4 ms·

> The supplies of these goods have had occasional disruptions but are largely unchanged. Those "disruptions" you refer to create periods of "lack of supply" (i

by pwg 2y ago

> The supplies of these goods have had occasional disruptions but are largely unchanged. Those "disruptions" you refer to create periods of "lack of supply" (i.e., less of the goods). That is what the "disruption" is, a temporary reduction in the "supply" > The demand has not changed in any material way. True, but, during the period of "temporary reduction in the supply" (i.e., the disruption) Econ 101's supply/demand curve will predict that the price will rise to make the "demand" during the period of limited supply equalize with the new supply level due to the disruption. What often happens (and you see it most clearly with gasoline prices), is that the price reacts extremely quickly to the supply disruption by increasing fast (seemingly within hours). But then, when the "disruption" clears, and the supply amount returns to normal, the price tends to slowly drift downward (if it drifts downward at all).

arrosenberg 2y ago
Forget about oil for a second. Why is a large box of cereal $8 at the supermarket? It costs pennies to produce, maybe a dollar in landed cost. The small box costs almost the same landed and it's $5, which is also absurd. There is no supply shortage of corn and sugar, and no glut of demand for cereal. I'm not stupid, I understand supply and demand. COVID was 4 years ago. Explain the $8 box of cereal.
- dghlsakjg 2y ago
  What it costs to produce is irrelevant in an equilibrium price for supply and demand. I'm not sure you do understand. Many people are buying the cereal for $8. Its that simple. There is enough demand for it at $8 that the company is happy with the market clearing their supply at that price point. If people were not buying the cereal at that price, they would lower it, or have gone out of business by now. If someone could produce a substitute for far cheaper, and undercut, they would, and they do, but consumers are partial to name brands. Cheerios are $5 at Walmart, People are buying them. Those people that think that $5 is too much can and do buy the $2 off-brand alternative.
  - ricardobeat 2y ago
    > If someone could produce a substitute for far cheaper, and undercut, they would Not when a cartel controls 97% of the market, distribution, placement, and is very keen on maintaining the status quo, as posited by the article.
    - creer 2y ago
      At least in high population places like much of California, nobody controls distribution and placement to this degree. If you are not happy with Safeway - and there is no reason to be - you can buy some product categories at the other chains, at walmart or Costco, unpackaged at specialized grocery stores, at several kinds of ethnic grocery stores, even at eastern european grocery stores. And that's before getting to online, long distance, grocery delivery which is not even always out of the question on price. ALL of these are functional. We do have a lot of choice currently.
  - arrosenberg 2y ago
    Thanks for quoting the textbook at me. Does that seem like a competitive market to you? It shouldn't, because if it was, the cost would be pushed down near it's landed cost. That's a result of companies (both CPG producers and food market retailers) having concentrated market share in contravention of the law.
    - fsckboy 2y ago
      there is also competition for limited/expensive shelf space in the supermarket and only-so-much advertising media that must be shared with all other products I'm old enough to remember that there used to be choices for different brands of various types of flakes: people use their dollars to exercise choices in the space of products to choose from, and they aren't any longer looking for a "dirt cheap corn flake shootout" yes, there are also nonlinearities like minimum viable factory size, which leads to market concentration heading toward monopolization, but those factors are not specific to corn flakes nor driving that market. did you know that Frosted Flakes are actually just stale corn flakes that are revived by spraying them with sugar? I used to work for a company modelling factory automation, and that was part of the model. So, if you don't sell sugar cereals, you're not as efficient.
- daedrdev 2y ago
  The company that makes the cereal is a low margin business. In fact most food that isnt high end is low margin. Somewhere they have a lot of costs to cover.
  - arrosenberg 2y ago
    None of that answers the question of why a box of cereal that costs a dollar or so to deliver landed to a store costs me $8 to buy. Middle men are taking a huge chunk of the pie!
    - latency-guy2 2y ago
      > costs a dollar or so to deliver landed to a store costs me $8 to buy. Delivery optimization, logistics, and last mile operations are an unfathomably difficult problem(s) to solve, so much so that the entire world participates and there are still enormous gaps in efficiency, many that likely will never be solved due to physics. I know you're plain wrong about it costing "a dollar" to deliver. Even if it did, you do not pay for just the operational cost, you pay for the convenience, expertise, reliability, or many other factors that comes with procuring a contract/agreement.
      - cudgy 2y ago
        People have been delivering goods to stores for hundreds of years. How much expertise and convenience is required?
        creer 2y ago
        For a while, that was the entire strength of Walmart (efficient distribution) and they did amazingly well with just that. For many years now, even they have not been able to achieve that. It's not so easy.
        latency-guy2 2y ago
        I don't really have the patience for ignorance being masqueraded as expertise. If you have something to prove, then you're welcome to show the world how its done. Doubt me all you want, but you can't doubt the rest of the world.
- AnthonyMouse 2y ago
  > Why is a large box of cereal $8 at the supermarket? It costs pennies to produce, maybe a dollar in landed cost. The small box costs almost the same landed and it's $5, which is also absurd. There is no supply shortage of corn and sugar, and no glut of demand for cereal. Most of the cost of the cereal isn't the cereal. First you're paying for the store. That's real estate costs -- currently excruciating. Property tax and insurance, based on the real estate prices. The store needs heat and light, that's oil and electricity. There are people who work at the store, has your state recently increased its minimum wage? Grocery stores that don't buy advertising have fewer customers and have to amortize these costs over fewer sales, so you either have higher costs per unit because they didn't buy advertising or higher total costs because they did, etc. The next question you might ask is, why don't they get rid of the store? Ship the cereal to your door. But it's like 8 oz of cereal, you'd get killed on the shipping. To make it work you'd need your whole grocery order to be delivered in one trip. That could actually be an interesting business model. Instead of "free shipping" encouraging you to buy one item at a time but then the shipping cost is really baked into the item price, have "flat rate shipping" where you pay e.g. $35/order for shipping with no item limit. Then if you're buying what would otherwise be $400 in groceries for $200 by cutting out the retail store, paying the $35 is totally worth it, and you could be adding items to your cart all month for a scheduled monthly delivery. But is anybody offering that?
  - arrosenberg 2y ago
    > First you're paying for the store. That's real estate costs -- currently excruciating. Property tax and insurance, based on the real estate prices. The store needs heat and light, that's oil and electricity. There are people who work at the store, has your state recently increased its minimum wage? Same box of cereal costs the same in Southern California and South Carolina. South Carolina is cheaper in every way - electricity, rent, insurance, and labor. Same $8 premium cost for a commodity product that costs a dollar or so to land. No one is competing for the customers' dollar, they are imposing a price scheme because there is extremely limited competition and distributors are being allowed to abuse their pricing power.
    - AnthonyMouse 2y ago

by pwg 2y ago

arrosenberg 2y ago

Forget about oil for a second. Why is a large box of cereal $8 at the supermarket? It costs pennies to produce, maybe a dollar in landed cost. The small box costs almost the same landed and it's $5, which is also absurd. There is no supply shortage of corn and sugar, and no glut of demand for cereal. I'm not stupid, I understand supply and demand. COVID was 4 years ago. Explain the $8 box of cereal.

dghlsakjg 2y ago
What it costs to produce is irrelevant in an equilibrium price for supply and demand. I'm not sure you do understand. Many people are buying the cereal for $8. Its that simple. There is enough demand for it at $8 that the company is happy with the market clearing their supply at that price point. If people were not buying the cereal at that price, they would lower it, or have gone out of business by now. If someone could produce a substitute for far cheaper, and undercut, they would, and they do, but consumers are partial to name brands. Cheerios are $5 at Walmart, People are buying them. Those people that think that $5 is too much can and do buy the $2 off-brand alternative.
- ricardobeat 2y ago
  > If someone could produce a substitute for far cheaper, and undercut, they would Not when a cartel controls 97% of the market, distribution, placement, and is very keen on maintaining the status quo, as posited by the article.
  - creer 2y ago
    At least in high population places like much of California, nobody controls distribution and placement to this degree. If you are not happy with Safeway - and there is no reason to be - you can buy some product categories at the other chains, at walmart or Costco, unpackaged at specialized grocery stores, at several kinds of ethnic grocery stores, even at eastern european grocery stores. And that's before getting to online, long distance, grocery delivery which is not even always out of the question on price. ALL of these are functional. We do have a lot of choice currently.
- arrosenberg 2y ago
  Thanks for quoting the textbook at me. Does that seem like a competitive market to you? It shouldn't, because if it was, the cost would be pushed down near it's landed cost. That's a result of companies (both CPG producers and food market retailers) having concentrated market share in contravention of the law.
  - fsckboy 2y ago
    there is also competition for limited/expensive shelf space in the supermarket and only-so-much advertising media that must be shared with all other products I'm old enough to remember that there used to be choices for different brands of various types of flakes: people use their dollars to exercise choices in the space of products to choose from, and they aren't any longer looking for a "dirt cheap corn flake shootout" yes, there are also nonlinearities like minimum viable factory size, which leads to market concentration heading toward monopolization, but those factors are not specific to corn flakes nor driving that market. did you know that Frosted Flakes are actually just stale corn flakes that are revived by spraying them with sugar? I used to work for a company modelling factory automation, and that was part of the model. So, if you don't sell sugar cereals, you're not as efficient.
daedrdev 2y ago
The company that makes the cereal is a low margin business. In fact most food that isnt high end is low margin. Somewhere they have a lot of costs to cover.
- arrosenberg 2y ago
  None of that answers the question of why a box of cereal that costs a dollar or so to deliver landed to a store costs me $8 to buy. Middle men are taking a huge chunk of the pie!
  - latency-guy2 2y ago
    > costs a dollar or so to deliver landed to a store costs me $8 to buy. Delivery optimization, logistics, and last mile operations are an unfathomably difficult problem(s) to solve, so much so that the entire world participates and there are still enormous gaps in efficiency, many that likely will never be solved due to physics. I know you're plain wrong about it costing "a dollar" to deliver. Even if it did, you do not pay for just the operational cost, you pay for the convenience, expertise, reliability, or many other factors that comes with procuring a contract/agreement.
    - cudgy 2y ago
      People have been delivering goods to stores for hundreds of years. How much expertise and convenience is required?
      - creer 2y ago
        For a while, that was the entire strength of Walmart (efficient distribution) and they did amazingly well with just that. For many years now, even they have not been able to achieve that. It's not so easy.
      - latency-guy2 2y ago
        I don't really have the patience for ignorance being masqueraded as expertise. If you have something to prove, then you're welcome to show the world how its done. Doubt me all you want, but you can't doubt the rest of the world.
AnthonyMouse 2y ago
> Why is a large box of cereal $8 at the supermarket? It costs pennies to produce, maybe a dollar in landed cost. The small box costs almost the same landed and it's $5, which is also absurd. There is no supply shortage of corn and sugar, and no glut of demand for cereal. Most of the cost of the cereal isn't the cereal. First you're paying for the store. That's real estate costs -- currently excruciating. Property tax and insurance, based on the real estate prices. The store needs heat and light, that's oil and electricity. There are people who work at the store, has your state recently increased its minimum wage? Grocery stores that don't buy advertising have fewer customers and have to amortize these costs over fewer sales, so you either have higher costs per unit because they didn't buy advertising or higher total costs because they did, etc. The next question you might ask is, why don't they get rid of the store? Ship the cereal to your door. But it's like 8 oz of cereal, you'd get killed on the shipping. To make it work you'd need your whole grocery order to be delivered in one trip. That could actually be an interesting business model. Instead of "free shipping" encouraging you to buy one item at a time but then the shipping cost is really baked into the item price, have "flat rate shipping" where you pay e.g. $35/order for shipping with no item limit. Then if you're buying what would otherwise be $400 in groceries for $200 by cutting out the retail store, paying the $35 is totally worth it, and you could be adding items to your cart all month for a scheduled monthly delivery. But is anybody offering that?
- arrosenberg 2y ago
  > First you're paying for the store. That's real estate costs -- currently excruciating. Property tax and insurance, based on the real estate prices. The store needs heat and light, that's oil and electricity. There are people who work at the store, has your state recently increased its minimum wage? Same box of cereal costs the same in Southern California and South Carolina. South Carolina is cheaper in every way - electricity, rent, insurance, and labor. Same $8 premium cost for a commodity product that costs a dollar or so to land. No one is competing for the customers' dollar, they are imposing a price scheme because there is extremely limited competition and distributors are being allowed to abuse their pricing power.
  - AnthonyMouse 2y ago