Comment by SantalBlush
2 years ago
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.