Company profits are keeping prices high
dw.com
dw.com
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.
At that point it's anyone's guess how much they actually compete or collude between themselves.
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.
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.
The assumptions we're taught in grade school about how capitalism breeds competition and competition means the customer wins only work when capitalism has reins on it to stop it from becoming a bunch of monopolies so that there can still be competition.
In some cases I think the government should simply operate (in the case of utilities) or heavily regulate monopolies while allowing them to exist. IMO a monopoly is only bad insofar as it overcharges customers, stifles innovation, and abuses its position to prevent competitors from arising or gaining market share. It’s not the monopoly itself that’s the problem
If all of those bad things happen only because they have monopoly power, then yeah the monopoly itself is the problem.
A real market is composed of discrete players (you never have unlimited options) with things like friction, collusion, switching costs and stickiness at all levels, cognitive overhead, conflicts of interest (a firm making suboptimal decisions because influential people in the firm will personally benefit from the decisions). There are natural monopolies and economies of scale, as well as insurmountable moats, intellectual property creating monopolies or deadweight loss, an omnipotent (unlimited money) central planning committee (central bank) making decisions that can directly affect you…
Conversely you cannot have true central planning because it essentially violates an economic version of the CAP theorem (you’ll never have synchronized perfect information in a way that’s fault tolerant) and assuming production is constrained, optimally balancing all constraints is NP-complete. But even beyond that you have incomplete or falsified information, defection (deviate from the plan due to disagreement) and corruption, some outcomes being inherently noisy or unpredictable, the need to delegate, lack of price discovery or disambiguating between stated and revealed preferences…
All we can do is try to patch on changes to any approach to address shortcomings. Although the strong rule of law and consistency in the US legal system makes things extremely stable, it also enshrines loopholes and bad outcomes, so in some ways I wonder if China’s system (which relies on its decision makers being relatively competent and benevolent-ish, which they’ve been very fortunate to benefit from since Deng) might be better given they can throw out rule of law to force outcomes.
Like and updated version of "divine right of kings".
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.
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.
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.
A Taiwan earthquake shuts down the entire disk drive manufacturing system. A fire in a single manufacturer wipes out Toyota's ability to deliver cars. A single manufacturer controls 25% of the market for eggs. The US military can't get any more black powder because a single facility blew up. etc.
This is the end state of rampant consolidation for economies of scale.
> Profit margins of firms in critical sectors have increased, as ECB data show. Since the end of 2019, profits have overall grown more strongly than wages; the surge in profits is concentrated in sectors such as agriculture; mining and utilities; trade, transport, food.
In the last few years, tariffs and sanctions have started moving _some_ supply chains in the direction of resilience and deglobalisation, including national investments like the $50B US CHIPS Act, https://archive.is/TMZQm
> Emerging markets in Latin America, Africa and Asia, for example, are building regional production networks for crucial goods. Ultimately, this could create more resilient trade pathways and new development models that aren’t entirely pinned to exporting cheap goods to a handful of rich nations across long transport routes that are becoming more expensive and politically contentious.
You could do exactly as you say. But what's your incentive?
You have to invest a lot of money up front for a possible killing on the back--but you could get burned horribly. Or you can leave the system at capacity and jack up your prices for a known increase on the front with very little risk.
What you are really asking is: Why don't companies face new competitors regularly?
Why is there no competitor to Apple and Android? Why are Kansas City Southern and Canadian Pacific trying to merge instead of compete for each other's customers? Why are there so few auto companies? Why was there no competitor to SVB such that their portfolio became to loaded with a specific type of company? Why is there no competitor to Cal-Maine who controls almost 25% of the egg supply?
The answer to that is: a combination of anti-trust and monetary policies.
Lax anti-trust enforcement means it is almost always cheaper to buy a competitor than compete and put them out of business. Monetary policies in the US favored creating passive things like real-estate holdings rather than active businesses.
(Side note: Future Electronics, in fact, did exactly what you would expect in the middle of the Covid supply chain breakdown. They had more inventory than average so made a LOT of money while it lasted. However, even they eventually succumbed to not having any upstream supply.)
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.
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.
Peter Zeihan explains it, here time 37:30
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
"The cost of borrowing will go by a factor of five"
I vaguely remember it from my uni economics courses, but blasted if I can remember who discovered it.
/s
Inflation is here to stay, people.
am I missing something about why people want it to be one or the other?
the reluctance to acknowledge that doesn’t refute it
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.
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.
Unregulated markets are not efficient.
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.
Kind of answered your own question there.