand for the output product, but holding the cost of inputs constant. That's not consistent. If all the firms in an industry are increasing output, then the cost of their inputs will go up as they all compete to get more inputs.
The politics around this price-gouging issue are pretty interesting. The Harris campaign is from the mainstream wing of the Democratic Party, and its economic advisors are all the same types of normal economists who advised Biden, Obama, and Clinton, so it's highly unlikely that a Harris administration would sincerely believe that price-gouging was the main explanation for inflation. The value of focusing on price-gouging is *precisely that they know it's an incorrect explanation* and will therefore bait Republicans into responding with "You can't do that!" Which makes the Republicans look insensitive and like they're trying to protect their big business allies, and throws them off their ideal talking points.
We should be concerned with "excess profits," not "price-gouging." There may be all sorts of reasonable explanations for increased prices, but, we should be less accepting of super-normal profits.
I think one of the things that’s really striking about this round of inflation is that a lot of affluent people acted like they were helpless and they couldn’t economize on anything.
Like Florida teachers took it on the chin a bit. But because spouses exist I’d sit in lunch and complain that prices were going up while eating Uber eats and talking about the 100 person wedding we were having, our tickets to concerts and houses we bought.
I mean my sample size is nothing but like most consumers said they’d rather have a coke at inflated prices than drink Aldi brand cola.
- If prices are stable, and you're the only one who raises prices, you draw attention and criticism.
- If prices are rising all across the economy, for good reasons and for bad, it's easy to slip in a price increase (or maintain a price increase) and blame it on "that's just how things are changing these days"
This is not about constant greed. This is about their ability to hide in the crowd.
Example: A 12-pack of Topo Chico somehow rose from $10 to $16 at Whole Foods since the start of the pandemic.
This made sense when there were glass shortages and the shelves were empty because of it. But why now?
I recently read notes from the Coca Cola CEO saying that price increases have been great for their profits. In other words, the market has changed and people now complain less, and they're taking advantage.
Could a similar thing have happened 5 years ago?
* Note: I don't agree with these legal maneuvers, but how about some shame? Why doesn't Kamala bring a 12-pack on stage and say "I used to like drinking this, until I learned how much they're taking advantage of us. Anyone else want to boycott these MFers with me?"
You can’t “hide in the crowd” and increase prices above the equilibrium dictated by supply and demand.
Yes, maybe coke doesn’t stand out raising its prices if Pepsi and Dr Pepper do so too, but if prices are above what supply and demand dictate, consumers will curtail consumption. All the beverage companies will be left with excess stock they can’t move, and thus have an incentive to cut prices to compete.
The fact that demand for groceries remains strong indicates price rises are in line with what you’d expect given strong demand driven by stimulus meeting cos trained supply (due to low unemployment).
Once again - you shouldn’t expect prices to be a function of input costs. They are a function of market forces.
You can’t ever increase prices above the “equilibrium point” dictated by supply and demand. Of course, it isn’t actually a point. It’s a curve. If you raise prices more, you sell fewer units. The point of capitalism is that there exists a profit maximizing point that works out pretty well in practice (or at least better than we have seen other systems work).
Imagine a time where cars, gas, electronics, meat, eggs, bread, etc are all increasing, all for good reasons.
And the sugar water people decide they deserve a little price increase as well.
Are you saying this new evironment doesn't make it easier for them to raise prices?
And in the case of the beverage market, the entire thing is made easier by having only two real players in the market -- Coke and Pepsi.
Notice how when Uber raises prices, Lyft matches the price increase pretty much the same day?
And the "gouging" comes in when their costs drop, and the industry collectively decides to not reduce prices, but to instead just pocket the price increase.
Chipotle is another company that likely raised prices when meat prices went through the roof, but once those dropped back down, decided they liked their high prices as-is and now have record profits.
'And the sugar water people decide they deserve a little price increase as well.'
'Sugar water' is a highly competitive market, and is easily forgone and replaced with non-sugar water, like tea, coffee or just plain water. People don't need sugar water and they don't need to buy it.
Coke and Pepsi are a bad example because they are entirely discretionary purchases; one can always just drink tap water. And there are numerous substitutes including generic brands. Consumers accepting price hikes for such superfluous goods just demonstrate that they're flush with cash, either through wage gains or stimulus.
We only do this moral dance with corporations for some reason, but the same calculus plays out in all sorts of transactions. Housing prices are incredibly high, but I don't see many articles or commenters lamenting how greedy home sellers are by charging such high prices when they bought the homes for much less a few decades ago and CLEARLY don't need to charge the prices they're currently charging. After all, the homeowners could make a really nice profit with much lower sale prices! But obviously sellers in all markets are seeking to charge the highest level they can to maximize how much money they receive in any transaction.
At any time in history, sugar water people could have raised or lowered prices. They set the price at whatever amount people will pay that allows them to maximize profits. If people are willing to pay the higher prices, even begrudgingly, why is it suddenly evil for them to set the price at a higher amount? The market forces implicated allow them to do this, and consumers have every opportunity to turn elsewhere if they're upset about it. The price a Diet Coke was set at a decade ago was the same profit-maximizing price it's set at now. I pay it because it's worth it to me. As soon as I think it's not then I'll go elsewhere. It's not "gouging"- it's just supply and demand driving the cost of soda. Same as always.
This is an instance where it is worth while to remember that these public companies have binding legal obligations to maximize shareholder value. If they can make up profit with lower prices on volume Fanrastic, but chipotle probably knows or hired someone to calculate that if sufficient number of ppl bought food during a literal pandemic and rising prices, they will continue to do so at stable prices even as the rate of increase of input costs levels.
The true wickedness of inflation as a political problem is people broadly desire a policy mechanism that will enable a return to the ex ante nominal prices, a la 2019 price levels in nominal terms today. Which without people knowing as much, is really just asking for a cataclysmic recession/depression of demand.
His point is that when Coke and Pepsi get too expensive, many people will decide soda isn't worth it and switch to drinking tap water. As long as people are merely complaining while paying higher prices instead of deciding that it's too expensive and not buying it at all, then the price hasn't reached equilibrium.
You do have a point that when inflation is in the news, it's easier PR-wise to raise prices. But usually, those are price increases up to what the market will actually bear. In times without inflation, people tend to keep their prices lower than that point and sell out their stock quicker because they know how much people yell at them for price increases.
“And the sugar water people decide they deserve a little price increase as well.”
This would be price fixing and it’s already illegal.
“Are you saying this new evironment doesn't make it easier for them to raise prices?”
If Coca Cola could triple its prices and increase profits in doing so, it would do so today and it would be “easy.” No cover from other companies needed.
Your whole take on businesses setting prices is as though these are transactions within families or groups of friends — where some kind of personal relationship and feelings of what’s “deserved” normally dictates the price. In a market-based system, firms maximize their returns. It’s that simple. There is no “deserve”. There is no “easy” or hard. There is, in fact, no “deciding” on prices.
Your take makes me wonder if you’ve ever had an Econ 101 course, or ever sold something yourself on the open market. Correct me if I’m wrong to wonder.
Nitpick: "[T]he sugar water people decid[ing] they deserve a little price increase as well,” is not at all "price fixing" in the scenario described unless you assume sort of agreement between soft drink manufacturers, which David didn't mention. It's just "conscious parallelism" (i.e., competitors rationally reacting in a similar manner to the same market dynamics).
Capitalism is the idea that if they maximize profit, things mostly work out okay. If they raise prices and sales drop little enough that profit increases, then they are doing what the market would expect. They now know they could make even more money if they could sell more units at the new price and are thus incentivized to increase production (which hopefully involves hiring).
Why shouldn't the sugar water people raise their prices? If people decide the price is too high, they are free to not buy any. If new competitors see a hole in the market for a lower priced alternative, they are free to fill it.
Like I mentioned elsewhere in this thread, this argument seems to ignore the fact that wages have risen faster than the CPI over the past 4 years, and all of these companies you're mentioning have labor as a significant component of their cost structures. It seems like you're assuming ceteris paribus for these firms when it comes to everything else they have to spend on, and that's really not the case.
This is why inflation is so pernicious-- it infects the cost structures of not just every consumer of family, but every producer and intermediary too. And the government.
Better yet: why doesn't "Greed" explain why Pepsi doesn't *lower* prices? Pepsi could see Coke getting greedy raising prices, and take advantage by lowering prices in an attempt to FINALLY dethrone Coke and capture enough market share to take the #1 spot. Surely Pepsi would be happy with lower profit margins (percentages) in exchange for more profit (absolute), as well as converting a bunch of Coke users to Pepsi users?
Yet that does not happen. What's the theory here? Corporations are only greedy in the ways that fit our narratives?
I'm not sure if this is a joke. Mineral water in a glass bottle is a luxury product, the price of which depends far more on demand than cost (which is minimal). Nobody is making you buy this product. You do not need to buy this product. Water comes out of a tap for practically free.
Likewise, brand-name Coca-Cola has always cost more than generic store-brand cola, despite the fact that they both have the same basic ingredients and both come in cans. Coke used to be, say, $5.50 for a 12-pack and the store brand was $3.50. Now Coke is $8 and the store brand is $4. It's the same thing with Doritos, as a random example: the official Doritos are up way more than store-brand cheesy tortilla chips.
Rational, price-sensitive consumers would buy more of the generic and less of the name-brand. Are they? Maybe a little. But most seem to be buying the name brand regardless, then feeling "ripped off." They're partly irrational and partly just not that price sensitive because Americans are loaded and food is a tiny percentage of our budgets regardless.
Did you folks know that this sort of discussion used to center on basic goods that people actually needed to, like, live? The price of particular private labels of particular luxury goods is so far from the domain of government that I think you all must have worms to be talking about it like this.
I'm certainly not saying this is a life-or-death issue, but the question being debated is basically: Is inflation driven (in part, at least) by companies taking advantage of the inflationary environment to raise prices and avoid the blame?
I can say with some confidence that if someone is walking through the grocery store and the price of eggs, milk, meat, and bread are all up, the price increase on Coke is less likely to draw their anger because they view it as market-wide problem and not a Coke problem, and that makes it easier for Coke to raise prices.
To the Coke CEO, there's safety in being part of the crowd.
And if you find this argument convincing, and the CEO is saying he's raising prices because he can, and he's generating record prices, then people shouldn't dismiss the "taking advantage" argument.
Topo Chico is a special case. Before the pandemic it was mainly only available in Nuevo León and adjacent states like Texas. But when Coca Cola bought it, they made it part of their full continent shipping. They did this knowing that supply was constrained by the specific springs it came from, so that they were going to be able to raise prices while selling close to the maximum sustainable amount.
Keeping prices where they were would just mean shortages, particularly in places where there was already a taste for it.
I mean did you change your habits in response to coke raising prices? I’m
A fucking addict to Coke Zero and my wife and I never contemplated switching to store brand.
When she made a lot less money we shopped at Aldi regularly. We didn’t do that, as it has a much more limited selection. To like label this as greed when I don’t take the perfectly good discount options right in front of my face seems a bit much.
This is exactly right. When prices for all good are rising they become unanchored, and consumers are unable to punish them by switching to an alternative. In the medium to long term they adjust, but that doesn't help for the 1-2 years it takes to get there.
I'm from Argentina, where inflation was over 200% last year. Do you think small businesses are doing exhaustive pass through rate analysis? Or do they go "what's inflation going to be this month? 15% sounds about right, let's increase by that and see how it goes".
Now obviously Argentina is a hyperbole here, but it did happen in a smaller scale. Businesses looked around, saw their competitors rise prices and matched accordingly.
In a normally functioning market, if the price of 12 Topo Chicos went from $10 to $16 largely because some or all of the sellers decided to "slip in" this price increase, it would provide an incredible opportunity for one of the sellers to reduce the price to $14 and make extraordinary profits from all the volume of sales they win from their competitors who didn't do the same.
If no sellers are taking advantage of this opportunity then it suggests there are other constraints preventing them from doing so. For example: Their labor costs or rent have risen; the Topo Chico wholesaler raised *their* prices to the retailer from $8 to $14.25 per 12 pack over the past year; and so forth. These explanations would be incompatible with the original theory of price gouging.
I’m sure corporations would prefer to raise prices when everyone else is raising them as a PR matter, but as economic matter this theory implies that demand is inelastic with respect to price. Or at the very least implies that consumers don’t face any real budget constraints and all elasticity is whether the price “seems fair”. I’m sure there are some very rich people for whom that’s true, but seems clearly false for the vast majority of the population. It is also an especially strange argument for the left to make, when they are simultaneously saying everyone lives paycheck to paycheck.
Robert Reich has been posting on the topic for some time. Whenever he ends a post with the catchphrase "textbook corporate greed" I wonder what textbook he's talking about that explains pricing in terms of greed. Is greed different from profit maximization? Or is greed synonymous with market power? Maybe profit-seeking via industry consolidation; that seems more like greed. Reich does talk about that.
But if "corporate greed" is a progressive shibboleth, "supply and demand" serves a similar function on the other side. Supply and demand always factor into price determination. But what does the supply curve look like? If every firm were a classical price taker, it wouldn't be "easy" to raise prices even when costs rise. Who goes first? But if there's some market power, or some increase in market power, it seems plausible that upward price adjustments won't be uniform and instantaneous. So I wouldn't be surprised if market power had a significant role in pricing dynamics.
We can look deeper into the term "market power" too. It used to mean things "owns the only good railroad right of way up the east side of the Hudson, so we'll either need to pay their rates or figure out a railroad up the west side of the Hudson" - or maybe "owns the only flour mill for 200 miles, so if I want my grain ground, I have to pay their rates or do it myself with two rocks."
This older sort of "power" is akin to the power of a big guy on a bridge saying you have to pay a nickel to cross. You have options: pay the nickel, vote to build another bridge, or vote to nationalize the one bridge.
Now "market power" seems to mean "has a product that people want to some degree over alternatives & can thus charge a price premium based on that demand differential" - the "power" in this case is more like having the *nicest* bridge among many bridge options, and charging a dime because yours is the smoothest and has the nicest crenellations.
You can pay the dime or pay the nickel, but if most people can afford the dime, you probably won't have many supporters for nationalizing the ugly old nickel bridge, or for building a new one when there are already two. Passing some kind of "all bridges must be a nickel" law would be ridiculous, because there's already a nickel option.
Using the thread's preferred great taste of Coca Cola, what are the analogous choices? You can pay $0.75 a can for Coke or $0.25 a can for Generic Soda (approximately). (You can also drink water for nothing, but whatever). No one is calling for the establishment of a "public option" ("Government Cola") because we already have the generic. Instead, the goal would be, what, set the price of Coke to be the same as the generic by mandate? Patently silly.
I've gotten sidetracked, but this sort of "market power" is not like the old "market power." That was a strongman, this is a salesman.
WInston Churchill gave a speech about pricing power and "nationalization" of bridges in 1909:
"Some years ago in London there was a toll-bar on a bridge across the Thames, and all the working people who lived on the south side of the river, had to pay a daily toll of one penny for going and returning from their work. The spectacle of these poor people thus mulcted of so large a proportion of their earnings appealed to the public conscience: an agitation was set on foot, municipal authorities were roused, and at the cost of the ratepayers the bridge was freed and the toll removed. All those people who used the bridge were saved 6d. a week. Within a very short period from that time the rents on the south side of the river were found to have advanced by about 6d. a week, or the amount of the toll which had been remitted."
When Reich writes about market power and pricing, he's not talking about Coke vs Pepsi, but rather mergers and market concentration, such as in the airline industry or supermarkets. And when I hear talk about gouging, it tends to be about insulin (say), or Martin Shkreli, rather than soda.
I remain confused that greedflation is even a thing. It doesn't really matter whether businesses have gotten greedier or not.
The only universe this seems consistent with is one where the only restraint on increasing prices is how nice of people business owners are. Apparently if they are maximally evil they can charge an infinite price?
It's all so divorced from profit maximization that I don't even know how to respond. Is weird that the people that hate corporations the most seem to have a theory that relies on them charging prices below the ones that make them the most money for most of the time.
I notice that people then pivot to market power, but it's not plausible that market power suddenly increased in the span of a couple months. Particularly when M&A was at a historic *low*.
What really makes me sad about this is the fact that I want a society where people get smarter and learn about how the economy works.
One can debate about this particular case and come up with some theoretical models which predict that there can be situations in which inflation prompts some companies raise real prices. But I just don't see any system by which the average American could hope to be educated about what's likely of plausible or at least to leave with some better sense of the argument -- is it plausible it's all greed of are we at best arguing on the margins and what does that mean.
I want a world where not all the shit about this from experts don't feel cherry picked and the government or some nuetralish institutions would make us smarter.
I think a widely held view that when a corporation goes to the market and seeks out the highest price that someone is willing to pay regardless for the cost of production, that's greed. The same people, of course, don't think they're being greedy when they put their house on the market at 30% above what they paid (inflation adjusted).
FWIW, I think you're somewhat right, and many people do have different moral intuitions about large corporations than individual homeowners. I will say that I told my ex-wife that she was being greedy for insisting on selling our home to an investor from the UAE instead of a young local family (I googled as soon as we got the offers) for a difference of only $5K more (and she's a doctor who was making at least $340K/year in 2021). For "normal" homes (i.e. those under about 2x the local median price), I think that it's totally understandable and not "greedy" for a family to want to benefit from price appreciation, even though I understand this desire can also feed NIMBYism, and actually I have recently argued with my current wife that it's important to separate the investment vs. consumption aspects of a home (or condo, for us), especially as we think about potentially moving overseas for several years and renting our current place.
Conversely, during the peak of the George Floyd protests in 2020, my mom (who went to UC Berkeley) was talking about selling our parents' Bay Area house for the same price that they paid for it to a "minority family" (which would be approximately $200K when the market value is now >$1.5M); fortunately my dad talked her out of it, AFAIK...
So I just canceled my subscription to the New York Times.
They informed me that the cost of that subscription would increase to $300/year, a 15% increase over my prior cost and a 53% increase in their subscription price since 2020 (compared to overall inflation of 19%).
Call if greed, call it asking the price that demand is happy to pay. Not by me, anyway. You want to rake in huge profits *and* then spike your prices? Fine, but you can do it without me.
Plus, their biased coverage of the Ukraine war makes me want to vomit.
Every article is "why this is bad for Ukraine" whatever is happening and why morale in Ukraine is plummeting and why Russia is about to take the nth "strategic" abandoned small town (which never turns out to be strategic; the NYT doesn't know what the word means).
See Phillips O'Brien on this.
I just don't get it. Did Zelensky deny them an interview or something?
Thank you for this. It’s all about demand and rising preferences. Somewhere along the way, we decided that we needed that $20 Chipotle burrito with quac and upgraded meat delivered to us by DoorDash instead getting off our butts and driving thru Taco Bell. Then we bitch about inflation. We saw a behavioral change from the pandemic and we ain’t going back. God help you if you pay DoorDash to deliver Taco Bell.
I mean I mostly Ubereats mostly because I forgot my lunch. I don’t have time to leave school and come back. It’s 7 dollars cheaper to get roughly the same mix of vegan food at Tacobell versus chipotle. (A black bean crunch wrap sans dairy add pico, guacamole and rice. Compared to a sofritas burrito add guacamole.
Not a ton but it’s not an amount of savings that I’d scoff at. Like I don’t know what the beef is here.
I think the most important line in this whole article is that "greed is a constant". That's how I argued with people who took up this greedflation line with me in person. Do people really think that corporations got greedier? They have always been greedy, so that doesn't make any sense. They've just found that their old prices don't maximize profits as well as their new ones do. If they end up lowering prices, that won't be generosity, just a judgment that they can make more money by lowering the price and selling more units.
I think Matt is basically right in that you only want to do externally imposed price controls when there's a disastrous result without such controls. For example, if people cannot afford infant formula, that is disastrous, and the government should intervene to make sure that infant formula is both widely available and affordable. Insulin is another such product. But there aren't that many of these products where the product is both necessary and impossible to substitute.
WRT insulin, I have wondered why we don't just have the government get involved in the insulin business. This could take the form of the government building a factory to produce the 2-3 most common types of insulin and selling doses to American citizens with insulin rxs for whatever we determine a fair price is. Alternatively, offer contracts for private producers.
It seems enormously desirable to just shortcut around the drama involved in trying to negotiate prices or threaten price controls or whatever. This has the added benefit of keeping critical infrastructure in the US.
It really does make a lot of sense. The reason why we haven't done it is that before the pandemic, it seemed like both sides of the aisle were really against the government getting into enterprises that the private sector already has a substantial stake in. The pandemic really changed the conversation on this, but the American instinct is still to use the government's money to sponsor private sector endeavors (ie the CHIPS act, the IRA, etc) rather than having the government do things directly.
Relatedly, the best summary of how it feels to be a proponent of free trade comes from a 21 year-old Reason Magazine article, which is as true today as it was then: "it often seems as though free traders are trapped in a public policy version of Groundhog Day, forced to refute the same fallacious arguments over and over again, decade after decade." (https://reason.com/2003/10/30/lous-blues-2/)
At the Minnesota State Fair, at least by my memory, the price for a 12oz beer, a 20oz beer, a cattle barn milkshake, and a Giant Egg Roll on a Stick (all highly recommended)--all unchanged since 2021 if not before.
My local Domino's has had a $7.99 "carry-out deal" for a two-topping large pizza since before COVID and my wife and I agree that we have no idea how they haven't raised the price on that by this point.
Since Matt is recycling a post, I'll recycle a comment.
Price gouging does not create inflation.
Supply disruption does not create inflation.
Greed workers do not create inflation.
Lockdown does not create inflation.
Sector shifts following lockdown does not create inflation.
"Inflation always and everywhere is a monetary phenomenon" :Milton Friedman
The Fed creates inflation, disinflation, deflation, unemployment, employment, recession, and recovery from recessions with its management of monetary policy instruments. Sometimes these outcomes are the result of mistakes -- the instruments did not work as the Fed expected. Sometimes a result, namely over-target inflation, may be to preserve/restore full employment in response to one or more of the factors listed above. But whatever the reasons behand the management of monetary policy instruments, causation of macroeconomic outcomes runs through the Fed.
To take the Greedflation/price gouging/corporate rapaciousness hypothesis more seriously than it deserves, if a big enough group of CEOs simultaneously raised the margins between other costs and the selling price, this would pose a choice for the Fed: create a little extra inflation to let the rest of the economy adjust to this event or see some additional non-clearance of markets. Presumably, the Fed would chose the extra inflation; that what the "Flexible" in Flexible Average Inflation Targeting" means. IF THAT is what is meant by "Greedflation/price gouging/corporate rapaciousness," then yes, Greedflation/price gouging/corporate rapaciousness or supply disruptions or greedy workers or lockdowns and sector shifts in demand can cause inflation and we should be happy the Fed made the best of the situation.
Not entirely true since there have, historically, been numerous cases of fiscal mismanagement, so egregious that no central bank could ever maintain stability.
TBF you can come up with theories that predict some transfer of surplus from customer to corporation. I give one below but yah that's just the fun of but actually not a reason to see it as the normal course.
People have limited time to shop for cheaper alternatives and during times of low inflation this isn't a problem because it's relatively easy to check if a product is getting more expensive than your expectations. During an inflationary shock people's sense of what's normal is upset and thus inflation serves as a kind of signal that maybe companies with large customer bases you can raise prices more than competition should allow and take profits during the period it takes people to realize which products they can save on.
I have a huge issue. People received a lot of money in stimulus and saved a lot of money by being at home. Indeed the credit card companies were worried as balances had been paid down so much. Now the public could have just accepted their new and better financial position and continued on. But no. They had to rush out and spend all the money burning a hole in their pocket. And that caused inflation.
I was just reading the comments on a NYTimes about the housing crisis. Almost every comment was about how it’s all the fault of private equity. Even though it’s obvious the people claiming it’s all private equity are the same people apoplectic at the thought of a townhouse going on down the street.
It’s always someone else’s fault and it’s always people clinging onto a comfortable lie rather than confront their own complicity.
Everyone says they're stuck in traffic; no one says they're causing it.
I get annoyed by all the tourists when I travel abroad.
People spending their stimulus money was actually the point of giving it to them, it's just that they got more than would have been optimal, given foreknowledge of the outcomes.
Right, but not rushing out to spending would have had the same effect.
You've missed the role of market power here. As Flavio Menezes and I have shown, firms with market power will increase their profit margins when demand is strong. That doesn't require any assumptions about increasing greed or increasing market power, and fits with the way a lot of people understand "price gouging".
Menezes, F., and J. Quiggin. 2022. Market Power Amplifies the Price Effects of Demand Shocks. Economics Letters 221 11090.
When the "market power" comes not from an actual monopoly on a product or service (like owning all the railroads) but merely from being the owner of a brand-name that consumers strongly prefer (Apple, Coke, Nike) we have an entirely different situation.
People treat "rising Coca-Cola Corp profits" as the same sort of thing as "rising flourmill profits while people go hungry." It's bananas. A sack of sugar is more or less the same price it ever was.
If you want to do something about these "undeserved" corporate profits - and if you want to "save" Americans from busting their budgets on these "inflated" products - figure out why Americans are so committed to buying things with these particular labels, and why they are so unwilling to switch to generic products or other, cheaper brands.
That is the broken element of the system. Consumers are supposed to change preferences in response to changing prices. Right now, they don't. They keep eating beef over pork & chicken even when the price doubles. They keep buying Doritos brand cheesy tortilla chips over Great Value.
So - why are people so addicted to brand names, to the point that it's distorting the economy? Maybe the 24/7 immersion in advertising and social-media marketing content has something to do with it. We could try to do something about that. We could also simply nationalize Coke & Doritos, acknowledging that their essential services to the American people are too important to be left in private hands.
Either way, I'll keep shopping mostly at Aldi & Lidl and local produce stores & I'll keep eating better than all of you!
As one who remembers the 70s, I’d say the reason aren’t changing preferences in response to changing prices (I’ve seen stories that suggest they actually are in many cases, but that aside) is that (noticeable) inflation hasn’t been around long enough to make generic/brand-less stuff fashionable again.
Huh. I don't remember the 70s, but I do remember the 80s, and one of the things that I remember was getting these kids magazines that were trying to instill, like, "good economic sense" in kids, and they were hugely, hugely, hugely negative on brand-names. Just like one of the primary messages of this magazine was, "You're a sucker if you buy brand-name."
I had never thought of that as a reaction to inflation in the 70s.
Speculating: one reason might be that while nobody likes paying more for the same stuff ... if you are well off then you can afford it. Maybe American's are just pretty wealthy and willing and able to pay the brand premium (even if they will also loudly complain about it). There still are plenty of people _do_ by generics or in bulk or whatever too.
Ugh, look that's an interesting academic paper showing that there are conditions under which a market dominated by a small number of companies may respond to an inflationary shock by increasing prices under very particular assumptions. It's not even clear how large such effects would be or if it's likely in any given market.
But beyond that the mechanism is entirely via a bunch of companies solving for the new Nash equilibrium assuming every company in the market profit maximizers and all having common knowledge that they all have a certain form for their supply schedule.
In other words, if you *ever* feel that some economic predictions are dubious because they make unrealistic assumptions about rationality you absolutely shouldn't find this compelling so it's pretty hypocritical for most of the left (I don't mean to include you here I don't know what you argue elsewhere) to cite this paper as evidence.
Look, the normal assumption of rationality is pretty innocuous because it doesn't require that everyone or even most people are even sorta rational only that on average they are nudged in the right direction. But this result depends not only on all the corporations being rational but believing all the others will always choose the Nash equilibrium. That's a really strong assumption.
--
To be clear it doesn't mean there is no such effect but I absolutely want theory and experiment that with less fiddly assumptions.
Sure, but then you shouldn't except the very simple theory on which the OP relies
I'm confused the OP didn't offer any other theory? Did you mean the post?
OP = "original post"
Ahh, I see I'm used to that being used to mean the original post in a thread meaning the original comment...too much time on YouTube I guess.
But no, I don't think that's correct. The post argues that greed is a constant in the economy, and that there are other things about the economy that are known causes of inflation (and not just based on models but also genuine empirical results about the real economy). And note that the theory given in the paper explicitly depends on the prior existence of an inflationary shock so there isnt any hypothesis that doesnt recognize that the factors like those mentioned caused some of the inflation. And I explained in my post why the use of a nash equilibrium is a much more tenuous claim than the usual kinds of rationality assumptions used to derive most macro.
It's like asking why you see a given level of temperature increase in some physical system in a case where you have some well understood physical mechanisms that do predict an increase in temperature but you don't know quantitatively that they predict it all. If someone comes along and says maybe this other novel phenomenon which I can show may happen in some situations that seem dubiously realistic under some other assumptions that may not apply here and without an estimate of likely size in this situation is really responsible for most -- or even a significant amount -- of the effect your response should be skepticism. Assume horses not zebras. Sure, it's not like they are a crackpot of anything but the burden is on them to give some stronger evidence before you should start treating it as plausible.
Interestingly, your analogy applies pretty well to global warming. A simple model based on CO2 alone suggests we should be seeing a lot less warming than we do. It's amplified by feedbacks from water vapor, which are less well understood. If someone wrote a post with an estimate based on CO2 alone I think I'd be justified in pointing out that they had overlooked the feedbacks.
Market power doesn't *at all* fit with the way people understand price gouging. The common understanding of price gouging is literally just like post-hurricane, natural disaster type situations. That's it. Firms that have created long-term competitive advantages (i.e., market power) are not "price gouging" when they raise prices. That's just making up new definitions for words.
The discussion here isn't about natural disasters, which makes it clear that "price gouging" is being used more broadly.
Which has absolutely nothing to do with the topic being discussed. At all times, market power allows soaking the public. During overstimulation, even businesses with robust competition raise prices. This is the mechanism by which employment growth is stimulated. So great, let’s fight against monopolies. But let’s not pretend that rising profits caused by stimulus, are anything more than the necessary means to an end.
But isn't this a question of scale? Yes, firms will raise prices in an overstimulated environment, but they will raise prices *more* if they have significant market power. This seems incredibly relevant.
I think that question is more complicated than it seems. Were they maintaining unduly low prices prior to overstimulation to avoid being branded a monopoly? If not, it just feels like every business is different with a different shape to the SED curve.
I'm not sure scale matters here ... but the short-term dynamics of how firms behave here is interesting. If "everyone" is raising prices, maybe that gives licenses to other firms who otherwise don't have the same market pressure on the cost or demand side to change anything to go ahead an change it. And if all their competition is behaving the same way, in the short term that works until a new equilibrium settles. How stable is that until some other firm comes along and decide they can gain market share by undercutting prices? Well with more firms in the market it happen fast. But with a few players, each a bit more conservative and high costs of market entry to limit startups, maybe they just maintain the higher costs, at least for a while.
"...I have shown..."
You have suggested, you mean. If you want to show, then go out and get the evidence. But I guess you can't find evidence that doesn't exist.
The paper assumes that demand increases while cost remains constant. That doesn't really have anything to do with inflationary dynamics, where demand is increasing for all products at once. The authors are assuming that the increase in demand and production in the one industry has no impact on input costs, even though the demand for the end product is going to increase demand for those inputs, and thus, their prices. This is the problem with trying to model macroeconomic effects with partial equilibrium analysis. If they had increased demand and costs by a similar amount, they would have found no effect on margins at all.
Note that in the *actual* prove gouging scenario that people think of -- input costs go up and prices go up by more -- the authors show that this is *less* likely when firms have market power. That is the standard textbook result, that when talking about industry wide cost increases, competitive industries increase price by more than less competitive ones.
I was under the impression that monopolies set higher prices than competitive markets? Where could I find this "standard textbook result" you're referring to?
Right, they do. But this isn't about whether prices are higher in equilibrium, it's about how prices change when costs change.
For increases in industry-wide costs, consider than in a competitive market firms are already charging marginal cost. If their marginal cost goes up and they don't raise their prices, then they will go out of business. So all the firms raise their prices to the new marginal cost, to 100% of the new input cost. That's the textbook result.
By contrast, a monopoly faces downward sloping demand. It maximizes its profits by setting marginal revenue equal to marginal cost. Exactly what the cost pass through rate will be depends on the shape of demand. But to take linear demand as an example (and which is a good approximation for any small change), if price = a - b * quantity, then revenue = price * quantity = (a - b * quantity) * quantity = a * quantity - b * quantity ^ 2, and marginal revenue is the derivative, a - 2 * b * quantity.
Assuming a constant marginal cost, c, the previous equilibrium quantity was quantity = (a - c) / 2 * b, price = (a + c) / 2. If you double costs, then price' = (a + 2 * c)/2. And the difference between the two is c / 2. That is, only 50% of the cost increase is passed on. That's the second textbook result.
I recommend Carlton and Perloff as a good introductory text on industrial organization. Deriving these are pretty early exercises.
Thanks for taking the time for an explanation, that makes a lot of sense. Monopolies don't increase prices as much when their costs increase, which makes intuitive sense since they start from a point where price is already partially decoupled from costs.
But in the competitive case, it makes sense that the market passes the costs directly on to consumers.
But it doesn't make sense in either of these cases to raise prices beyond the increase in input cost. So why is that what it appears Kroger did? Is that just a poor decision, which would then need to be followed by price cuts to remain competitive? Or is it factoring in future expectations about inflation? Or is there something else at play here?
Depending on the exact structure of demand, the pass through rate can actually be more than 100%, although that isn't common. There is some research that suggests pass through of firm-specific costs in retail grocery might be above 100%. Basically if as the price changes demand is getting less elastic fast enough, that can happen. My recollection was that it grocery it had something to do with the fact that people tend to stock up when prices are low, so people visiting when prices rise have less elastic demand. But that's just from memory.
Putting that aside, it certainly could be any of those things. But the most likely explanation would just be that demand was increasing. That itself might have caused the input prices to go up, since as the grocery store sells more, it has to buy more. But it would be unusual for that to be 1 to 1 as how elastic supply for the input is isn't necessarily the same as how elastic the supply of grocery services is. Or it's possible that both input costs and demand were going up.
Thanks for lots of comments. The empirical evidence is right there in the OP, with the statements about enhanced margins being set up to be refuted. The OP presents the theoretical claim that this should be understood as demand-pull inflation, with no role for price gouging. I point out that this theoretical claim is not supported by economic analysis,
I'm not educated enough about economics to follow the argument in this paper. My folk understanding is that a firm with market power is constrained in its pricing by political concerns--basically, you want to raise your prices as high as you can without attracting regulatory or public scrutiny. And so if there's some macro event to give cover for higher prices--e.g. a supply shock caused by a pandemic--then you can go ahead and crank those prices up over and above whatever the price would be in a competitive market, exacerbating the inflationary pressure.
Is that consistent with the argument in your paper?
In all but a small number of industries, firms with market power are constrained by the demand facing them, not by governments. Demand is always downward sloping; if you raise prices, you sell less. As a result, there is a profit maximizing price, above which you lose more revenue from increasing prices than you gain.
People tend to jump to thinking about "necessities", but incremental purchases are almost never necessities. Sure, you will die of thirst without water. But there are many lower value uses of water, such as watering your lawn, filling up a kiddie pool, taking an hour long hour shower. Even a firm facing no competitors at all will start losing these lower value uses as its price goes up. At some point, raising the price loses enough sales that it stops.
Just consider the intuition here. Most firms have products that are differentiated from their competitors', so they have some market power. Maybe some high profile industries could be pressured to keep prices lower than the profit maximizing level by political pressure. But every firm across the economy? It's just not plausible.
See my explanation of the paper above. It makes a relatively rudimentary error by looking at the impact of increasing demand for the output product, but holding the cost of inputs constant. That's not consistent. If all the firms in an industry are increasing output, then the cost of their inputs will go up as they all compete to get more inputs.
The politics around this price-gouging issue are pretty interesting. The Harris campaign is from the mainstream wing of the Democratic Party, and its economic advisors are all the same types of normal economists who advised Biden, Obama, and Clinton, so it's highly unlikely that a Harris administration would sincerely believe that price-gouging was the main explanation for inflation. The value of focusing on price-gouging is *precisely that they know it's an incorrect explanation* and will therefore bait Republicans into responding with "You can't do that!" Which makes the Republicans look insensitive and like they're trying to protect their big business allies, and throws them off their ideal talking points.
We should be concerned with "excess profits," not "price-gouging." There may be all sorts of reasonable explanations for increased prices, but, we should be less accepting of super-normal profits.
The prospect of earning outsized return is what drives businesses to innovate or to put into practice innovations.
How do you define "excess profits"? Do you have any examples?
Who gets to decide how much profit is acceptable?
I think one of the things that’s really striking about this round of inflation is that a lot of affluent people acted like they were helpless and they couldn’t economize on anything.
Like Florida teachers took it on the chin a bit. But because spouses exist I’d sit in lunch and complain that prices were going up while eating Uber eats and talking about the 100 person wedding we were having, our tickets to concerts and houses we bought.
I mean my sample size is nothing but like most consumers said they’d rather have a coke at inflated prices than drink Aldi brand cola.
Matt's take is missing an important point:
- If prices are stable, and you're the only one who raises prices, you draw attention and criticism.
- If prices are rising all across the economy, for good reasons and for bad, it's easy to slip in a price increase (or maintain a price increase) and blame it on "that's just how things are changing these days"
This is not about constant greed. This is about their ability to hide in the crowd.
Example: A 12-pack of Topo Chico somehow rose from $10 to $16 at Whole Foods since the start of the pandemic.
This made sense when there were glass shortages and the shelves were empty because of it. But why now?
I recently read notes from the Coca Cola CEO saying that price increases have been great for their profits. In other words, the market has changed and people now complain less, and they're taking advantage.
Could a similar thing have happened 5 years ago?
* Note: I don't agree with these legal maneuvers, but how about some shame? Why doesn't Kamala bring a 12-pack on stage and say "I used to like drinking this, until I learned how much they're taking advantage of us. Anyone else want to boycott these MFers with me?"
You can’t “hide in the crowd” and increase prices above the equilibrium dictated by supply and demand.
Yes, maybe coke doesn’t stand out raising its prices if Pepsi and Dr Pepper do so too, but if prices are above what supply and demand dictate, consumers will curtail consumption. All the beverage companies will be left with excess stock they can’t move, and thus have an incentive to cut prices to compete.
The fact that demand for groceries remains strong indicates price rises are in line with what you’d expect given strong demand driven by stimulus meeting cos trained supply (due to low unemployment).
Once again - you shouldn’t expect prices to be a function of input costs. They are a function of market forces.
You can’t ever increase prices above the “equilibrium point” dictated by supply and demand. Of course, it isn’t actually a point. It’s a curve. If you raise prices more, you sell fewer units. The point of capitalism is that there exists a profit maximizing point that works out pretty well in practice (or at least better than we have seen other systems work).
Imagine a time where cars, gas, electronics, meat, eggs, bread, etc are all increasing, all for good reasons.
And the sugar water people decide they deserve a little price increase as well.
Are you saying this new evironment doesn't make it easier for them to raise prices?
And in the case of the beverage market, the entire thing is made easier by having only two real players in the market -- Coke and Pepsi.
Notice how when Uber raises prices, Lyft matches the price increase pretty much the same day?
And the "gouging" comes in when their costs drop, and the industry collectively decides to not reduce prices, but to instead just pocket the price increase.
Chipotle is another company that likely raised prices when meat prices went through the roof, but once those dropped back down, decided they liked their high prices as-is and now have record profits.
'And the sugar water people decide they deserve a little price increase as well.'
'Sugar water' is a highly competitive market, and is easily forgone and replaced with non-sugar water, like tea, coffee or just plain water. People don't need sugar water and they don't need to buy it.
Easily forgone? Are you nuts? Have you ever seen anyone just give up their soda habit for coffee willy nilly?
Coke and Pepsi are a bad example because they are entirely discretionary purchases; one can always just drink tap water. And there are numerous substitutes including generic brands. Consumers accepting price hikes for such superfluous goods just demonstrate that they're flush with cash, either through wage gains or stimulus.
They undermine the people who think prices are merely reflecting a perfectly competitive, frictionless and transparent market.
It we live in that world, how is selling Coca-Cola a profitable venture?
People prefer Coca-cola over the alternatives. What's your explanation?
We only do this moral dance with corporations for some reason, but the same calculus plays out in all sorts of transactions. Housing prices are incredibly high, but I don't see many articles or commenters lamenting how greedy home sellers are by charging such high prices when they bought the homes for much less a few decades ago and CLEARLY don't need to charge the prices they're currently charging. After all, the homeowners could make a really nice profit with much lower sale prices! But obviously sellers in all markets are seeking to charge the highest level they can to maximize how much money they receive in any transaction.
At any time in history, sugar water people could have raised or lowered prices. They set the price at whatever amount people will pay that allows them to maximize profits. If people are willing to pay the higher prices, even begrudgingly, why is it suddenly evil for them to set the price at a higher amount? The market forces implicated allow them to do this, and consumers have every opportunity to turn elsewhere if they're upset about it. The price a Diet Coke was set at a decade ago was the same profit-maximizing price it's set at now. I pay it because it's worth it to me. As soon as I think it's not then I'll go elsewhere. It's not "gouging"- it's just supply and demand driving the cost of soda. Same as always.
This is an instance where it is worth while to remember that these public companies have binding legal obligations to maximize shareholder value. If they can make up profit with lower prices on volume Fanrastic, but chipotle probably knows or hired someone to calculate that if sufficient number of ppl bought food during a literal pandemic and rising prices, they will continue to do so at stable prices even as the rate of increase of input costs levels.
The true wickedness of inflation as a political problem is people broadly desire a policy mechanism that will enable a return to the ex ante nominal prices, a la 2019 price levels in nominal terms today. Which without people knowing as much, is really just asking for a cataclysmic recession/depression of demand.
Input costs did not fall.
Sorry this was imprecise, even as the rate of cost increases levels off.
Are you saying Chipotle is still raising prices at the same rate as it was in 2022?
“ And in the case of the beverage market, the entire thing is made easier by having only two real players in the market -- Coke and Pepsi.”
Actually, apparently somehow Dr. Pepper is the number 2 soda brand now.
https://www.beveragedaily.com/Article/2024/07/01/Building-a-beverage-brand-What-is-Dr-Pepper-doing-right
His point is that when Coke and Pepsi get too expensive, many people will decide soda isn't worth it and switch to drinking tap water. As long as people are merely complaining while paying higher prices instead of deciding that it's too expensive and not buying it at all, then the price hasn't reached equilibrium.
You do have a point that when inflation is in the news, it's easier PR-wise to raise prices. But usually, those are price increases up to what the market will actually bear. In times without inflation, people tend to keep their prices lower than that point and sell out their stock quicker because they know how much people yell at them for price increases.
I just wait until my supermarket has one of those big sales on Coke products and then I buy it in volume.
Which illustrates one of the ways that consumers react to prices they deem to high: compromise on convenience.
“And the sugar water people decide they deserve a little price increase as well.”
This would be price fixing and it’s already illegal.
“Are you saying this new evironment doesn't make it easier for them to raise prices?”
If Coca Cola could triple its prices and increase profits in doing so, it would do so today and it would be “easy.” No cover from other companies needed.
Your whole take on businesses setting prices is as though these are transactions within families or groups of friends — where some kind of personal relationship and feelings of what’s “deserved” normally dictates the price. In a market-based system, firms maximize their returns. It’s that simple. There is no “deserve”. There is no “easy” or hard. There is, in fact, no “deciding” on prices.
Your take makes me wonder if you’ve ever had an Econ 101 course, or ever sold something yourself on the open market. Correct me if I’m wrong to wonder.
Oh, and what’s “Topo Chico”?
Nitpick: "[T]he sugar water people decid[ing] they deserve a little price increase as well,” is not at all "price fixing" in the scenario described unless you assume sort of agreement between soft drink manufacturers, which David didn't mention. It's just "conscious parallelism" (i.e., competitors rationally reacting in a similar manner to the same market dynamics).
“The sugar water people” to me implied collective decision-making. Others may read it differently. Point taken.
Mexican mineral water brand.
Capitalism is the idea that if they maximize profit, things mostly work out okay. If they raise prices and sales drop little enough that profit increases, then they are doing what the market would expect. They now know they could make even more money if they could sell more units at the new price and are thus incentivized to increase production (which hopefully involves hiring).
Why shouldn't the sugar water people raise their prices? If people decide the price is too high, they are free to not buy any. If new competitors see a hole in the market for a lower priced alternative, they are free to fill it.
Like I mentioned elsewhere in this thread, this argument seems to ignore the fact that wages have risen faster than the CPI over the past 4 years, and all of these companies you're mentioning have labor as a significant component of their cost structures. It seems like you're assuming ceteris paribus for these firms when it comes to everything else they have to spend on, and that's really not the case.
This is why inflation is so pernicious-- it infects the cost structures of not just every consumer of family, but every producer and intermediary too. And the government.
Better yet: why doesn't "Greed" explain why Pepsi doesn't *lower* prices? Pepsi could see Coke getting greedy raising prices, and take advantage by lowering prices in an attempt to FINALLY dethrone Coke and capture enough market share to take the #1 spot. Surely Pepsi would be happy with lower profit margins (percentages) in exchange for more profit (absolute), as well as converting a bunch of Coke users to Pepsi users?
Yet that does not happen. What's the theory here? Corporations are only greedy in the ways that fit our narratives?
I'm not sure if this is a joke. Mineral water in a glass bottle is a luxury product, the price of which depends far more on demand than cost (which is minimal). Nobody is making you buy this product. You do not need to buy this product. Water comes out of a tap for practically free.
Likewise, brand-name Coca-Cola has always cost more than generic store-brand cola, despite the fact that they both have the same basic ingredients and both come in cans. Coke used to be, say, $5.50 for a 12-pack and the store brand was $3.50. Now Coke is $8 and the store brand is $4. It's the same thing with Doritos, as a random example: the official Doritos are up way more than store-brand cheesy tortilla chips.
Rational, price-sensitive consumers would buy more of the generic and less of the name-brand. Are they? Maybe a little. But most seem to be buying the name brand regardless, then feeling "ripped off." They're partly irrational and partly just not that price sensitive because Americans are loaded and food is a tiny percentage of our budgets regardless.
Did you folks know that this sort of discussion used to center on basic goods that people actually needed to, like, live? The price of particular private labels of particular luxury goods is so far from the domain of government that I think you all must have worms to be talking about it like this.
This is all correct, except I feel obliged to add that brand-name Coke does taste better.
This is true. Or maybe I'm just really used to the taste of Diet Coke.
I'm certainly not saying this is a life-or-death issue, but the question being debated is basically: Is inflation driven (in part, at least) by companies taking advantage of the inflationary environment to raise prices and avoid the blame?
I can say with some confidence that if someone is walking through the grocery store and the price of eggs, milk, meat, and bread are all up, the price increase on Coke is less likely to draw their anger because they view it as market-wide problem and not a Coke problem, and that makes it easier for Coke to raise prices.
To the Coke CEO, there's safety in being part of the crowd.
And if you find this argument convincing, and the CEO is saying he's raising prices because he can, and he's generating record prices, then people shouldn't dismiss the "taking advantage" argument.
Topo Chico is a special case. Before the pandemic it was mainly only available in Nuevo León and adjacent states like Texas. But when Coca Cola bought it, they made it part of their full continent shipping. They did this knowing that supply was constrained by the specific springs it came from, so that they were going to be able to raise prices while selling close to the maximum sustainable amount.
Keeping prices where they were would just mean shortages, particularly in places where there was already a taste for it.
I mean did you change your habits in response to coke raising prices? I’m
A fucking addict to Coke Zero and my wife and I never contemplated switching to store brand.
When she made a lot less money we shopped at Aldi regularly. We didn’t do that, as it has a much more limited selection. To like label this as greed when I don’t take the perfectly good discount options right in front of my face seems a bit much.
I changed my habits by only buying during sales (when the price of a 12-pack is lower by almost 50%) and then buying in volume.
I've kept my grocery spending relatively flat by doing this.
I keep going to Chipotle, but I dropped Topo Chico cold. Haven't had it in 2+ years.
I'm going to keep bad-mouthing that fizzy toilet water until it's back down to $13.50/case, max.
This is exactly right. When prices for all good are rising they become unanchored, and consumers are unable to punish them by switching to an alternative. In the medium to long term they adjust, but that doesn't help for the 1-2 years it takes to get there.
I'm from Argentina, where inflation was over 200% last year. Do you think small businesses are doing exhaustive pass through rate analysis? Or do they go "what's inflation going to be this month? 15% sounds about right, let's increase by that and see how it goes".
Now obviously Argentina is a hyperbole here, but it did happen in a smaller scale. Businesses looked around, saw their competitors rise prices and matched accordingly.
In a normally functioning market, if the price of 12 Topo Chicos went from $10 to $16 largely because some or all of the sellers decided to "slip in" this price increase, it would provide an incredible opportunity for one of the sellers to reduce the price to $14 and make extraordinary profits from all the volume of sales they win from their competitors who didn't do the same.
If no sellers are taking advantage of this opportunity then it suggests there are other constraints preventing them from doing so. For example: Their labor costs or rent have risen; the Topo Chico wholesaler raised *their* prices to the retailer from $8 to $14.25 per 12 pack over the past year; and so forth. These explanations would be incompatible with the original theory of price gouging.
I’m sure corporations would prefer to raise prices when everyone else is raising them as a PR matter, but as economic matter this theory implies that demand is inelastic with respect to price. Or at the very least implies that consumers don’t face any real budget constraints and all elasticity is whether the price “seems fair”. I’m sure there are some very rich people for whom that’s true, but seems clearly false for the vast majority of the population. It is also an especially strange argument for the left to make, when they are simultaneously saying everyone lives paycheck to paycheck.
Robert Reich has been posting on the topic for some time. Whenever he ends a post with the catchphrase "textbook corporate greed" I wonder what textbook he's talking about that explains pricing in terms of greed. Is greed different from profit maximization? Or is greed synonymous with market power? Maybe profit-seeking via industry consolidation; that seems more like greed. Reich does talk about that.
But if "corporate greed" is a progressive shibboleth, "supply and demand" serves a similar function on the other side. Supply and demand always factor into price determination. But what does the supply curve look like? If every firm were a classical price taker, it wouldn't be "easy" to raise prices even when costs rise. Who goes first? But if there's some market power, or some increase in market power, it seems plausible that upward price adjustments won't be uniform and instantaneous. So I wouldn't be surprised if market power had a significant role in pricing dynamics.
We can look deeper into the term "market power" too. It used to mean things "owns the only good railroad right of way up the east side of the Hudson, so we'll either need to pay their rates or figure out a railroad up the west side of the Hudson" - or maybe "owns the only flour mill for 200 miles, so if I want my grain ground, I have to pay their rates or do it myself with two rocks."
This older sort of "power" is akin to the power of a big guy on a bridge saying you have to pay a nickel to cross. You have options: pay the nickel, vote to build another bridge, or vote to nationalize the one bridge.
Now "market power" seems to mean "has a product that people want to some degree over alternatives & can thus charge a price premium based on that demand differential" - the "power" in this case is more like having the *nicest* bridge among many bridge options, and charging a dime because yours is the smoothest and has the nicest crenellations.
You can pay the dime or pay the nickel, but if most people can afford the dime, you probably won't have many supporters for nationalizing the ugly old nickel bridge, or for building a new one when there are already two. Passing some kind of "all bridges must be a nickel" law would be ridiculous, because there's already a nickel option.
Using the thread's preferred great taste of Coca Cola, what are the analogous choices? You can pay $0.75 a can for Coke or $0.25 a can for Generic Soda (approximately). (You can also drink water for nothing, but whatever). No one is calling for the establishment of a "public option" ("Government Cola") because we already have the generic. Instead, the goal would be, what, set the price of Coke to be the same as the generic by mandate? Patently silly.
I've gotten sidetracked, but this sort of "market power" is not like the old "market power." That was a strongman, this is a salesman.
WInston Churchill gave a speech about pricing power and "nationalization" of bridges in 1909:
"Some years ago in London there was a toll-bar on a bridge across the Thames, and all the working people who lived on the south side of the river, had to pay a daily toll of one penny for going and returning from their work. The spectacle of these poor people thus mulcted of so large a proportion of their earnings appealed to the public conscience: an agitation was set on foot, municipal authorities were roused, and at the cost of the ratepayers the bridge was freed and the toll removed. All those people who used the bridge were saved 6d. a week. Within a very short period from that time the rents on the south side of the river were found to have advanced by about 6d. a week, or the amount of the toll which had been remitted."
See: https://www.gutenberg.org/cache/epub/18419/pg18419-images.html#:~:text=Some%20years%20ago%20in%20London%20there%20was%20a%20toll%2Dbar%20on%20a%20bridge%20across%20the%20Thames
When Reich writes about market power and pricing, he's not talking about Coke vs Pepsi, but rather mergers and market concentration, such as in the airline industry or supermarkets. And when I hear talk about gouging, it tends to be about insulin (say), or Martin Shkreli, rather than soda.
Baseline academic macro models generally assume "monopolistic competition" where producers DO have pricing power....
Happy Labor Day, to all Slow Borers!
In observance of the day, Treadmill Industries has given the day off to its entire commenting staff.
I remain confused that greedflation is even a thing. It doesn't really matter whether businesses have gotten greedier or not.
The only universe this seems consistent with is one where the only restraint on increasing prices is how nice of people business owners are. Apparently if they are maximally evil they can charge an infinite price?
It's all so divorced from profit maximization that I don't even know how to respond. Is weird that the people that hate corporations the most seem to have a theory that relies on them charging prices below the ones that make them the most money for most of the time.
I notice that people then pivot to market power, but it's not plausible that market power suddenly increased in the span of a couple months. Particularly when M&A was at a historic *low*.
Bingo.
What really makes me sad about this is the fact that I want a society where people get smarter and learn about how the economy works.
One can debate about this particular case and come up with some theoretical models which predict that there can be situations in which inflation prompts some companies raise real prices. But I just don't see any system by which the average American could hope to be educated about what's likely of plausible or at least to leave with some better sense of the argument -- is it plausible it's all greed of are we at best arguing on the margins and what does that mean.
I want a world where not all the shit about this from experts don't feel cherry picked and the government or some nuetralish institutions would make us smarter.
I think a widely held view that when a corporation goes to the market and seeks out the highest price that someone is willing to pay regardless for the cost of production, that's greed. The same people, of course, don't think they're being greedy when they put their house on the market at 30% above what they paid (inflation adjusted).
FWIW, I think you're somewhat right, and many people do have different moral intuitions about large corporations than individual homeowners. I will say that I told my ex-wife that she was being greedy for insisting on selling our home to an investor from the UAE instead of a young local family (I googled as soon as we got the offers) for a difference of only $5K more (and she's a doctor who was making at least $340K/year in 2021). For "normal" homes (i.e. those under about 2x the local median price), I think that it's totally understandable and not "greedy" for a family to want to benefit from price appreciation, even though I understand this desire can also feed NIMBYism, and actually I have recently argued with my current wife that it's important to separate the investment vs. consumption aspects of a home (or condo, for us), especially as we think about potentially moving overseas for several years and renting our current place.
Conversely, during the peak of the George Floyd protests in 2020, my mom (who went to UC Berkeley) was talking about selling our parents' Bay Area house for the same price that they paid for it to a "minority family" (which would be approximately $200K when the market value is now >$1.5M); fortunately my dad talked her out of it, AFAIK...
Making economic decisions based on "minority" status is despicable.
So I just canceled my subscription to the New York Times.
They informed me that the cost of that subscription would increase to $300/year, a 15% increase over my prior cost and a 53% increase in their subscription price since 2020 (compared to overall inflation of 19%).
But journalism is a struggling business and it's important that we pay them what they need to keep their heads barely above water . . . except that the Times just announced that their profits went up 41% in the last year (https://www.marketwatch.com/story/new-york-times-says-new-digital-only-subscribers-helped-profit-rise-41-c05b5e7c)
Call if greed, call it asking the price that demand is happy to pay. Not by me, anyway. You want to rake in huge profits *and* then spike your prices? Fine, but you can do it without me.
Plus, their biased coverage of the Ukraine war makes me want to vomit.
"their biased coverage of the Ukraine war makes me want to vomit."
Biased against whom? (This is the first time I've seen anyone claim the NYT was biased on the subject of the war in Ukraine.)
Every article is "why this is bad for Ukraine" whatever is happening and why morale in Ukraine is plummeting and why Russia is about to take the nth "strategic" abandoned small town (which never turns out to be strategic; the NYT doesn't know what the word means).
See Phillips O'Brien on this.
I just don't get it. Did Zelensky deny them an interview or something?
Thank you for the context.
Thank you for this. It’s all about demand and rising preferences. Somewhere along the way, we decided that we needed that $20 Chipotle burrito with quac and upgraded meat delivered to us by DoorDash instead getting off our butts and driving thru Taco Bell. Then we bitch about inflation. We saw a behavioral change from the pandemic and we ain’t going back. God help you if you pay DoorDash to deliver Taco Bell.
On the other hand, if you can afford to order DoorDash on a regular basis I think God might have helped you enough already.
I mean I mostly Ubereats mostly because I forgot my lunch. I don’t have time to leave school and come back. It’s 7 dollars cheaper to get roughly the same mix of vegan food at Tacobell versus chipotle. (A black bean crunch wrap sans dairy add pico, guacamole and rice. Compared to a sofritas burrito add guacamole.
Not a ton but it’s not an amount of savings that I’d scoff at. Like I don’t know what the beef is here.
If you're not complaining about the cost while ordering it, there's no beef
I think the most important line in this whole article is that "greed is a constant". That's how I argued with people who took up this greedflation line with me in person. Do people really think that corporations got greedier? They have always been greedy, so that doesn't make any sense. They've just found that their old prices don't maximize profits as well as their new ones do. If they end up lowering prices, that won't be generosity, just a judgment that they can make more money by lowering the price and selling more units.
I think Matt is basically right in that you only want to do externally imposed price controls when there's a disastrous result without such controls. For example, if people cannot afford infant formula, that is disastrous, and the government should intervene to make sure that infant formula is both widely available and affordable. Insulin is another such product. But there aren't that many of these products where the product is both necessary and impossible to substitute.
WRT insulin, I have wondered why we don't just have the government get involved in the insulin business. This could take the form of the government building a factory to produce the 2-3 most common types of insulin and selling doses to American citizens with insulin rxs for whatever we determine a fair price is. Alternatively, offer contracts for private producers.
It seems enormously desirable to just shortcut around the drama involved in trying to negotiate prices or threaten price controls or whatever. This has the added benefit of keeping critical infrastructure in the US.
It really does make a lot of sense. The reason why we haven't done it is that before the pandemic, it seemed like both sides of the aisle were really against the government getting into enterprises that the private sector already has a substantial stake in. The pandemic really changed the conversation on this, but the American instinct is still to use the government's money to sponsor private sector endeavors (ie the CHIPS act, the IRA, etc) rather than having the government do things directly.
I appreciate articles like these. Sometimes there's a really dumb idea out there that needs debunking. The obvious ain't gonna state itself.
Relatedly, the best summary of how it feels to be a proponent of free trade comes from a 21 year-old Reason Magazine article, which is as true today as it was then: "it often seems as though free traders are trapped in a public policy version of Groundhog Day, forced to refute the same fallacious arguments over and over again, decade after decade." (https://reason.com/2003/10/30/lous-blues-2/)
Matt Welch on the Fifth Column referred to MY and a few others as "the progressives who are allowed to say obvious things that are happening."
Granted this was 2020 when that was more difficult.
Interesting (?) anecdata:
At the Minnesota State Fair, at least by my memory, the price for a 12oz beer, a 20oz beer, a cattle barn milkshake, and a Giant Egg Roll on a Stick (all highly recommended)--all unchanged since 2021 if not before.
My local Domino's has had a $7.99 "carry-out deal" for a two-topping large pizza since before COVID and my wife and I agree that we have no idea how they haven't raised the price on that by this point.
The bag of coffee I buy frequently dropped from $18 in 2021 to $15 now. I have no idea why and it's the only thing I can think of that's dropped.
I wasn't trying to make any kind of particular point! I was just at the Fair on Saturday and I thought it was interesting.
Yeah me neither, just making an observation.
I should be more clear when I'm doing that.
More like the price for diarrhea.
Ken, you can insult and denigrate my politicians and my beliefs all you want, but if you start shit-talking the Great Minnesota Get-Together...
You mean that annual fair that was cancelled during the pandemic?
MY's bit misses what is in some of the comments, but also the politics of it. Harris is playing this well, IMHO.
Only if you are okay with politicians, promoting bad policy
I am.
I'm not OK with losing in order to be "right."
Politics aint beanbag. Real people's lives are at stake.
(e.g., Obamacare literally saved my life)
Since Matt is recycling a post, I'll recycle a comment.
Price gouging does not create inflation.
Supply disruption does not create inflation.
Greed workers do not create inflation.
Lockdown does not create inflation.
Sector shifts following lockdown does not create inflation.
"Inflation always and everywhere is a monetary phenomenon" :Milton Friedman
The Fed creates inflation, disinflation, deflation, unemployment, employment, recession, and recovery from recessions with its management of monetary policy instruments. Sometimes these outcomes are the result of mistakes -- the instruments did not work as the Fed expected. Sometimes a result, namely over-target inflation, may be to preserve/restore full employment in response to one or more of the factors listed above. But whatever the reasons behand the management of monetary policy instruments, causation of macroeconomic outcomes runs through the Fed.
To take the Greedflation/price gouging/corporate rapaciousness hypothesis more seriously than it deserves, if a big enough group of CEOs simultaneously raised the margins between other costs and the selling price, this would pose a choice for the Fed: create a little extra inflation to let the rest of the economy adjust to this event or see some additional non-clearance of markets. Presumably, the Fed would chose the extra inflation; that what the "Flexible" in Flexible Average Inflation Targeting" means. IF THAT is what is meant by "Greedflation/price gouging/corporate rapaciousness," then yes, Greedflation/price gouging/corporate rapaciousness or supply disruptions or greedy workers or lockdowns and sector shifts in demand can cause inflation and we should be happy the Fed made the best of the situation.
https://substack.com/home/post/p-145235739?source=queue
and
https://thomaslhutcheson.substack.com/p/pandemic-and-inflation
Not entirely true since there have, historically, been numerous cases of fiscal mismanagement, so egregious that no central bank could ever maintain stability.
TBF you can come up with theories that predict some transfer of surplus from customer to corporation. I give one below but yah that's just the fun of but actually not a reason to see it as the normal course.
People have limited time to shop for cheaper alternatives and during times of low inflation this isn't a problem because it's relatively easy to check if a product is getting more expensive than your expectations. During an inflationary shock people's sense of what's normal is upset and thus inflation serves as a kind of signal that maybe companies with large customer bases you can raise prices more than competition should allow and take profits during the period it takes people to realize which products they can save on.
Thomas, would you describe in a very simplistic mathematical formula how you would say that inflation works?