Comment by anigbrowl
2 years ago
Because real markets are not as simple as the toy ones of price theory in economics classrooms. There are transaction costs to entry and exit, information is highly imperfect, products are often not that fungible, inelasticities of both function and consumer preference abound, and nominal competitors often tend toward cartel behavior because many producers see themselves in a somewhat adversarial relationship with customers, and consider the true competition to take place in the corporate finance marketplace rather than the retail one.
Not to mention that they really are cartels. According to Oxfam international only 10 megacorps control the majority of top brands (1). It may look like there's lot of competition for say cereal, but there's basically just General Mills and Kelloggs with a few generic brands available.
1: https://www.good.is/Business/food-brands-owners-rp
> the true competition to take place in the corporate finance marketplace rather than the retail one.
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.
Elegantly put! This is where the glorification of 'shareholder value' has got us; it's very unfortunate that commitment to other values like employment security or product quality are considered bad management in mainstream business thinking.
Or social/societal stability...
No doubt markers are imperfect, and they can't respond to changes instantly. But that's way more vague than the "greedflation" narrative. The idea behind greedflation is that companies are systematically overpricing products, and no one is undercutting them because... (insert explanation here).
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?
No one is undercutting them because they are raising prices and taking the profit, too.
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.
What suddenly changed in 2021? Why didn't they just do this earlier? They just never realized they could be wise prices?
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This is a great answer. In particular, demand in general likely became more elastic during COVID, as consumers suddenly had more cash on hand. In that case, a single firm could raise prices without decreasing quantity demanded too much. That would have caused other firms to follow suit.
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.
I’d also add that pandemic supply chain disruption meant that consumers were more accepting of limited choices initially or assumed prices would recover.
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.
why doesn't economics classroom teach all this.
They do but not so many people take it as a major rather than jsut doing the basics.
> Because real markets are not as simple as the toy ones of price theory in economics classrooms.
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.
Oh I'm not claiming that, I have a lot of respect for professional economists. What I mean is that most people's understanding of economics is very superficial and limited to toy models, in part because a few populist/pundit 'celebrity economists' oversimplify the topic to make easy money.
I'm reasonably sure that academic economics theories are an attempt to drive, to dictate how "things really work"
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
Until you get into grad school basically everything you learn is so simplified that it's functionally a lie. Pointing out that drawing a big X on a blackboard with the intersection labeled price is not actually how the world works is not setting yourself above economists.
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?