3 ms·

It depends on the cause of the logjam. For example, you are blaming it here on them "having a hard time finding workers." That is a cost increase not a capacit

by slg 5y ago

It depends on the cause of the logjam. For example, you are blaming it here on them "having a hard time finding workers." That is a cost increase not a capacity decrease. Labor is simply more expensive. Costs increasing shouldn't lead to an outsized increase in both prices and profits as it is a voluntary decrease in production because they don't want to pay higher costs. With more competition, there would likely be someone who would accept that increased cost and lower margins as a way to increase market share. If the cause of the logjam is truly a capacity issue like shortages at suppliers, the market reaction you are expecting would happen upstream. It would be the suppliers that are increasing prices and seeing record profits.

nostrademons 5y ago
It happens at multiple levels, and there's probably a bit of a delay between the supplier facing bottlenecks and the downstream price increases, but not as much as you might expense. I have an acquaintance that runs a box factory. Their prices are way, way up this year (> 50%) despite their production and profits also hitting records. Their costs went way up as well, and their price increases are roughly proportional to their cost increases (hence cost, profit, and price all went up by similar amounts). Their cost increases are non-uniform across inputs, but paper, glue, transportation, etc. all went up by roughly similar amounts (30-100% annually). This is game theory. My acquaintance can look at his input costs and assume that all of his competitors are facing the same input costs. Hence, he raises his prices by a proportionate amount as soon as he sees the new costs, figuring that all of his competitors will run the same mental model. The new input costs serve as a Schelling Point for competitors to collude without any actual communication between them. As long as someone doesn't actively defect, the new price stands, and then it becomes the input for the next tier of suppliers (wholesalers, generally) to set prices.
- slg 5y ago
  >The new input costs serve as a Schelling Point for competitors to collude without any actual communication between them. As long as someone doesn't actively defect, the new price stands, and then it becomes the input for the next tier of suppliers (wholesalers, generally) to set prices. And once again it comes back to the same issue. This shows there is not adequate competition if a few players can collude in this way. Someone would defect, lower their price, and increase their market share in order to increase future profits at the expense of temporarily reduced current profit.

by slg 5y ago

nostrademons 5y ago

It happens at multiple levels, and there's probably a bit of a delay between the supplier facing bottlenecks and the downstream price increases, but not as much as you might expense. I have an acquaintance that runs a box factory. Their prices are way, way up this year (> 50%) despite their production and profits also hitting records. Their costs went way up as well, and their price increases are roughly proportional to their cost increases (hence cost, profit, and price all went up by similar amounts). Their cost increases are non-uniform across inputs, but paper, glue, transportation, etc. all went up by roughly similar amounts (30-100% annually). This is game theory. My acquaintance can look at his input costs and assume that all of his competitors are facing the same input costs. Hence, he raises his prices by a proportionate amount as soon as he sees the new costs, figuring that all of his competitors will run the same mental model. The new input costs serve as a Schelling Point for competitors to collude without any actual communication between them. As long as someone doesn't actively defect, the new price stands, and then it becomes the input for the next tier of suppliers (wholesalers, generally) to set prices.

slg 5y ago
>The new input costs serve as a Schelling Point for competitors to collude without any actual communication between them. As long as someone doesn't actively defect, the new price stands, and then it becomes the input for the next tier of suppliers (wholesalers, generally) to set prices. And once again it comes back to the same issue. This shows there is not adequate competition if a few players can collude in this way. Someone would defect, lower their price, and increase their market share in order to increase future profits at the expense of temporarily reduced current profit.