Comment by Manuel_D
2 years ago
But a smart player would slightly undercut the competition and gobble up the market share. If each player acted independently, that is what would happen. There does indeed need to be some sort of collusion to prevent one player from playing the optimal strategy.
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...
> But a smart player would slightly undercut the competition and gobble up the market share.
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.
Name brand products are often perceived to be superior (whether or not that perception is warranted, is it's own topic) so no doubt they can command a premium. Mercedes vs Honda. I've ridden in plenty of Hondas that are just as comfy as Mercedes, but the fact that the former commands higher prices is not price fixing or "greedflation".
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.
Two possible reactions to a competitor raising prices:
* 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.
> where many people continue to buy the name-brand one
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.
Executives are bragging in earnings calls about their supply chain prices falling and how they're keeping prices high...
Where?