7 ms·

Company profits are keeping prices high

81 points by whack 3y ago

myhrvold 3y ago
A less nefarious reason behind companies increasing profit margins, is that with more uncertainty -- i.e. potential supply chain disruptions in the future -- companies feel the need to make more from what they are able to get to the end consumer/customer. Generally speaking, there's a lot more that can go wrong than go right in terms of getting stuff to people especially from overseas. (True anywhere in the world.) And the specter of uncertainty basically elevates the default cost of doing business for everything.
randyrand 3y ago
This time in history is unique because it’s the first time companies have cared so much about making profit. /s
yieldcrv 3y ago
if people didn't have excess cash then companies wouldn't have excess profits from raising prices am I missing something about why people want it to be one or the other?
- SvenL 3y ago
  Not sure if they have cash. I could imagine that debt is also pretty high. Would be interesting to see if the average debt per house hold has risen.
  - yieldcrv 3y ago
    aka, they would have died already and the company would not have record profits the reluctance to acknowledge that doesn’t refute it
- richbell 3y ago
  > if people didn't have excess cash then companies wouldn't have excess profits from raising prices This is a flawed view of the situation. Just because people are spending more doesn't mean that they are doing so willfully or at the cost of their quality of life (stress, reduced savings, etc.) When it comes to things like housing and food people have no choice but to accept the increased prices.
  - yieldcrv 3y ago
    Sort of. Inflation doesn’t factor in how many people die shivering in the street for failure to pay. So neither does my analysis, especially as some people do run out of money and grace period. Let me say this in simpler terms: many of the people paying unwillfully to support these profits would already be dead from starving and shivering in the streets without the massive monetary expansion and shifts in speculation.
- jabradoodle 3y ago
  People need heating, housing and food. Demand is inelastic. Unregulated markets are not efficient.
nerdchum 3y ago
Are we even in a free market anymore? Competition is supposed to bring prices back down but all the industries seem to have monopolized and now they just set the max price people will tolerate before getting rid of the service or product all together. Also known in economics as a profit maximizing monopolist.
- antisthenes 3y ago
  Free market is an inherently unstable system. Capital _always_ consolidates until only a few market players are left. At that point it's anyone's guess how much they actually compete or collude between themselves.
  - t-writescode 3y ago
    This is why one of the government’s jobs is to break or stop monopolies. Capitalism only works when competition is possible, probable and realistic.
    - piloto_ciego 3y ago
      Regulatory capture though…
      - t-writescode 3y ago
        It's a bit orthogonal to monopolies being broken up by the government; but, yes, another danger to sustaining the healthy competition that capitalism promises to us lay people is regulatory capture, where small players are literally unable to enter into the fight. The specific tools to break down monopolies are, I presume, different from the tools that would be used to permit future companies to compete with established companies in danger of becoming a cartel or monopoly.
    - p_l 3y ago
      "Free market". The point of capitalism is gathering of capital and preferably making capital only by virtue of having said capital. Competition is for chumps who don't have enough capital to get rid of their competitors or form a cartel.
pmfgpmfg 3y ago
[dead]
garbagecoder 3y ago
I hope all the people pedantically explaining to me in the Intel thread this morning that corporations exist to make profits realize the pathetic scope of that statement of fact. If there is such a thing as a profit-price spiral, I hope it gets the same H-bomb Volcker treatment wage-price spirals do.
- frankreyes 3y ago
  Inflation is here to stay.
  - garbagecoder 3y ago
    If you mean, you don't expect any deflation to occur anytime soon, I hope you're right. If you think >2% is permanent, then I'd like to know why. That's actually fine with me since I have a mortgage. >4% permanent is a problem for me, but I doubt that's permanent.
    - frankreyes 3y ago
      >5% for about 5 years if Fed does everything right. In light of recent history, I'd say a couple of years more. Historically, ZIRP has been the exception and not the rule in the world of economics and finance. Peter Zeihan explains it, here time 37:30 https://youtu.be/DXtScb_IZdg https://youtu.be/DXtScb_IZdg In short: Baby Boomers are retiring, and taking their money with them, and thus with them the largest source of finance in the USA. That means the cost of capital will go up. Independently of what the Fed does, the war, china or covid. One presentation from 2018, time 18 or 19 minutes, here https://youtu.be/u0eJK4Avk2M https://youtu.be/u0eJK4Avk2M "The cost of borrowing will go by a factor of five"
walterbell 3y ago
Boycott price-gouging companies who are testing market elasticity, especially those selling perishable goods. Support competitors where they exist. Wait for temporary discounts and excess inventory to drive price normalization. The first competitor to leave a pricing cartel wins IF buyers are prepared to wait.
- bsder 3y ago
  > The first competitor to leave a pricing cartel wins IF buyers are prepared to wait. You are missing the point. Even if a company wanted to decrease prices and increase their market share, the upstream supplier can't handle the increase in demand because of consolidation and Always Late(tm) inventory. So, any supplier can raise their prices as there is nowhere to go. The cheaper competitor simply sells out immediately and everybody else is left with the more expensive suppliers.
  - walterbell 3y ago
    The article is about price gouging, not constrained supply chains. Yes, there were transient issues in some supply chains for some components, but the overall situation in 2023 is much improved from 2020-2022. Specific niches may be constrained (e.g. demand from grey markets to avoid sanctions), but it's worth the time to comparison shop within markets with functional supply chains.
    - bsder 3y ago
      You're still missing the point. Even when the supply chains are fully operational there is no slack. There is no oversupply anywhere in the system because that would be "inefficient". If I need an extra 25% of supply, I'm out of luck because there isn't any upstream. Consequently, you can't lower prices and pick off a competitor's customers since you can't supply any of the customers you just gained.
      - walterbell 3y ago
        > Even when the supply chains are fully operational there is no slack. In 100% of worldwide supply chains, across products with wildly varying BOM cost ratios of parts and labor? Companies in certain sectors have been able to take advantage of the state of emergency of pandemic and war to raise prices in ways that are not possible in normal times. When prices rise more than costs, profit margins increase ... In the United States, companies are now recording the highest profits since the end of World War II. Did pre-2020 prices exhibit the same dynamics as 2023 prices, because of zero-slack supply chains? Could you share a few industry examples of these zero-slack supply chains?
exabrial 3y ago
So what? Buy from the other guy if you don't like it. If there is no other guy, then we need the FTC to take action. Nearly everything I use daily has a cheaper or generic version. But to be fair, I personally I don't think the FTC is aggressive enough. The FTC seemed to fall asleep during the 2008-2016 giant tech merger era. How Google/Youtube is a thing and Facebook/Instagram is a thing these days blows my mind.
- pydry 3y ago
  >So what? ... we need the FTC to take action Kind of answered your own question there.
tonfreed 3y ago
Does anybody have a link to that effect a French economist figured out after the revolution where printed money doesn't get distributed equally in the economy? I vaguely remember it from my uni economics courses, but blasted if I can remember who discovered it.
- FooBarBizBazz 3y ago
  Cantillon.
frankreyes 3y ago
This is a joke. Inflation makes costs prediction more difficult and companies are, correctly, adjusting for future inflation and uncertainty. Inflation is here to stay, people.

81 points by whack 3y ago

A less nefarious reason behind companies increasing profit margins, is that with more uncertainty -- i.e. potential supply chain disruptions in the future -- companies feel the need to make more from what they are able to get to the end consumer/customer. Generally speaking, there's a lot more that can go wrong than go right in terms of getting stuff to people especially from overseas. (True anywhere in the world.) And the specter of uncertainty basically elevates the default cost of doing business for everything.

randyrand 3y ago

This time in history is unique because it’s the first time companies have cared so much about making profit. /s

yieldcrv 3y ago

if people didn't have excess cash then companies wouldn't have excess profits from raising prices am I missing something about why people want it to be one or the other?

SvenL 3y ago
Not sure if they have cash. I could imagine that debt is also pretty high. Would be interesting to see if the average debt per house hold has risen.
- yieldcrv 3y ago
  aka, they would have died already and the company would not have record profits the reluctance to acknowledge that doesn’t refute it
richbell 3y ago
> if people didn't have excess cash then companies wouldn't have excess profits from raising prices This is a flawed view of the situation. Just because people are spending more doesn't mean that they are doing so willfully or at the cost of their quality of life (stress, reduced savings, etc.) When it comes to things like housing and food people have no choice but to accept the increased prices.
- yieldcrv 3y ago
  Sort of. Inflation doesn’t factor in how many people die shivering in the street for failure to pay. So neither does my analysis, especially as some people do run out of money and grace period. Let me say this in simpler terms: many of the people paying unwillfully to support these profits would already be dead from starving and shivering in the streets without the massive monetary expansion and shifts in speculation.
jabradoodle 3y ago
People need heating, housing and food. Demand is inelastic. Unregulated markets are not efficient.

nerdchum 3y ago

Are we even in a free market anymore? Competition is supposed to bring prices back down but all the industries seem to have monopolized and now they just set the max price people will tolerate before getting rid of the service or product all together. Also known in economics as a profit maximizing monopolist.

antisthenes 3y ago
Free market is an inherently unstable system. Capital _always_ consolidates until only a few market players are left. At that point it's anyone's guess how much they actually compete or collude between themselves.
- t-writescode 3y ago
  This is why one of the government’s jobs is to break or stop monopolies. Capitalism only works when competition is possible, probable and realistic.
  - piloto_ciego 3y ago
    Regulatory capture though…
    - t-writescode 3y ago
      It's a bit orthogonal to monopolies being broken up by the government; but, yes, another danger to sustaining the healthy competition that capitalism promises to us lay people is regulatory capture, where small players are literally unable to enter into the fight. The specific tools to break down monopolies are, I presume, different from the tools that would be used to permit future companies to compete with established companies in danger of becoming a cartel or monopoly.
  - p_l 3y ago
    "Free market". The point of capitalism is gathering of capital and preferably making capital only by virtue of having said capital. Competition is for chumps who don't have enough capital to get rid of their competitors or form a cartel.

pmfgpmfg 3y ago

[dead]

garbagecoder 3y ago

I hope all the people pedantically explaining to me in the Intel thread this morning that corporations exist to make profits realize the pathetic scope of that statement of fact. If there is such a thing as a profit-price spiral, I hope it gets the same H-bomb Volcker treatment wage-price spirals do.

frankreyes 3y ago
Inflation is here to stay.
- garbagecoder 3y ago
  If you mean, you don't expect any deflation to occur anytime soon, I hope you're right. If you think >2% is permanent, then I'd like to know why. That's actually fine with me since I have a mortgage. >4% permanent is a problem for me, but I doubt that's permanent.
  - frankreyes 3y ago
    >5% for about 5 years if Fed does everything right. In light of recent history, I'd say a couple of years more. Historically, ZIRP has been the exception and not the rule in the world of economics and finance. Peter Zeihan explains it, here time 37:30 https://youtu.be/DXtScb_IZdg https://youtu.be/DXtScb_IZdg In short: Baby Boomers are retiring, and taking their money with them, and thus with them the largest source of finance in the USA. That means the cost of capital will go up. Independently of what the Fed does, the war, china or covid. One presentation from 2018, time 18 or 19 minutes, here https://youtu.be/u0eJK4Avk2M https://youtu.be/u0eJK4Avk2M "The cost of borrowing will go by a factor of five"

walterbell 3y ago

Boycott price-gouging companies who are testing market elasticity, especially those selling perishable goods. Support competitors where they exist. Wait for temporary discounts and excess inventory to drive price normalization. The first competitor to leave a pricing cartel wins IF buyers are prepared to wait.

bsder 3y ago
> The first competitor to leave a pricing cartel wins IF buyers are prepared to wait. You are missing the point. Even if a company wanted to decrease prices and increase their market share, the upstream supplier can't handle the increase in demand because of consolidation and Always Late(tm) inventory. So, any supplier can raise their prices as there is nowhere to go. The cheaper competitor simply sells out immediately and everybody else is left with the more expensive suppliers.
- walterbell 3y ago
  The article is about price gouging, not constrained supply chains. Yes, there were transient issues in some supply chains for some components, but the overall situation in 2023 is much improved from 2020-2022. Specific niches may be constrained (e.g. demand from grey markets to avoid sanctions), but it's worth the time to comparison shop within markets with functional supply chains.
  - bsder 3y ago
    You're still missing the point. Even when the supply chains are fully operational there is no slack. There is no oversupply anywhere in the system because that would be "inefficient". If I need an extra 25% of supply, I'm out of luck because there isn't any upstream. Consequently, you can't lower prices and pick off a competitor's customers since you can't supply any of the customers you just gained.
    - walterbell 3y ago
      > Even when the supply chains are fully operational there is no slack. In 100% of worldwide supply chains, across products with wildly varying BOM cost ratios of parts and labor? Companies in certain sectors have been able to take advantage of the state of emergency of pandemic and war to raise prices in ways that are not possible in normal times. When prices rise more than costs, profit margins increase ... In the United States, companies are now recording the highest profits since the end of World War II. Did pre-2020 prices exhibit the same dynamics as 2023 prices, because of zero-slack supply chains? Could you share a few industry examples of these zero-slack supply chains?

exabrial 3y ago

So what? Buy from the other guy if you don't like it. If there is no other guy, then we need the FTC to take action. Nearly everything I use daily has a cheaper or generic version. But to be fair, I personally I don't think the FTC is aggressive enough. The FTC seemed to fall asleep during the 2008-2016 giant tech merger era. How Google/Youtube is a thing and Facebook/Instagram is a thing these days blows my mind.

pydry 3y ago
>So what? ... we need the FTC to take action Kind of answered your own question there.

tonfreed 3y ago

Does anybody have a link to that effect a French economist figured out after the revolution where printed money doesn't get distributed equally in the economy? I vaguely remember it from my uni economics courses, but blasted if I can remember who discovered it.

FooBarBizBazz 3y ago
Cantillon.

frankreyes 3y ago

This is a joke. Inflation makes costs prediction more difficult and companies are, correctly, adjusting for future inflation and uncertainty. Inflation is here to stay, people.