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Comment by blakesterz | Hacker News Reader

The study [0] says it's mainly 3 things.

(1) Rising prices in systemically significant upstream sectors due to commodity market dynamics or bottlenecks create windfall profits and provide an impulse for further price hikes.

(2) To protect profit margins from rising costs, downstream sectors propagate, or in cases of temporary monopolies due to bottlenecks, amplify price pressures.

(3) Labor responds by trying to fend off real wage declines in the conflict stage.

So they say that the sellers’ inflation generates a general price rise which may be transitory, but can also lead to self-sustaining inflationary spirals under certain conditions.

[0] https://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1...

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Wouldn’t (1) be mitigated somewhat if there was more competition in those sectors? Competition should bring windfall profits back in line, but not when many sectors reflect duopolies or oligopolies.

I think rather than pricing regulation we just need better antitrust enforcement.

Except windfall profits, free money for those upstream the chain due to low Fed rates, and weak regulatory environments have all encouraged massive centralization.

Those M&A have devastated so many markets and companies, IMHO.

Is it a weak regulatory environment, or is it simply one designed to favor industry incumbents and prevent new competitors?

probably both.

The overlap on this Venn diagram is significant.

What's the difference? Seriously, how can we tell?

The former. A lot of the industries where absurd amounts of profiteering go on (especially retail) have nearly zero regulations - you don't need a license to start up a supermarket.

The problem is that the the big stores (Walmart, Amazon, Costco) are too big to compete against: they can afford loss leaders or, hell, even entire loss stores simply to drown the entirety of smaller stores in dozens of miles around them, and on the purchasing side they can demand insane rebates and other terms (e.g. payment schedules >> 30 days) from vendors which makes it fundamentally impossible for smaller stores to get the same terms.

Regulatory capture is the least of the anti-competitive forces running around your typical market. Network effects, two sided markets, vertical and horizontal integration, brand loyalty, M&A, economies of scale, and even the structure of property ownership itself can have major anticompetitive effects. Yes, regulatory capture belongs on the list too -- but as a bit player, not as the prime evil.

Some of these forces are things we want to encourage (economies of scale), some of them we probably have to allow, and some of them are pure emergent evil that we have "collectively" decided not to mitigate.

Deregulation only address one of these forces. It's not a useless idea, but it gets wildly over-promoted by people who A. can't bring themselves to admit that the free market would ever create emergent bad incentives on its own or B. don't want the government to stop them from exploiting said bad incentives.

I think it would have to be some kind of pricing power calculation. Cause it doesn't really matter how many firms you have colluding.

Competition but also low price of entrance/ability to enter.

If raising capital for competitors is hard (see current financial situation) then even without a trust, the competing entities benefit from raising price as the demand is captive.

Competition by itself is not a solution. You need new competition. The current state of financing a new entrant is what needs to be looked at.

Capital has been incredibly cheap for a decade or so yet we've seen consolidation in most markets as opposed to increased competition, for a large parts because it was incredibly cheap to buy out your competitors, and it allowed blitzscaling practices.

If capital is expensive, being a good business with profits becomes a competitive advantage again, so I expect more competitors in the long term.

Yes but only if the people that yield that capital understand that.

Which. Is not a given rn.

Some sectors may have decent competition, but external factors may be choking supply.

For example, if there's a sudden spike in demand for, I don't know, remodeling homes, even perfectly competitive suppliers will take time to increase production.

Pine trees take time to grow before they can become 2x4s I suppose.

Then there's the question of if they believe the spike is temporary, in which case it may be too costly to expand production enough to restore the old equilibrium.

In addition, my understanding is that there were a lot of skilled workers let go during the pandemic that aren't (or won't) come back, which is a huge choking point.

This is always curious, but doubly so in times where "good pay deal" means the net pay cut for 2022/23 is just a single digit %. At the same time some people yell about pay increases causing inflation - triply curious.

That's not necessarily a problem you can do much about though, it's just the nature of markets (and life in general) where some things just move slowly. Supply trails demand or investment in supply was over-optimistic vs actual demand.

There's some ways to deal with it like futures contracts and strategic reserves... or more aggressive gov intervention like how Quebec built their awful maple syrup cartel via forcing companies to stockpile supply centrally. But mostly there's some hard limits to how much you can optimize a market.

Demand spikes or supply bottlenecks are the normal drivers of price increases. Market and competition doesn't mean "stable prices for all eternity", but "the market is the best tool we currently have to dynamically adjust to a changing environment".

Following your example, a lack of 2x4 has to drive timber prices up, so the scarce resource is used where is most needed: to the people who is paying the higher prices. If that people is wrong in their predictions, they will suffer the consequences. The market dynamics should 1) allocate the current available 2x4 where they are more needed, 2) accelerate the production of 2x4 that previously were non profitable (e.g. remote forests) and 3) explore possible substitutes previously non profitable.

But when you study inflation history, you notice it's always blamed on the business raising prices. With an ideal fixed amount of money in circulation, a spike in timber prices is only possible if other prices fall. If prices are increasing everywhere, someone is playing foul with money. Sometimes and for short periods it can happen a credit expansion or crunch (imagine people hoarding or spending gold thus varying the amount of money in circulation), but that won't extend for long unless someone is minting gold coins with some cooper in them.

> With an ideal fixed amount of money in circulation, a spike in timber prices is only possible if other prices fall

I don't think this is evident at all - a supply shortage will still cause a price increase? Nothing in the classical demand curve model depends on money supply. You can get shortages that increase prices in one area and change the distribution of consumption and investment. The business cycle is still real, and indeed theory was developed around it, even on the gold standard.

But this is something missed by all sorts of hard money advocates. Using bitcoin can't stop OPEC from driving up the price of oil, for example.

> spike in timber prices is only possible if other prices fall.

This isn't true. If there's less stuff being made then prices go up and people get to buy fewer things. Which is roughly what happened during covid.

Covid was a very special an unique event. But even then the following prices plumeted: hotels, travels, vacations, etc. And in general, the CPI for the hardest part of the event (march, april and may of 2020) was negative: demand fell even more than the offer, and prices went down.

Duo or oligopolies would be nice to have. We have monopolies, at the owner layer. That they own several buisnesses in the same sector, to placate monopoly regulations, does not reduce the lack of competition.

https://en.wikipedia.org/wiki/BlackRock

Im continously suprised that people, by assumption of brands and company names assume we still have duopolies or oligopolies.

You can own a whole industry sector without mergers and funny make pretend competition. The competition may hold true for software, because its such a young sector, but for everything else...

How would that look say for Target and Walmart, to pick an example?

Collusion at board level? Or the two sides playing chicken, enjoying the profits and hoping neither does something drastic? It doesn't seem like a stable state but I could see it go on for a bit until there is a correction.

Blackrock mostly sells investment products (although they also own houses through their REIT). Are you sure you don't mean Blackstone? Are you saying that Blackrock owns a stake in most competitors through its index fund holdings?

EDIT: Ah, the "Ownership and transparency" section of the article clarifies.

Not really. The problem there is more sector-wide capacity, not competition - companies have no incentive to drop prices in order to get more business because they're already selling as much as they can produce even at inflated prices and all their competitors are the same - and so long as that capacity problem is still there, it doesn't really matter how many companies it's divided up across.

As far as I can tell, the claims about unchecked corporate pricing power being to blame are only about the steps after that and the companies further down the supply chain that rely on the bottlenecked sectors for their inputs, either directly or indirectly. The argument is that unchecked pricing power, a lack of competition and the knowledge that their competitors are facing the same cost increases allows companies to pass on the costs in full or even pad out prices further and increase their profits.

(Also, a lot of the capacity issues are in fossil fuel production, which the mainstream media and activist investors have been campaigning to further reduce capacity in by trying to end new investment to replace declining wells - and telling people that the only downsides of this are for fossil fuel companies whose profits will reduce. Then they blamed corporate greed when this actually had the effect that basic economics said it would.)

Yes, better enforcement.

I don't think there's any real relation. The single sector that saw the largest increase in prices were new cars followed closely by used cars. The market for new cars has a dozen or so major global companies and the used car market is about as pure of a market as you can get.

Ultimately it's gigantic corporation vs gigantic corporation. Walmart, Target, Best Buy, Amazon, et. al. aren't being pushed around by suppliers. If there were great margins to be made in manufacturing these companies would (and do) step in with their own branded products.

Anecdotally, I think Covid was like a conductor giving the orchestra a cue to start playing. Everyone ran into supply issues at the same time and naturally raised prices to the new point on the demand curve. Those that didn't see supply issues saw everyone else raising prices and figured why not take some easy money. Even if they wanted more market share they wouldn't have been able to expand production.

IMHO, it also revealed that demand was more inelastic in the short term than expected. Like my kid's frozen waffles went up like 2 bucks for an 8 box over Covid. I pay more than I want to but my demand's pretty inelastic. Not gonna fight my kid on his food choices over 25 cents a day. Eventually that will break and I don't think I'm gonna start the next kiddo on the same habit.

> Everyone ran into supply issues at the same time and naturally raised prices to the new point on the demand curve.

Some fancy pants buying a car with cash at $35,000 over MSRP last year during the new car shortage could be called a "new point on the demand curve." But actually financing a car for that last year? Unless there was an enormous increase last year in down payments, it points to bank shenanigans. Loans typically last longer than a year, and banks look at trends past the year in which they write the loan. Granted $35,000 over MSRP is the worst case I've heard. But the more common case of vehicles financed for 5 - 15k over MSRP for rapidly a depreciating asset is still a problem.

And now, a year later, it seems we're already seeing the other end of those shenanigans-- increasing delinquency levels and banks holding off on repos. Because after repo, the difference between the loan and the actual value of the vehicle is stark for all to see.

I have no idea where this market is going. But greedy dealers and finance depts have added so much energy to "natural" market dynamics that it could push many of the cash-strapped used car dealers out of business. Hell, even Carvana may not have the billions needed to survive this volatility. None of this is good, and it's all based on short term greed with little to no basic oversight last year to stave off the obvious risk.

If that behavior is in the set of "natural market forces" then the term is so broad as to be meaningless-- might as well say "inflation is what it is" at that point.

Did the used car market ever recover from 'Cash for clunkers' taking a large portion of supply artificially off of the market?

>(3) Labor responds by trying to fend off real wage declines in the conflict stage.

minimum wage in most places is still $7.25, and in some places as low as $2.13

We have no windfall tax and badly need one.

Basically when inflation hits and input costs rise, prices rise, but by a higher amount.

It's pretty intuitive. If you're going to change the price due to an increase in costs, why not increase it a bit more and then just blame it on inflation?

Or, if costs come down later, why reduce prices unless you have to?

This is why inflation is can be so stubborn, increase costs in a single input can ripple though the system, then cycle back and increase costs even further (say cost of labor).

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