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Comment by HDThoreaun | Hacker News Reader

This really isn't damning at all. Egg supply was hit hard by the bird flu, while demand didn't change. In order to keep the shelves stocked prices necessarily must go up, but the suppliers costs didn't change. Surprise surprise, charging more for your product leads to increased profits. Egg demand is quite inelastic, so reducing quantity demanded by just 10% could easily force prices to double as we have seen, which would explain the large profits. If prices hadn't increased you wouldn't be able to buy eggs. Is that really better? There simply are not enough eggs to satisfy demand at last years prices.

The fancy egg prices weren't affected as much because those chickens live in better conditions and are therefore less likely to fall victim to a flu outbreak.

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Maybe it isn't collusion, but aren't you just describing price gouging? Some unfortunate act of god event happened that either spiked demand or caused supply to drop. As a response sellers increased prices to a level that many can no longer afford.

So which system would society rather have to allocate a limited resource? First come first serve? Person who can pay more? Physical fights? A lottery?

There is no single answer, but the more essential an item is the less accepting society is with "Person who can pay more" approach. Eggs are one of the more fundamental ingredients in the diets of many Americans.

Yep, price gouging is just regular market-based pricing but when it occurs during an emergency. Why some people think it mysteriously stops being a good system during times of emergencies is beyond me.

>Why some people think it mysteriously stops being a good system during times of emergencies is beyond me.

It's pretty simple: this 'self-regulation' is most harmful to the people who are most vulnerable during emergencies. The rich always have a lot more options to deal with scarcity.

But if that's true, isn't it also true in times of non emergencies? This just seems like an argument against market pricing in general.

That is the dirty little secret of price gouging laws. It is just the system acting as normal so labeling that behavior as immoral is basically an indictment of the entire economic system.

Increased pricing signals the issue to consumers who would otherwise be unaware though, that's why it generally works. I don't know the technical definition of price gouging, but I typically associate it with something that consumers NEED, i.e. Hurricane comes through and wipes out 20% of homes, hotels raise prices when people are literally stranded == gouging. Raising eggs prices... wouldn't people just not buy / buy less eggs? (That's what we chose). Seems like that would also keep supply from bottoming out as quickly.

I can't find it now, but I read somewhere that CalMaine had managed to mostly escape getting avian flu in its own birds. So it would make sense that their profits would dramatically increase if the price of eggs goes way up b/c of bird flu, but they can still sell the same number of eggs b/c their birds are not sick/dead. That explanation wouldn't require collusion, just normal supply and demand in a competitive market. (Cold comfort if you're poor and can't afford eggs anymore, though.) You could argue it's price-gouging, but, well, they're a public for-profit company. They're pretty much required by their shareholders to price-gouge when they can do so legally.

And of course it could be some of this (legal), but also some amount of collusion to fix prices (likely illegal).

I heard the same.

At some point, price gouging laws apply.

But below that point, if one company takes steps to prevent bird flu in their flocks, then they get rewarded when all the other flocks get bird flu.

Rather than looking at one company who managed to do well in the situation, I'd be curious to know what happened to overall egg producer revenues. If they went up, there's likely price gouging going on. If they went down or stayed the same, well, that's bird flu, and this company did well by planning for the future.

But if the supply went down, presumably they have fewer eggs to sell or higher costs thus making less profit, right? But since they are making record profit, that seems to imply that the rise in prices is not tracking directly with the drop in supply, but that someone in the chain is artificially raising prices to profit off the perceived lack of supply.

One company had increased profits, not the industry at large.

That one company happened to be one that invested a bunch of effort in preventing bird flu from infecting their flocks.

The article is low on specifics. This company may be "the largest" but how big is that? They could still be less than 5% of the market. If sufficient other farms had high levels of chicken death due to bird flu, it makes sense that the farms that did not would do well, while still tightly constraining supply.

It’s about elasticity of supply versus demand. If the supply shock reduces supply by 10% and prices increase by 11% then revenue would be unchanged. But if consumers don’t substitute in the face of that 11% increase then prices will continue to climb, increasing profits to more than they were before the shock.

That doesn't necessarily track for me. Supply decreases while demand remains constant or rises, sure you charge more per unit. But you also ship fewer units. So why is it a given that the profit margin or overall profit amount would increase? In fact, if that were the case wouldn't it mean that they were previously underpricing their eggs?

You say

> Egg supply is quite inelastic

But right before that you say

> Egg supply was hit hard by the bird flu

Then you say

> reducing demand by just 10% could easily force prices to double

I’m totally confused. Are you mixing up supply and demand?

fixed, thanks

It’s still not correct tho. Now it says that if demand drops by 10%, that means price goes up. But that should be the opposite of what happens.

Demand curve is unchanged, quantity demanded changes as prices change.

yeah, what's really amazing is how 'they' go after all these companies for 'profits' yet no one says a damn thing about Moderna's 65% profit margin (after paying taxes). And this isn't on top of small numbers, they are taking home ~13 Billion$ per year on ~20 b.

Forget Moderna, how about the very businesses that people posting on this forum benefit from?

Their lifestyle being made possibly by the 20%+ consistent profit margins from businesses that have relatively little risk from natural world events, from the safety of working behind a keyboard.

Not that software and hardware businesses do not have risks and are earning disproportionate profit margins, but the idea that businesses with risks such as viruses killing their whole supply or multi billion dollar oil rigs sinking could not also require sufficiently profit margins to attract investment.

High profit margins aren't a problem when there is a significant value add. Moderna is taking extremely inexpensive bulk chemicals and turning them into much more valuable finished medicines. Of course there is significant capital cost - research, equipment, dealing with regulatory bodies, etc but once all that is paid for pharma is basically a money printer.

would you put all your retirement savings in moderna stock then ?

would I? I wouldn't. Why not?

I think something is going to happen that I am not allowed to talk on social media about, otherwise I would do just that.

edit: see, just the very mention of it gets me downvoted.

> This is pretty damning especially given the more deadly avian flu of 2015 did not cause prices to rise so significantly.

Does anybody have a some historic record of egg supplies and sales? I'd be curious how 2015 lines up with now.

If prices didn't increase you could allocate eggs by lottery, or limit quantities. Some stores did limit quantities.

Charging more for a product to allocate demand doesn't necessarily increase profits. If the profits aren't invested to raise production at the remaining farms, e.g. if supply is inelastic, which it might be in the short run (raising new chickens at farms that got bird flu would take just as long as at healthy farms, you can't force existing chickens to lay more eggs, etc.), then the profits ought to be rebated back.

In fact, retaining profit can be a sign of price gouging. It means you've run into inelastic supply and there's no place to spend that money to solve a short-run problem. On the other hand, maybe they'll reinvest it next year or over the long term into expansion, and you might want to reward investors and management at well run farms; but if this flu is a freak accident of nature where equally run farms might get it or not, then no.

The aforementioned company doesn’t appear to have been affected by the shortage like others. In the article it says they sold similar numbers of eggs the previous year. So they benefited from other businesses losing supply.

I think government intervention in the face of short term supply shocks such as what we’re seeing here make sense. The lack of them isn’t the same as price gouging though. Food rationing is incredibly unpopular politically so it’s not surprising that it didn’t happen here.

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