Row 78867

Row ID: 78867 | Dataset Entry | Axioma AXP Content Repository

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Just to play devils advocate. I think the misunderstanding you see in people who react emotionally to inflations is that they see price rise faster than inflation in certain firms / industries. In other words a small subset of firms don’t just “pass along” their higher costs by inflating their prices equivalently. Rather the firms that are able to…pass along prices that are higher than their input costs. This leads to an expansion in profits.

This concept I learned about reading Robert Reichs blog,(economist, former head of labor dept). He says that when inflation rises you are able to see that firms with Pricing power have a better opportunity to exert it, under see the disguise of inflation. This is why you see prices rise faster in certain industries that have high consolidation. (Example firms are ticket master, coca-cola, McDonalds). Another (more complex) example is OPEC. OPEC is a cartel that tries to set prices that maximize their profits. When they set a price target their primary consideration isn’t simply to look at costs and pass it through…they are looking to make the most money possible. If that means they can set price targets beyond inflation they will…(the only thing keeping them from doing so is that they only produce 80% of the worlds oil) and if they raise prices too much it will ultimately induce more supply from non OPEC countries. But rest assured if they held 95 or 100% they would raise it indiscriminately.

Additionally, The inflation can end up coordinating firms…if those firms were in price war (aggressively reducing prices) the need to shift course and raise prices can shift them out of competitive price practices, effectively reducing / ending the price war.

Lastly, there is psychological component where people develop reference points around prices. This concept was research by Daniel Kahnman (Nobel prize winner). In short his research showed that humans can behave irrationally when they develop reference points for a price. (When purchasing a good)….if the price is higher they are in a “loss” domain, if lower they are in a win domain. People react more strongly being in a loss domain (than a win domain). This plays out in all sorts of ways in society …whether it’s valuing stocks, or selling homes, or purchasing milk.

Is it large policies that cause it. Yes. Does it provide opportunity for firms with market power to exert it? Yes. However, Inflation is complex because it is inherently destabilizing a market equilibrium.

Monopoly power can exist and is (generally) bad for consumers and a political system that is flush with cash from lobbyist and donations to Super PACs can end up paying more attention to the firms than the consumers…which leads to consolidation.l which leads to higher than inflation prices in some industries.

FieldValue
text Just to play devils advocate. I think the misunderstanding you see in people who react emotionally to inflations is that they see price rise faster than inflation in certain firms / industries. In other words a small subset of firms don’t just “pass along” their higher costs by inflating their prices equivalently. Rather the firms that are able to…pass along prices that are higher than their input costs. This leads to an expansion in profits. This concept I learned about reading Robert R…
label r/investing
dataType comment
communityName r/investing
datetime 2024-05-24
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Raw Record

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