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Comment by NickM | Hacker News Reader

Okay, so let's set consolidation aside, since I agree that's a real problem in some sectors.

took advantage of...the political narrative...to raise prices for more profit

I genuinely don't understand why so many people think this matters. What do you think would have happened if companies had decided to raise prices without having an "excuse" like this?

Prices aren't kept under control by consumer outrage; we all may be mad about food prices, but we all still have to eat anyway. Yes companies are bragging about being able to raise prices, but it's not "because they can", it's because there's a supply/demand mismatch.

The cause of that mismatch is complicated and varies by market sector, but this isn't some case of like, they couldn't raise prices in the past because people would get too mad at them, but now they've finally figured out how to fool everyone into not getting mad. It's clearly a much more nuanced situation we're in, no?

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In some areas of the economy, there truly were inflationary pressures that led real price increases. But there's always the human element and FOMO at play. Once "we're experiencing inflation" became a thing, it also presented an opportunity for other companies in the form of a cover or "excuse" to raise their prices simply to improve margins. "If these companies can raise their prices why can't I?" would be a component of that logic. Kingsford Charcoal* tried this but it backfired - mainly b/c there were other alternative charcoal companies that didn't raise their prices.

* https://www.businessinsider.com/kingsford-hiked-prices-too-m...

Over the 10+ years on HN the one thing I have learned is that vast majority of tech people simply have no idea how commodities works. I would have thought 2020 with Toilet Paper roll would teach them a much needed lesson, but other than the constantly repeated bullwhip effect it doesn't seems much have changed.

> it's because there's a supply/demand mismatch.

No, it's because demand for food is inelastic.

Free market theory is useful for getting general ideas for how doing X or Y might affect the economy, but once you're talking about the actual economy made up of actual people, you need to forget it, because "free markets" that actually follow those simple rules directly are effectively nonexistent.

In this case, you don't even have to go so far as to say the theory is wrong, because it lays out certain conditions for what can be considered a "free market", and elastic demand is one of those.

> they couldn't raise prices in the past because people would get too mad at them

They didn't raise prices before because they believed people would get too mad and they'd lose money.

Due to a fairly complex combination of factors, that's no longer true.

Some of those factors are the increased consolidation of nearly every part of our economy, meaning that there are vastly fewer players in a given sector that would have to defect in order for this to stick; the (relatively speaking) massive levels of political and economic turmoil the US (and the Western world more generally) has suffered over the past several years, leaving people much more numb to stuff like this, at least in the short term; and the number of people willing to sit there and justify their actions for any of a wide variety of reasons. (And yes; the supply shocks of the pandemic that actually justified raising prices are a major factor, and were clearly the trigger for this—the thing that either gave them the idea, or showed them that it might work.)

Demand for cheerios is elastic- people can substitute by buying oatmeal. Demand for salmon fillets is elastic- people can substitute by buying tuna, beef, beans, tofu, etc.... for just about any given food item there are substitutes to provide similar high quality nutrition.

You are simplifying too much by saying demand for food is inelastic. It's true that people consume roughly the same amount of calories every day. However, Grocery stores are a low-margin business. Your grocery store is in constant negotiations with suppliers that vary from local produce farmers to General Mills to Anhauser-Busch. Some suppliers may be making high margins.

The idea that increased consolidation has caused this inflation has to compete with other ideas- such as:

The productive output of all sorts of businesses decreased during the pandemic at a time when the money supply increased. There were more dollars chasing fewer goods. As the pandemic eased off, the productive output was able to climb back to capacity, but money supply increases (and lagging effects of reduced inventory of goods) remained in effect.

In a time where there is less production, the production that remains is more valued. Margins would tend to increase in this environment.

How do you prove that the consolidation effect is more relevant than the macroeconomic picture?

> Demand for cheerios is elastic- people can substitute by buying oatmeal. Demand for salmon fillets is elastic- people can substitute by buying tuna, beef, beans, tofu, etc.... for just about any given food item there are substitutes to provide similar high quality nutrition.

This would be a good argument but I feel it’s undermined by the heavy consolidation in the food market, no? If the same company is selling each product, then it doesn’t matter as much if a consumer switches between them

I agree with the rest of what you said. I certainly don’t know how to prove which is more relevant but I believe the supply shock and excess money played the largest role, however I think it’s wrong to dismiss either as both seem to be at play.

It matters even in a Consolidated Market. The cost of a thousand calories of steak is different than the cost of a thousand calories of dried beans.

Just because the cost of dry beans has gone up 10% doesn't mean that you can't save money by eating them instead of beef.

If customers don't switch to beans despite high prices for steak, it tells you something about the demand for beef relative to the cost sensitivity of customers.

Ah, yes: because people who have limited disposable income were making up most of their calories with steaks...and because everyone who was buying steaks will be going aaaaalll the way to replacing them with dried beans.

Rather than people with limited disposable income already buying cheaper foods, and when those get more expensive, just having to buy less.

And, once again, for many, many things, the company that sells the steaks is owned by the same conglomerate as the company that sells the beans, and they're raising the prices in lockstep.

> Yes companies are bragging about being able to raise prices, but it's not "because they can", it's because there's a supply/demand mismatch.

Yes it is "because they can" but they can because there's a supply/demand mismatch and demand is inelastic to price increases.

And demand is inelastic because customers have enough money to pay for more expensive Goods before switching to cheaper substitutes.

People aren't buying beans instead of steak because they really want the steak and can still afford it. The price of steak will only go down if people are no longer willing to buy it.

Are you saying that there's insufficient supply for some reason other than consolidation? I can think of many reasons, but they all share consolidation as a common factor when tracing back to the root causes.

There are tons of reasons just in the last few years that I don't believe have anything to do with corporate consolidation: the war in Ukraine, the rise and fall of the pandemic causing rapid unexpected swings in consumer spending patterns in a wide variety of ways, healthcare workers burning out and quitting (resulting in more pressure and burnout in remaining workers), factory shutdowns overseas affecting chip supplies (affecting supplies of cars, among other things), a bad bird flu season drastically reducing supply of eggs, etc. etc.

I could go on. I agree consolidation is a problem, but it's certainly not the only one.

The argument is that consolidation (and various neoliberal stalwarts e.g. Larry Summers) are the reason these companies are getting away with it. If the market were more diverse, you wouldn't have confident oligopolies raising prices with impunity.

I would add on class warfare. There's not really any such thing as corporation vs corporation anymore, it's class warfare with capital vs not, and capital knows it. All the X companies just raise prices uniformly because why would anyone not do it and ruin the party?

Okay, so when the bird flu hit and suddenly there were way less eggs to go around, what if companies had kept egg prices exactly the same? The result of that would be that all the eggs would sell out and we'd have empty shelves, since there literally weren't enough eggs to go around.

But that didn't happen. Eggs became more scarce, and therefore more valuable, and thus prices universally went up. People who still wanted eggs badly enough and could afford the high prices paid a premium for them. Other people bought and ate something else instead.

And then when the supply came back up, egg prices came back down. This is how the system is supposed to work, and it's exactly what I would expect to happen in a situation like this.

You're saying you really think that whole story had nothing to do with supply constraints, and it's all a big corporate class warfare price fixing conspiracy?

Actually, what you're describing pretty much did happen in the UK (which is where this blog post comes from). British supermarkets are generally less willing to raise prices than elsewhere in the world and certainly didn't increase egg prices to anything like the levels seen in the USA. As a result, during the rough time period where the US had really high egg prices, the UK had egg prices that were more or less normal but the shelves were usually empty.

Netflix' prices have dramatically increased. Did a container ship full of bandwidth get trapped in a canal again?

Tech vendors are increasing prices "to keep up with inflation" :eye_roll: [0]. Nothing at all to do with supply and demand here.

[0]: https://www.theregister.com/2023/06/16/tech_vendor_price_hik...

> Okay, so when the bird flu hit and suddenly there were way less eggs to go around, what if companies had kept egg prices exactly the same? The result of that would be that all the eggs would sell out and we'd have empty shelves, since there literally weren't enough eggs to go around.

> But that didn't happen. Eggs became more scarce, and therefore more valuable, and thus prices universally went up. People who still wanted eggs badly enough and could afford the high prices paid a premium for them. Other people bought and ate something else instead.

So the egg supply went down. Yes, you'd expect to see empty shelves, because there were fewer eggs to buy, and they're useful. Instead what we saw were shelves as full as before, because of prices went up. What that means is, people were already buying fewer eggs, because the supply was so much lower, but because of prices going up, people bought even fewer than that. There were a shortage of eggs, and yet because of prices being raised, they couldn't even sell through on the eggs they had.

How much of the reduction in egg consumption was due to reduced supply, and how much was due to raised prices? No idea.

What would I expect to see? If the egg supply dropped precipitously, I'd expect a company which makes their money selling eggs to make less money. Or raise prices so that they make the same amount of money. Instead, they raised prices so they made way, way more money.

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