The competition will not need to undercut to make bank... there is increased demand relative to supply, causing prices to rise, and the competition will like th

The competition will not need to undercut to make bank... there is increased demand relative to supply, causing prices to rise, and the competition will like the higher prices as well. If premium breadco sells for $2.10 a loaf now and generic bread for $1.89, then possibly the new equilibrium will result in prices of $3.10 and $2.89. There's competition... but the new price has gone up. If generic bread kept its old price the demand would be so high that they couldn't supply it--- AND their costs are going to go up as well so they wouldn't be able to keep their old price anyway. We've seen this over and over as the government has inflated the dollar over the years. In fact, I think the argument could be made that the entire lack of recovery in the past 8 years is due to the level of inflation wiping out and gains from winding down the housing bubble.