Greedflation: Corporate profiteering 'significantly' boosted global prices,study
theguardian.com
theguardian.com
If it’s not the retailers, it’s the wholesalers, the suppliers, the utility providers, the lenders, the executives, the land-owners, the unions and even finally the workers. All of them trying to make as much money as they can. All of them raising their prices whenever (and if) they can.
Greed is not an explanation, because greed is everywhere in the supply chain, right down to the bottom. The question shouldn’t be why they wanted to (since why wouldn’t they?), but why they could.
Examining which part of the supply chain put their prices up seems pointless unless it sheds light on why that part of the supply chain in particular could put their prices up.
That's a question that has interested me. I came up with:
We (the 99.9%) are not poor enough. We can still afford it "in some sense" and to some degree". The poorest, say, 30% shield the rest of a society from paying too much.
p.s. If you know this idea has some academic name, please lemme know!
It's not necessarily "the poorest [...] 30%". It's the marginal consumers who's willing to comparison shop and put in the legwork. They keep prices down for everyone else, by threatening to switch to the other store if one store decides to get too greedy. True, being poor might be correlated with putting the legwork into saving money, but wealth isn't the definite factor.
>p.s. If you know this idea has some academic name, please lemme know!
sounds like https://en.wikipedia.org/wiki/Economic_surplus
aka, it's too difficult to price discrinimate common essentials (lord knows they try - look at how much labeling of "organic" and "natural" foods there are!).
This combined with hyper-optimized inventory chains.
Even if there is a competitor, the max they could absorb would be a 10% increase in demand (look at what happened in toilet paper during Covid).
So, even if I comparison shop and buy from a different supplier, only 10% max will benefit and then the new supplier simply can't add anybody else--everybody left has to go to back to the inflated price supplier.
And that's only if some upstream supplier isn't a monopoly supplying the whole sector.
In 2020-2022 my input costs (housing, food) went up ~20%, so I also needed to increase the price of my labor. This means negotiating a promotion or switching jobs, which is a lot of effort. And since I'm putting in that effort anyways, I might as well optimize it and try to get every extra dime, which ended being more than a 20% increase.
In non-inflationary periods, it's not even worth the effort and stress to optimize my salary like this.
I imagine the same was true for a lot of businesses in the supply chain. If you're some SAAS company, raising prices 20% requires renegotiating contracts, dealing with angry clients, etc. So if you're going to do that anyways you might as well try to raise it even more.
I think you need significantly more competitors so that there is less chance for "accidental collusion"
What I really think will get be down-voted around here, but I think there should be state run (nonprofit) (but run at cost) offering in every market, and if the for profit companies can't compete against inefficient government run businesses then they should not be in business themselves.
We should leverage our collective power to set a baseline performance metric.
For example: Australia Post runs at a small profit rather than at a cost to taxpayers.
I would think shipping to Australia is something any outside business would avoid given the cost of it being in BFE. So naturally a solution was implemented to keep its citizens happy. If it was as cheap to ship to Australia as it is to ship between borders, Australia Post wouldnt exist.
They are all hard problems, and its unlikely we would make the right decisions every time.
But I think its an interesting thought experiment.
In a way this would be like cap the % profits. And just like capping the profits… you cant do that because why should the super effective companies get punished and not gain massive profit!
There is a contradiction in our system - if the companies drive the prices down they digg their own grave. And since they have to grow not stagnate then at some point they need to stop driving prices down and also more and more fuck people over.
So it is greed. Imagine companies that wouldnt grow.
The reason companies can't normally just jack up their prices to sky high levels is because even if consumers can afford the increase they will feel cheated and refuse to pay or they will switch to lower priced alternatives who are happy to steal their competitor's business. That's why normally companies will usually increment their prices slowly over time. After a while they might lose the old folks who remember when the $1.50 candy bar only used to cost 50 cents, but to the younger generation the price was always at least $1 and they'll keep forking over more and more money for many years.
What went wrong this time was the pandemic. Initially, there were genuine supply chain issues that made goods scarce. Companies told consumers that their prices were higher and their goods were hard to find, but that it couldn't be helped because of the completely unprecedented circumstances we were all dealing with. "We're all in this together!" corporations told us, and so while nobody was happy about the increasing costs, we were understanding and forked over the extra cash. Things were difficult for everyone after all. We knew some companies were having a hard time.
As the pandemic went on people's stress and anxiety levels increased. With their routines and lives disrupted, and their options limited, people were desperate for some familiar comforts. For the sake of their mental health they were willing to go into debt to get them if necessary. Because of this, people were willing to spend more to get what they wanted (and in some cases needed). Household debt hit record highs at the end of 2021. Companies realized this and took full advantage. Price gouging and colluding out of pure greed, while still assuring consumers that "We're all in this together! Don't blame us! Pandemic! Supply Chains!" They kept jacking up prices and complaining to the public about the supply shortages while at the same time there was a "warehouses crisis" because they were sitting on massive amounts of unsold goods. They could have lowered prices to sell off surplus stock, but they just kept jacking them up while building new warehouses to store their inventory. They could afford it after all since they were making money hand over fist. Warehouse construction was the only sector of the construction industry that was booming at the end of 2021.
Then word started getting out that companies were lying to us. There were headlines reporting massive corporate profits while many consumers were struggling to pay their bills and keep a roof over their heads. Some industries got more attention than others (https://www.reuters.com/business/meat-packers-profit-margins...), but many people were starting to realize that they'd been being taken advantage of when suddenly the next major excuse hit.
The news was full of reporting on massive inflation, that prices were rising and how it was "hurting" businesses. Consumers again, were primed to expect increased prices due to something outside of the control of the companies. "We know prices are high right now, but it's not our fault, it's this damn inflation!" the corporations insisted. "We're all in this together!" they said. That line of bullshit actually worked again on a lot of people. Even here on HN you could find people defending the companies and insisting that it wasn't greed.
Because supply chain issues and "inflation" hit everyone and companies colluded together to rise their prices, the prices of all goods by all companies rose at the same time and so even the people who didn't buy the lies about companies being powerless against inflation were left with zero lower priced alternatives to switch to. Every product from every company was more expensive.
This isn't the first time companies were able to use excuses to jack up prices unfairly. Years ago, when gas prices soared to record highs many companies raised their prices and told the public "We can't help it! Don't blame us! Gas prices are costing us so much more now! We're all in this together!", but when gas prices finally fell they didn't lower their prices back down. They instead increased their use of tricks like shrinkflation to fool customers into thinking prices weren't as high.
But it’s easier to blame greedy corporate CEO than your own failed monetary policy.
From the article:
"Among the companies that increased their profits most from the pre-pandemic average were:
ExxonMobil: profits of £15bn increased to £53bn Shell: £16bn up to £44bn"
Increasing prices in line with inflation - direct higher costs - isn't what the research is calling out - it's the excesses.
This seems to me to be a simple adjustment. The oil company's profits went way down the quarter the pandemic started, due to a sudden demand shift. Now they're going above average due to the sudden demand shift in the other direction.
Oil is also weird since it's heavily determined by geopolitics. The Ukraine war must have had an impact but I haven't looked into it
Excellent synopsis.
Price discovery is not perfect and not instantaneous. It often overshoots in both directions (see stock prices). And as you said, there is a constant upward pressure on prices as a part of profit seeking. It’s the downward pressure of competition and other factors that keeps it in check.
Inflation disrupts this equilibrium. It's not only profit that drives price increases, but also cost of goods, which can vary frequently.
There is a strategy in pricing as well - sometimes it makes sense to take a 10% price increase if cost of goods sold has increased 5% and is expected to increase another 5% in the near future, rather than take two separate price increases. Factors like that can cause an overcorrection which takes times to reverse if costs don't go up as expected.
The cause of the disruption is where the focus should be.
It definitely is interesting, the issue is that the current inflation is causing a wealth transfer from wage earners to investors/capital owners.
That is interesting, because it destabilizes society and we should definitely look into where or who is profiting from the price increases.
You can ignore what your counterparty is saying in a price negotiation. There is no reason it has to reflect reality. Like when an employer says employees are a “family”.
Not true. For example, the current restrictions on the Panama Canal are increasing shipping costs because ships have to wait longer or go round Cape Horn. Its more expensive either way.
US government had about a trillion in deficits before the pandemic then spiked up to about 3 trillion in each of 2020 and 2021 [1]. That is a bump of 4 trillion dollars suddenly over those two years. The past two years seems to be about 1.5 trillion each and the inflation rate has decreased.
The theory is that printing money to spend leads to raising prices. Somebody gets that excess money so they can buy more of whatever they need, maybe start new projects or whatever and this bids up prices. Since this is not based on removing the ability for others to buy what they want (no tax increase) then the overall demand goes up. If you also have supply restrictions while spiking demand, it is natural for prices to rise dramatically.
This creates wage rising demands which, after much agony, more or less gets everything back at the same actual price levels though usually with a range of incompleted projects and a decent chunk of people impoverished while some got very rich. The particulars depend on whatever sector was inappropriately stimulated in the start of the process.
The Austrian school of economics is a good place to learn more.
Taxes are an explicit mechanism to say who the government is taking money from in order to give money to whomever they are giving it to. Deficit spending is an implicit way of taking money as determined by the market which means those with the least power are likely to lose the money.
The pandemic had about a trillion going directly to people. The rest went elsewhere.
There is also the issue of this is US spending versus global spending. Not sure what other countries did and also unsure how much the US dollar being the main global reserve currency factors into this.
1: https://fiscaldata.treasury.gov/americas-finance-guide/natio...
Apparently not distributed in the form of higher pay...
By the time you can even begin to start building a competitor they'll just drop prices until you're bankrupt and buy up your assets for pennies on the dollar.
How many highly qualified people are there in the world that would allow for more than two or three suppliers of things like EUV lithography and modern operating systems/browsers and other advanced fields?
Do you think when T-Mobile acquired Sprint, it created more jobs than the individual companies for experts in cellular networks, or fewer? Do you think it's just a coincidence that after that acquisition was completed, T-Mobile immediately started raising prices?
The T-Mobile example is irrelevant to the specific problem of there being very advanced fields requiring a ton of hard work that not all people can do, much less overcoming numerous real life obstacles like logistics of obtaining the necessary education.
Just to show how hard the problem is, you have a top down, well oiled dictatorship country with 1.5B people with a lot of purchasing power unable to reproduce the chain of knowledge needed to create the top end microchips after decades.
Some things just take time, effort, and luck.
Although I agree with you, I think there's something to be said for the late/post pandemic psychology.
Stocks were booming irrationally. Gamestop, Tesla. Crypto going wild. Unprecedented greed, not just among the big bad corporation, but literally gripping the entire nation. Savings rate had been up since early mid 2020(?) and seemingly every household was flush with cash. Professionals were job hopping for magnificent pay increases. Every 'pandemic hobby' had shortages. I paid $200 for a two leaf houseplant that now costs $30-$50 in 2023. A friend of mine paid hundreds to pre-order keyboards a year out from delivery, and the moment they were fulfilled secondhand markets would trade them at huge markups.
So then my question is: if you are a corporate worker living in this environment of greed, why wouldn't you explore price increases with greater than normal vigor?
I don't buy "big evil corporate" narratives but I do think America in general was engulfed by greed around that time
Once things reopened, people started spending their savings. It's not that the tax credits and bailouts reduced poverty. It's that not having anything worth buying made people save their money instead.
But once things became available again, there was suddenly a lot more money chasing smaller numbers of goods (it takes time for production to ramp up). This leads to higher prices, and inflation.
As this goes on, people start demanding higher wages to keep up with price growth. Once that happens, price growth is fixed. No one's going to accept to a pay cut.
In this case at least some of the price rise is related to the fact that we created a bunch of money. The price of goods is correlated with the amount of money in the system divided by the aggregate number of goods being sold. If number of goods remains the same but more money is in existence prices will rise, especially housing in US which leads to higher cost of labor, etc.
Note I'm not saying that greed didn't play a role in certain places in the run up of prices, but only that greed isn't the only thing that drives up prices.
Surely, they'll deliver....surely.
(1) The majority of companies expected their input costs to rise so quickly increased prices to compensate, when they didn't rise as much as expected they slowly lowered prices to remain competitive. Since nearly everyone was reading the market the same way, they weren't punished for this.
(2) Companies became really greedy a few years ago, and increased prices just because they could. Recently they have been less greedy, and prices have come down.
I understand people look at their grocery bill and get mad, since nothing seems to bring down food though.
Still waiting to see the ‘prices come back down’ from the parent post, meanwhile our main shopping companies all posted record profits.
Ahh, just realized $1.3 USD is about $2 AUD or ~$5.1USD/gallon, so yeah that tracks I guess.
By contrast, eggs went up quite a bit a couple of years back due to a combination of increased demand and a coinciding outbreak of avian flu. But while one could feed chickens less or selectively breed for smaller eggs, the actual manufacturing of the egg is basically up to the animals rather than the accountants. If you crack open a fresh egg you pretty much know what you're getting and it isn't easy to change. It's not feasible to sell cartons with only 5 or 10 eggs rather than the more common amounts of 6 or 12 (or 30 if you have an insatiable appetite for them as I do). So there normal forces of supply and demand have reasserted themselves and prices have (somewhat) returned to where they were a few years ago. It's been easier to observe changes than for items like beef which I buy more intermittently.
Temporary high egg prices were at least partly caused by a temporary supply shortage from a bird flu outbreak. That was somewhat different from the monetary issues which usually drive inflation.
https://apnews.com/article/bird-flu-outbreak-turkey-egg-chic...
It was sufficient proof to convince a full jury, which makes them guilty of price fixing. They can certainly appeal, that's how the court process works. It's how all trials in the US work.
Also, I have to take issue with the insinuation that these egg producers are the underdogs with a small business budget for lawyers themselves. They're the largest egg producers in the US with billions of dollars worth of assets.
Going back to your prior comment:
>It's amusing to point out eggs as some kind of holy grail of how price moves naturally, when the two largest egg producers (Cal-Maine Foods and Rose Acre Farms) were just fined in federal court for price fixing.
I mean, prices did move naturally. The egg producers reduced supply and price went up "naturally". In the case of covid "greedflation", you don't really need an explanation to explain the reduced supply and/or increased demand: covid and stimulus checks explain the situation pretty well.
Sure, but it's still the lowest burden of proof. My point isn't to make Cal-Maine the underdog. It's to point out the irony that anticapitalists will suddenly trust capitalists 100% whenever they say something that agrees with them, regardless of the motivations of such a claim. It's like when people use Microsoft's antitrust lawsuits as evidence as that all billionaires can't be trusted, yet they're completely uncritically accepting arguments made by lawyers who represented other billionaires.
Of course the market is perfectly efficient, but 90% of the time it is, especially for commodities like eggs. It may be the case that this is getting worse, but no it is not possible for companies to suddenly decided to be greedy in 2021.
This seems like a twisting of the facts.
First of all, one does not need to be "anticapitalist" to believe that price-fixing is bad.
Second of all, it's less that we will suddenly "trust capitalists" and more that when you've got an actual trial in our actual justice system (whether civil or criminal) and solid evidence can be presented to prove that one set of capitalists was acting in bad faith (that just happened to be in a way that happened to hurt other capitalists as well as regular people)...
...it holds much more weight than just "someone saying something", whatever preexisting biases it might agree with.
Afaict, there was no direct evidence of any conspiracy. The egg producers were exporting more eggs and giving chickens more room. The former can be explained by market conditions and the latter can be explained by pressure from animal rights organizations.
[1] https://news.bloomberglaw.com/antitrust/kraft-kellogg-go-aft...
https://abc7.com/eggs-egg-prices-cal-maine-foods-profits/130...
It's beyond absurd to suggest that Cal-Maine deserves a "reward" of > 700% profit for their chickens not getting a disease. I can't even fathom your reasoning there. Their "reward" should be "having plenty of eggs to sell when some of their competitors don't" not record high price increases for no reason in the middle of a global pandemic where household debt is at record levels and families are struggling to keep food on their tables and roofs over their heads.
A tech toy and food, what a comparison... What's next, let's jack up water price?
So you deserve more money for providing a luxury instead of a necessity? Limits placed on how much you could profit from food never made food cheaper. It has discouraged people from providing food.
It's not that I think eggs are immune to price fixing, but rather that the packaging of fresh eggs isn't easy to change; the eggs themselves can't be altered and while you could sell fewer of them per box consumers (in the US at least) are used to multiples of 6 and would immediately notice. In contrast you could reduce the volume of, say, detergent but redesign the container, and many consumers might not notice that they were getting 6-7% less.
What I'm getting as is that while the causes of egg price changes might be legit or greed, it isn't as easy to hide the price changes from the consumer as when you operate a whole production line and can alter the appearance and volume of the package itself.
4grain cage free
Egglands Best
Farmhouse Eggs
Land O Lakes
Fassio Egg Farms
Rocky Mountain Eggs
Red River Valley Egg Farm
Meadowcreek foods
Specialty Eggs Inc
Southwest Specialty Eggs Inc
ProEgg Inc.
American Egg Products Inc.
Texas Egg Products LLC
Wharton County Foods
Benton County Foods
Sunups
Sunny MeadowYou're right in the sense that this idea that corporate psychology just randomly changed over the last few years makes just as little sense as saying customers skimping and building up savings in 2020-2021 contributed to inflation in 2022.
Here is my theory:
Consumers generally have an "acceptable" price range in their head for each product. When most retailers have prices within that range, it is really hard for a single company to raise prices above that range, as they'll lose a lot of business. But, COVID forced input prices to rise and fluctuate quite a bit. Once companies raised prices to account for input costs, consumers lost their sense of "normal". Then, companies were able to get away with charging prices even more, and could get away with raising prices above their competitors without losing any business.
For many years, consolidation, deregulation, and other factors have led to a gradual but marked decrease in genuine competition in all sectors. As long as things were still trundling along as normal, the people at the top didn't really think about this too hard.
Then COVID came. Between supply shocks, lockdowns, and various other temporary effects, we were told to expect inflation. Indeed, for a time, there were genuine, honest-to-god price spikes rippling through the economy directly because of the pandemic.
But the causes of those spikes subsided.
And the prices didn't come back down all the way.
The people at the top realized that, because of how much we were all being told to beware of inflation, they could simply make the inflation happen and pocket the extra, and no one would notice.
And for...I forget exactly how long, but well over a year, at least, the public broadly didn't notice.
Now, we're noticing, and trying to make clear that this is what's happening.
But people like you are still trying to act like this is impossible, companies can't really cause inflation purely by raising prices, that would be ridiculous, this is purely the aforementioned price shocks (that ended years ago, while the inflation didn't).
In my experience around here, MOST things have nearly DOUBLED in price since COVID. And the prices aren't going down. They're just holding steady-ISH
Gas is not really down though. It just stopped shooting up (which was my original point).
Take a look: https://ycharts.com/indicators/us_gas_price
December 2019 - 2.67 12/2019 This time last year (12/2022) 3.20 (+20%) Today (12/2023) 3.36 (+5%)
1. An example from my State: https://www.atg.wa.gov/news/news-releases/406-million-way-lo... It's not always super high-profile, but lawsuits against anti-competitive practices happen all the time.
If anyone is making a just-so argument, it's those claiming "greedflation". The idea that record profits must equate to something nefarious happening is in my view a simplistic just-so statement. At least in America, people built up record savings during the pandemic, and then spent those savings in record numbers once the lockdowns ended. Record profits during a period of record spending seems rather unsurprising, doesn't it?
Real world example.
Heinz Baked Beans, UK. There are tons of other baked beans brands, but almost every store has Heinz. It dominates the shelf space by a huge margin.
Heinz is specifically called out in the article. They've made massive hikes in price, everyone's complaining about it, but often it's the only product on the shelf for a common, quick meal ingredient in UK meals.
There is no choice. It's not a simple economic choice. Most people can't choose the cheaper brand as often there's no choice.
Heinz Tomato Ketchup is/was in an even more dominant position. Many mid-sized grocery stores literally only stocked Heinz. (the co-op one is a pretty good substitute btw).
While theoretically there is consumer choice in the market, the reality is that it's wasn't true unless you want to go round a bunch of different shops.
In the long run Heinz has done some serious damage to their brand, but short/mid term are making juicy profits as the market is so slow to correct due to the way supermarkets work. How shelf space is allocated. By how the industry has become a small amount of ridiculously large companies hiding behind a patchwork of acquired brands.
Do you all not have private label brands? I’ve never been in a UK grocery store but it is hard for me to fathom that you would only have one brand of baked beans, given it is a food regularly consumed in the UK (or so I’m led to understand by the abomination that is beans and toast).
We have a few supermarket brands that have taken over every town and village local store.
As space is constrained in those stores (long story to do with Sunday trading laws), they stock one, two or three brand of lots of different items. Like there's one choice of poppadoms. Or one brand of english mustard. And one brand of Dijon mustard. Etc.
So the stores have a wide selection of goods, but a shallow selection of each individual good.
In the case of baked beans, you will always have Heinz. You might have one other choice, depending on the supermarket brand. Often the other choice is cheap, and nowhere near as tasty.
Bigger stores have more choice.
One noticeable change is that co-op didn't used to bother stocking their own brand ketchup in smaller stores. It sold so poorly Vs Heinz it wasn't worth the shelf space. That has changed, and I'm sure other super markets are making similar changes. For context Heinz has decided on a ridiculous £4.50 a bottle, while the Co-op own brand is £1.90. Heinz used to be about £2.50-£2.90ish I think before the greedflation.
>Bigger stores have more choice.
So why isn't there a brand that's cheap and tasty? Does Heinz have some sort of proprietary bean tech that others can't replicate? Is there a fundamental trade-off between tastiness and price?
In particular, with most of the cheapest mainstream brands, they've spent years finding the cheapest they can produce the product for that customers will still accept.
Basically, if the beans could be made tastier, while still being that cheap, Heinz would have done that already, leaving no room for a competitor to do so.
A data point to support the original comment is that there are arbitrageurs all over the place. If you are trying to raise your margin, lots of people without any technical or product knowledge will simply buy it cheaper else where and drop it into your margin and eat your lunch. See the whole drop ship economy phenomenon.
And how about the fact that at least in the US, we don't have a free market system?
This hits the nail on the head. There is no secret cabal of colluding business owners, but for any company that is public, they are necessarily “colluding” to keep share prices high. Since they are all optimizing for the same thing, it makes sense that they would take similar approaches.
The assumption of defecting against a cartel by lowering prices also requires that the defector have more supply, but supply was restricted during COVID, so it stands to reason that defecting wasn't possible in the short run.
We saw that especially badly with the auto industry, which used the chip shortage to push people to buy more expensive models. Lots of people figured they didn’t have a choice so they bought what the dealer had available, especially before interest rates made it easier to not think about the difference. In 2019, fewer buyers would’ve put up with that because they’d assume the model they wanted would be available soon.
If the experts in academia who spend their lives studying this stuff are so off the mark, how is it that you have more knowledge of how things "really" work?
Where did you learn the things that drive these strong opinions?
Do you believe that economics theories ignore the market forces that you're discussing?
That fundamentals like supply, demand and consumer behavior are less relevant than "cartel behavior"?
I guess I'd just like to understand what you're basing all this on.
because that's what academia does and they know it. Academics talk about how to impact the 'next generations' of leaders all the time
economics are no different. e.g. today somebody studies economics and learn some theory about how stuff "really works", in 5-10 years they're a congressperson or some other high-ranking executive deciding what to do based on the theories they learned
so academics being off the mark means this plan as I very roughly outlined failed. reality asserts itself in spite of the wishes of a few corporate overlords
I mean christ, if that was all there was to it what the hell are those experts doing spending their whole lives studying this stuff?
What that explanation is, nobody really seems to offer a good reason. Collusion is always a possibility, but there's strong disincentives for it. And it'd have to be a huge number of companies that are all colluding. There are much more mundane explanations, such as record spending. Is it really that surprising that record profits are made in a time of record spending?
It's not "collusion" in the sense of "fat cat execs in a room all explicitly agreeing to do nefarious things." It's just an alignment of incentives, a zeitgeist, and a common recognition of an opportunity to make a shitton of money without any real consequences.
For more elaboration on this, see my related comment https://news.ycombinator.com/item?id=38569714
...Alongside the other, more gradual changes, which (as I explained in the linked post) weren't fully noticed or appreciated until the shocks of the pandemic.
Really, I explained the full sequence of events very clearly in the linked post, and simply repeating "it was just the supply chain issues, no greed involved" does nothing whatsoever to refute what I said there.
Of course there are reasons why: the supply shocks during the pandemic are largely resolved, but there's still pent up demand. That, and a massive influx of cash that enabled consumers to pay those high prices. But this isn't "greedflation" this is a completely expected outcome of interrupted production and a large increase in money supply: more money to spend, but fewer things to buy, leading to high prices.
The factor that the greedflation proponents seem to ignore is that people were spending in record numbers after the lockdowns ended, and people spent the money that was saved in record numbers. This is reflected in GDP figures. There was a huge drop in 2020, followed by a massive spike in 2021.
There are indeed significant issues with the greeflation narrative: https://www.economist.com/leaders/2023/07/06/greedflation-is...
You assume "slight undercut" => "gobbled up market share" but this is hard to substantiate.
Any grocery store in the US will show you examples of name-brand products next to slight-undercut store-brand alternatives where many people continue to buy the name-brand one, despite the price difference being super obvious every time the purchase is made. Real markets aren't econ 101.
Prices go up much more easily than they go down. https://www.investopedia.com/terms/p/priceratchet.asp In many markets consumers aren't perfectly evaluating the options from scratch on every single purchase with price the only factor, and a company doesn't want to have to accept a drop in price any more than an employee wants to have to accept a salary cut. So prices go up much more easily than they go down, since they can get forced up but require someone to take a gamble to get them to start moving down.
Prices tend to go up because inflation is much more common than deflation. That I don't doubt. But the narrative behind "greedflation" is that something other than market conditions are causing inflation.
* let's not raise our prices and try to gain market share
* let's do the same and see if we can all just bring in more top-line revenue
Two possible actions when your costs go down compared to your current prices, but nobody has lowered prices:
* let's stay where we are, no need to be the first to make a move, we have nice fat margins right now
* let's get aggressive and lower prices
These are all rational actions. A "greed" aspect of inflation only requires most players in the market to take the actions that keep their prices higher.
The high-school-econ level common belief is that companies will predominantly choose the "let's go for more competition!" price move. But ... why? Competition is stressful and higher-effort than coasting and maintaining the status quo, especially when your profit margins for the status quo are now healthier than they were 4 years ago. Especially since it isn't guaranteed to work out financially better for you.
The "invisible hand" is limited in terms of forcing players into the price-cutting competition unless people are so broke that they can't keep going. But if it's the difference between saving 5% and saving 6% of your income, or the difference between putting an extra $100 on your credit card debt every month or an extra $110... there's no overarching benevolent force here that should make you think companies won't be as greedy as possible.
The "anti-greedflation" argument you're making is basically just "they would lower prices if they could" and that's patently false for the vast majority of products in the vast majority of transactions. They will avoid lowering prices until there's no alternative.
Mercedes being more expensive than Honda is not an example of "greedflation" - it's an example of consumers making decisions on other things than the instantaneous lowest price". And in a world where you agree that consumers aren't always motivated by price, you should see how that extends to "price wars won't always result in the instigator being guaranteed to win significant market share" and* sellers not always being motivated to favor market-share over all other metrics.
presumably those people are acting irrationally. Or the name-brand ones do provide more value for them.
But hearsay from various news sources have mentioned more and more of the generic/store-brand goods sales are up. So i don't believe that people actually will continue to buy name-brand stuff that is of the same quality as the store-brand.
WE LITERALLY WATCHED IT IN REAL TIME. Covid caused supply chain issues, unaffected supply chains independently raised prices because people were willing to pay it. Trump was dumping $8T into the economy, business leaders also knew that. The supply chains started to clear up, but demand wasn't waning despite high prices. Throughout the entire thing anyone sitting on investor calls was hearing "highest profits in company history" over and over again.
Almost as if all that sociology about people behaving coherently without direct communication might have been on to something.
But that's not "greedflation". That's literally a normally functioning market. If Company A and Company B produce a largely interchangeable product, and 50% of Company A's output is lost due to shortages both companies are going to sell their products at a higher price point. The fact that Company B's output was unaffected doesn't change the fact that their product is now in more demand due to Company A's production shortfall.
After the supply chain issues eased, people had loads of savings from the lockdowns. This is a big reason why companies were seeing record profits in the post pandemic period: because people were spending in record numbers. Is it surprising to see record profits in a period of record spending?
It's simplistic, but take this analogy. A factory builds 1,000 doodads per year. COVID shut it down for a year. Then after COVID it starts producing 1,100 doodads per year. It's going to take 10 years to satisfy the pent up demand. Of course the real world is more complicated, but the fact that prices remain high after the supply chain issues are resolved isn't at all indicative of nefarious or anti competitive behavior.
Trump also slashed corporate taxes and taxes for the ultra-wealthy, which certainly didn't help.
Short-termism beats long again.
Congress writes the bills that set tax rates. Congress also writes the spending bills.
I thought Biden told us to blame US price increases on Putin.
"families are starting to feel the impacts of Putin’s price hike."
https://thehill.com/homenews/administration/597675-biden-bla...
How does cutting taxes raise prices?
Drop your prices and maybe you capture more of the market. Works best if your product is a perfect substitute and consumers will both (a) immediately know about the drop and (b) be able to switch immediately. And then you can capture some of the lost per-unit profit in volume... but just how much market share would you have to capture to come out ahead of just cruising along with higher per-unit pricing and being more profitable as-is thanks to your costs dropping again? How much would you need to spend on advertising to get the message out, and how does that effect how much you need to capture?
And if it doesn't work, and you lost your margin without gaining enough to make it worth it, do you want to have been the guy in marketing who was pushing for the price cut? At this point yo-yo'ing the prices back up is gonna piss off the customers you do have once again, so you might be a bit stuck for a while.
Add in things like customer loyalty, stickiness, and habits, and "let's try to send the trend in the opposite direction" only looks riskier and riskier. For instance, if Walmart dropped their prices 10% how many Target shoppers do they convert who wouldn't already be going to the usually-cheaper Walmart?
There doesn't have to be anything nefarious going on to explain how markets can result in the consumer losing out, especially after shocks to the system. Let's say everyone was worried that customers wouldn't stand for 10-20% price hikes, but now that they've learned that they can, in fact, get away with it, they independently think it's easier to stay where they are then to try to get into a race to the bottom. No collusion, no "evil" cartoony-levels of greed, but no effective market pressure to fix it immediately either.
this pressure comes from the consumers. If the consumers keep opening their wallets, then there would be no pressure.
So for prices to drop, all that is required is for consumers to stop purchasing. Unfortunately, people, esp. in the US (but basically all over the west too) are quite rich, and they rather spend even if prices are high.
> illegal and governments do take action against price-fixing
You mean like how egg producers engaged in collusion in 2000's and the were founds guilty in year 2023, 20 years later? You do realise that it's too little, too late.
https://www.reuters.com/legal/litigation/us-jury-awards-177-...
Best thing we can do is start worker coops to serve our basic needs, and somehow vote law into place that makes worker coops more tax friendly than private limiteds (and related forms of business ownership).
I feel like the answer here is probably along the same lines as the ‘because we have a good excuse’ line of thinking that caused the massive wave of layoffs a few months ago.
I don’t think those large mammoths would go for something uncertain like ‘potentially capturing more market share’ if they have the option of ‘guaranteed increase in profits’.
My company, and I suspect others as well, were cautious about reducing prices as shipping costs eased. Which has contributed to their healthy margins but others are finally starting to lower their prices as well which is now causing us to do the same.
(thanks for the insight and not spreading the boring anti-capitalism and marxist virus, that hackernews usually gets infected with)
Is this the same corporations that didn't want to pay "essential workers" a living wage and/or give them reasonable hours? I find it doubtful that they turned over a new leaf during covid because it was "good for PR".
The sarcasm went right over your head.
Of course the inherent greediness of companies & executives did not undergo wild swings during/after COVID, the idea is absurd on its face.
That then too is greedflation... Everyone is trying to maximise their profits. And keep them at same level when they can.
It certainly seems likely
If your business didn't increase their costs during the last three years it's a dying business.
But when you are such a huge percentage of the market you can easily watch your competitors (If you have any) run out of stock and raise their prices as well. I hope this gives the FTC a ton of ammunition in their future legal battles. Although I'm not optimistic, considering they are less funded than the legal departments of the corporations they are going up against.
If inflation is a product of corporate greed, do you concede that the fairly stable prices over the years have been a product of corporate benevolence? No, you won't.
The only workable explanation, in Friedman's words is that inflation is always and everywhere a monetary phenomenon. Any other explanation is economically illiterate.
And don’t say supply chain because the fed basically discarded that when they finally panicked that it wasn’t transitory like they initially assumed and the scrambled with fast interest hikes.
Greedflation simply means a profit price spiral rather than a wage price spiral.
The FTC is responsible for this consolidation.
There are 2 solutions to this problem: government interference and competition. IMO competition is what's desperately needed, and regulation/govt-funding to help the little guys with better ideas and lower profit margins compete with the big ones. When people stop buying from Walmart because their profit margins are too high, Walmart gets less total profit, and they can either lower their prices and/or sell better products, or suffer and potentially go out of business. This is how capitalism is taught in grade school, this is how it's supposed to work and actually benefit the common man, and the factors which make it not work are what we need to regulate and fund away.
* There's also private funding and educating the general population to choose smaller companies over lower prices. And most companies don't actually do everything they can to 100% maximize profit. However, I don't think you can rely on these factors, because a lot of people aren't really aware or motivated, and a lot of people don't choose for others' or long-term benefits over their own short-term ones.
Inflation is always greedflation. There's more money chasing less stuff so they hike up the prices on the stuff to capture as much money as possible, and that is inflation. That is capitalism with an inelastic demand curve.
If there were more goods and more competition then prices would lower.
They're always greedy, and if you keep spending they keep raising prices.
A company relies on its customers, workers, owners and the society where it operates but hey let’s ignore all the rest and only maximize the short term benefit to owners by short changing both the workers and customers.