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An alternative hypothesis/interpretation to "price gouging:" An operation that had good virus safety practices is reaping the benefits of that effort by capturi

by adolph 4y ago

An alternative hypothesis/interpretation to "price gouging:" An operation that had good virus safety practices is reaping the benefits of that effort by capturing the profit that would have been distributed across other operators. Isn't that the way things should work? A deadly and highly infectious avian flu has forced US farmers to kill millions of egg-laying hens, reducing the country’s egg supply and driving up prices. But Cal-Maine said in its earnings statement that there have been no positive tests for avian flu at any of its owned or contracted production facilities.

zamadatix 4y ago
At 20% of the market capturing even 100% of competitor profit wouldn't explain a 700% profit increase on capture alone. From that view additional profit is being generated because of the shortage event, not just being directed to companies that did things "right". Whether or not you think that's reasonable though is pretty much the definition of whether or not you think it's price gouging.
- BaseballPhysics 4y ago
  > Whether or not you think that's reasonable though is pretty much the definition of whether or not you think it's price gouging. Define "price gouging". Is charging the price the market will bear based on supply and demand "gouging"? Look, I personally think markets need to be regulated to serve the people. But one person's "gouging" is another person's free market price discovery during a supply shock. Unless there's evidence of cartel-like behaviour--i.e. price fixing--this is just the way free markets work. Don't like it? Regulate it.
  - zamadatix 4y ago
    Again what you quote is precisely the definition you are seeking. Quite literally price gouging is simply another way to say "I think this price increase due to this abnormal market situation is unfair". It doesn't define how something should be considered unfair and it doesn't define what an abnormal market situation is rather it defines one's view on the situation. To try to debate price gouging on whether it is instead of why it is is therefore a bit misguided, as is comparing it to economic laws like supply and demand where it's completely orthogonal to how the market operates and instead focuses on why it does in bad situations. In regards to "regulate it" price gouging laws are one type of regulation. Typically for government price gouging laws to kick in the government has to declare the situation an emergency but that doesn't limit what each person can consider price gouging. Personally I don't think this is quite price gouging territory. The market situation is funky vs the normal situation for sure but it's not exactly a crisis driving people to buy eggs they have to get at inflated prices rather a problem lowering the supply of eggs which isn't enough to tick the box for me. Particularly at these prices. Others may disagree of course.
- adolph 4y ago
  Their net (aka profit) was 8x year over year because their costs did not scale with revenue. Their 20% market share doesn't have anything to do with how their profit (as income minus costs) scales. Based on info in the quarterly financial report, the revenue increase is 209%, not what the 109% the article says. Given their costs did not rise as fast as revenue, their profit margin this quarter was 32% over 8% the year before. However, it wasn't all roses as they indicate higher costs as well, example: "For the third quarter of fiscal 2023, feed costs per dozen were $0.679, a 20.8% increase compared with the third quarter of fiscal 2022." Item: before, after Egg: 1.61, 3.30 Inc: 477.5, 997.5 Net: 39.5, 323.2 Margin: 8%, 32% Max Bowman, chief financial officer of Cal-Maine Foods, added, “Our financial results for the quarter were led by net sales of $997.5 million compared with $477.5 million for the same period last year. Net income for the third quarter of fiscal 2023 was $323.2 million, or $6.62 per diluted share, compared with $39.5 million, or $0.81 per diluted share, for the third quarter of fiscal 2022. [0] https://calmainefoods.gcs-web.com/node/13221/pdf https://calmainefoods.gcs-web.com/node/13221/pdf
  - deleted 4y ago
    [deleted]
  - zamadatix 4y ago
    If you flip it to capturing revenue of competitors, instead of profit, then sure the profit increase is explainable by typical market rules but it's no longer backing an alternative hypothesis they were "reaping the benefits of that effort by capturing the profit that would have been distributed across other operators" you're back to the original hypothesis of the article "profits were increased" just now you've explained how (revenue increased faster than expenses for a given product volume). What price gouging asks is if that profit increase is ethical not how it's explained to have occured. That is price gouging is a question of opinions of policy, one of which could certainly include "anything that follows the expected market behavior is ethical". To be clear I don't consider this price gouging personally, I'm just not seeing why this is an alternative hypothesis to price gouging instead of a take on what qualifies as unethical or not.
    - 4y ago

by adolph 4y ago

zamadatix 4y ago

At 20% of the market capturing even 100% of competitor profit wouldn't explain a 700% profit increase on capture alone. From that view additional profit is being generated because of the shortage event, not just being directed to companies that did things "right". Whether or not you think that's reasonable though is pretty much the definition of whether or not you think it's price gouging.

BaseballPhysics 4y ago
> Whether or not you think that's reasonable though is pretty much the definition of whether or not you think it's price gouging. Define "price gouging". Is charging the price the market will bear based on supply and demand "gouging"? Look, I personally think markets need to be regulated to serve the people. But one person's "gouging" is another person's free market price discovery during a supply shock. Unless there's evidence of cartel-like behaviour--i.e. price fixing--this is just the way free markets work. Don't like it? Regulate it.
- zamadatix 4y ago
  Again what you quote is precisely the definition you are seeking. Quite literally price gouging is simply another way to say "I think this price increase due to this abnormal market situation is unfair". It doesn't define how something should be considered unfair and it doesn't define what an abnormal market situation is rather it defines one's view on the situation. To try to debate price gouging on whether it is instead of why it is is therefore a bit misguided, as is comparing it to economic laws like supply and demand where it's completely orthogonal to how the market operates and instead focuses on why it does in bad situations. In regards to "regulate it" price gouging laws are one type of regulation. Typically for government price gouging laws to kick in the government has to declare the situation an emergency but that doesn't limit what each person can consider price gouging. Personally I don't think this is quite price gouging territory. The market situation is funky vs the normal situation for sure but it's not exactly a crisis driving people to buy eggs they have to get at inflated prices rather a problem lowering the supply of eggs which isn't enough to tick the box for me. Particularly at these prices. Others may disagree of course.
adolph 4y ago
Their net (aka profit) was 8x year over year because their costs did not scale with revenue. Their 20% market share doesn't have anything to do with how their profit (as income minus costs) scales. Based on info in the quarterly financial report, the revenue increase is 209%, not what the 109% the article says. Given their costs did not rise as fast as revenue, their profit margin this quarter was 32% over 8% the year before. However, it wasn't all roses as they indicate higher costs as well, example: "For the third quarter of fiscal 2023, feed costs per dozen were $0.679, a 20.8% increase compared with the third quarter of fiscal 2022." Item: before, after Egg: 1.61, 3.30 Inc: 477.5, 997.5 Net: 39.5, 323.2 Margin: 8%, 32% Max Bowman, chief financial officer of Cal-Maine Foods, added, “Our financial results for the quarter were led by net sales of $997.5 million compared with $477.5 million for the same period last year. Net income for the third quarter of fiscal 2023 was $323.2 million, or $6.62 per diluted share, compared with $39.5 million, or $0.81 per diluted share, for the third quarter of fiscal 2022. [0] https://calmainefoods.gcs-web.com/node/13221/pdf https://calmainefoods.gcs-web.com/node/13221/pdf
- deleted 4y ago
  [deleted]
- zamadatix 4y ago
  If you flip it to capturing revenue of competitors, instead of profit, then sure the profit increase is explainable by typical market rules but it's no longer backing an alternative hypothesis they were "reaping the benefits of that effort by capturing the profit that would have been distributed across other operators" you're back to the original hypothesis of the article "profits were increased" just now you've explained how (revenue increased faster than expenses for a given product volume). What price gouging asks is if that profit increase is ethical not how it's explained to have occured. That is price gouging is a question of opinions of policy, one of which could certainly include "anything that follows the expected market behavior is ethical". To be clear I don't consider this price gouging personally, I'm just not seeing why this is an alternative hypothesis to price gouging instead of a take on what qualifies as unethical or not.
  - 4y ago