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But if people have more money, wouldn't that mean producers could raise their prices and people would still be willing to pay it?
by neckardt 6y ago
But if people have more money, wouldn't that mean producers could raise their prices and people would still be willing to pay it?
- gruez 6y agoOnly if they coordinate and act like a cartel. Otherwise it's a prisoner's dilemma situation where the party that doesn't raise prices gains market share.
- xoa 6y agoNo coordination needed in a supply limited scenario with sufficiently inelastic demand. That's not a prisoner's dilemma. In that case every single bag has multiple potential interested buyers, which means each supplier can individually have buyers bid against each other and see the sale price go up. Organization of course might let them do even better, but it's not necessary. There is no market share to be gained from the supplier point of view (though as the article says, those higher up the chain may have different motives and margins) because supply just can't be ramped up instantly with a good like coffee. It doesn't matter if a farmer would in principle like to have 10x as much to sell, they have what they grew, and could only respond to demand by increasing supply slowly (and there is the risk of overshoot). If they don't raise prices they're just leaving money on the table, since every bag will get bought.
- nostrademons 6y agoThat's where the supply shortage comes in. If lots of people have money but there's excess capacity in the market, nobody will raise prices because the firm that doesn't ramps up capacity and captures the excess market share. If lots of people have money but there's a supply shortage, the firm that refuses to raise prices lacks the excess capacity to capitalize on their consumer demand, and fails to gain market share.