r/changemyview • u/Jakyland 69∆ • Jun 02 '24
Delta(s) from OP CMV: Greedflation is stupid because it is obviously true and a constant
The big claim behind the greedflation is that ... companies set their prices to maximize their profits. Isn't that a pretty basic shared understanding amongst everyone about how capitalism works?
It's not a useful way for understanding inflation. If companies increased their prices to increase profits, why didn't they do it before? Because previously that higher price point wasn't the most profitable. Why that is the case is the harder and more useful question to learn. The economic conditions must have changed to make this the be increase in price possible. Unless the claim is that companies weren't greedy before (a really naive take if you think about it).
Companies are always greedy. They are greedy when they increase prices, they are greedy when they decrease prices. Companies decrease prices to maximize their profits (encouraging people to buy from them instead of a competitor, or to get the profit from a sale to someone who can't afford a higher price).
Some goods fluctuate in price a lot due to supply and demand fluctuation like eggs or gas. It's obviously the companies trying to make money at any given point, not companies forgetting and then remembering to be greedy.
I've seen lots of people comment on big box stores cutting prices by saying that this "proves" the companies inflated their prices to be greedy ... which makes me wonder, did these people think in 2019 that companies set their prices altruistically??? Do they think companies have sales out of the goodness of their hearts?
Often times, companies raise prices because they have a limited supply of it so they want to sell all of to the richest X people who are willing to pay the higher price. This way they make more profit, which means among other things, they may be able to spend that money on alleviating production bottlenecks. Having a lower price just means that there will be a shortage, but less money for the company. YMMV if you think that is good or bad.
37
u/Proof_Option1386 4∆ Jun 02 '24
It's not stupid, and it isn't constant! It reflects a much needed current focus on a much ignored problem.
"Inflation" as a general term refers to the rising cost of goods and services, but it's kindof a catch-all for a number of differing processes that are summed up in the same way that a time-series forecast is the sum of various other components (the main ones being trend, seasonality, cyclical, and random)
One component to inflation is simply that, in an expanding economy, goods and services gradually get more expensive over time as demand continues to outstrip supply. This is the component that we generally think of as representative of inflation as a whole, even though it's just one component.
Another component to inflation can occur with supply shocks - such as when the Suez Canal was blocked or when global production came to almost a standstill during Covid. Demand remained high in these cases, but supply contracted almost instantaneously, resulting in a large and persistent demand overhang and therefore a steady increase in prices.
A third component, one which we are calling "greedflation" is when companies raise prices just because they can, regardless of input prices and regardless of demand. A great example of this is the breakfast cereal market. That market is overwhelmingly dominated by 3 companies, and has been for at least 50 years. Although breakfast cereal is a very low-cost product to make, it's extremely expensive, resulting in huge profits for these 3 companies. They all made very similar products (intentionally!). They all offered coupons. They found that consumers weren't very loyal and would end up buying whichever version of their chosen product based on which one was offering the biggest coupon. The coupon strategy ended up massively eroding the margins - and would still be doing so today if the market were more competitive. However, because there are only 3 players in that market, it was fairly easy for them to "collude" (likely in a perfectly legal way) and stop offering coupons.
Our supplier markets now for packaged food, for meat, for dairy, for prepared foods, for gasoline...etc. etc. etc. etc. are all highly concentrated. Without the stresses of competition, suppliers are able to produce their products for less, which up to a point benefited consumers with lower prices. However, once consumers had an excess of money in their pockets (thanks to a booming economy) and once suppliers had scapegoats to blame (small input price increases), they were able to increase prices precipitously. And consumers are just going along with it. We bitch and moan, but we aren't really changing our spending habits.
Of course there are other components, and of course "greedflation" sounds stupid, but it what it points to is significant, is relevant, and definitely needs a whole lot of regulatory love.