The New York Times writes today about greedflation:
PepsiCo has become a prime example of how large corporations have countered increased costs, and then some.
Hugh Johnston, the company’s chief financial officer, said in February that PepsiCo had raised its prices by enough to buffer further cost pressures in 2023. At the end of April, the company reported that it had raised the average price across its snacks and beverages by 16 percent in the first three months of the year. That added to a similar price increase in the fourth quarter of 2022 and increased its profit margin.
It's become common among large corporations to raise prices far in excess of inflation simply because they can. But why can they?
David Beckworth, a senior research fellow at the right-leaning Mercatus Center at George Mason University and a former economist for the Treasury Department, said he was skeptical that the rapid pace of price increases was “profit-led.”...Mr. Beckworth and others contend that those higher prices wouldn’t have been possible if people weren’t willing or able to spend more.
....“It seems to me that many telling the profit story forget that households have to actually spend money for the story to hold,” Mr. Beckworth said. “And once you look at the huge surge in spending, it becomes inescapable to me where the causality lies.”
So has there been a surge in household spending? That depends a bit on how you look at it:
On the one hand, it's true that personal spending, even adjusted for inflation, has increased a lot since the start of the pandemic. Spending today is $2,500 higher than it was at the start of 2020.
On the other hand, there's nothing unusual about this. Spending has just followed its usual trendline.
But trendline or no, this suggests that Beckworth is on to something. It's one thing to wantonly raise prices above the level of inflation in search of windfall profits, but you can only do it if consumers don't push back—and if they don't push back then you might as well charge all that the market can bear. And right now it looks like people are spending money freely enough that the market can bear quite a bit.
When all the major producers are raising prices at the same time because of inflation or supply chains or whatever, it is more difficult/painful for consumers to just switch to a cheaper brand without sacrificing perceived quality or foregoing a family favorite. Switching from Coke to Pepsi may have less friction than switching from Coke to a store brand, for example. So if Coke and Pepsi are about the same, I may pay the higher price and just grumble instead.
Market consolidation at it's finest....
Back in the day, Coke and Pepsi weren't "about the same". But, I switched to Hetch-Hetchy tap water any way.
I mean, you can't blame a maker of soda and snacks ...things no one needs but might want very much.
Raising prices on staples that people need to feed their families is just plain mean without justification.
profit is it's own justification....
Whole point of free markets is that people can be as mean as they want (short of child labor and other no-nos) and it doesn’t rly matter. Market sets the price based on rational (not nice) decisionmaking
Corporations are not charities. If markets actually just stopped working overnight then we have bigger problems than the price of eggs
Free markets. Yeah. Each of the millions of consumers doing the buying has just as much power as each of the handful of corporations doing the selling.
I've dropped a number of things when they raised their prices. I didn't have to, just didn't see the value of them at x+20%.
Best thing I dropped was Amazon Prime, mainly because it made me stop using that garbage heap - the site becomes unusable without out, constant nagging and adding it to your cart in ways that is hard to remove and such. (Not kidding, that's what convinced me delete me account.)
Overall, just paying attention and asking myself if something was still worth it to me has resulted in my spending less money (as an unadjusted dollar amount) for my personal basket of good and services than I was last year. I don't have a car, spouse or kids, so that's probably easier for me than others, but it is entirely possible.
Best thing I dropped was Amazon Prime, mainly because it made me stop using that garbage heap - the site becomes unusable without out, constant nagging and adding it to your cart in ways that is hard to remove and such.
I’ve never had Prime outside of a few completely free trial periods, and I’ve been shopping from Amazon since roughly 2000. From my perspective, the site basically operates today the same way it did 23 years ago. You put stuff in the cart, you click checkout, you enter in payment or select a stored payment card, you enter in delivery address or select a stored address, you click “free delivery” instead of the default paid delivery option and then you click “Place your order.”
It’s really not any harder than any other merchant website, and is much simpler than many others. I have no idea how anybody is “tricked” by Amazon, but even if you are tricked, you can almost always cancel your order immediately after you place it with no questions asked and full refund issued. I mean seriously Amazon is just about the easiest merchant website I’ve ever encountered, much easier than eBay, Walmart, Target, etc.
I got it for the new Lord of the Rings show then dropped when I realized it sucked. Forgot to cancel until one day after monthly billing and they gave me back all the money minus one day, which I thought was nice (and probably means some law somewhere made them do it)
"Because companies are letting them."
OH PLEASE.
Companies are raising prices because they can, and there's nothing we can do about it. Market consolidation has fucked us all.
Yes, there have been a number of pieces about this (see Robert Reich for example).
Also supermarkets have made it very hard to price shop with their preferred customer cards and loss-leader discounts. All the overhead for their customer tracking adds to prices.
But there are tons of different supermarkets? At least where I live, there’s 2 or 3 within 5 mins and dozens within 20 mins (though maybe still only 5-6 types of stores)
It's because there's no anti-trust enforcement.
The types of goods people complain about most don’t really seem consolidated
Is there a corporation that owns all eggs and all milk? Thought that was all sorts of local companies, maybe I’m wrong though
PG&E is a local company... and a monopoly.
https://www.salon.com/2023/01/08/grocery-supply-chains-understanding-why-eggs-cost-what-they-cost_partner/
"There are only four wholesalers that service the vast majority of grocery stores".
We get back to the standard inflation logic driving so many centrist and right wing economic policies over the last several decades: The only result of regular people having more money is higher inflation and a lower quality of life for everyone. Therefore, minimum wages, unions, lower class tax cuts, govt programs, etc... are all a waste of time because it just causes inflation and must be brought into line with interest rate increases and engineered recessions.
This doesnt seem true....but we are certainly seeing this message being pushed out as conventional wisdom.
Good news is actually bad news. There might be other solutions.....but those are not treated seriously.
If only we would use this philosophy for taxing corporate profits. We should increase taxes on corporations and businesses until we start to see an increase in the number of corporations and businesses going out of business.
We have Def changed our behavior. Shop more now at Costco and Aldi. Save quite a bit, Aldi in particular.
To spell out what others have already said, the reason corporations can raise prices is that they face no consequential competition, thanks to the consolidation of most markets. The free market system described by Adam Smith (and others) relies on competition to regulate prices. When there is little or no competition, there is no price regulation, hence profits soar.
Robert Reich has done a good job addressing this issue.
I should have add that, due to monopolization, consumers have little realistic choice. In a functioning free market, when one company raises its price too much, another will offer the same item at a lower price to capture market share (sacrificing only excess profit). But no such option exists in a consolidated market.
So customers effectively face an either/or choice: pay the ransom or do without. And if the item in question is "must have ...."