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Why is inflation so sticky? It could be corporate profits

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Re: Why is inflation so sticky? It could be corporate profits

#61

Post by paxys »

rhacker wrote: post #59
paxys wrote: post #58

Their argument is basically that while normally a company raising prices would mean that some of their customers move to a competitor, in today's environment there is an implicit agreement that every company will keep prices high. So are they saying that the free market is basically not a thing anymore because of covid, and no company wants to get an edge over its competitors by undercutting on price despite having r…

Technically does that mean the FTC can literally go after all the companies for collusive price fixing?

Well they are saying there is no collusion. Companies are all individually deciding to raise prices and not bringing them down.

Re: Why is inflation so sticky? It could be corporate profits

#63

Post by frankreyes »

Because companies have to raise prices to the point of replacement. When selling something, that should cover the costs of production of the replacements in order to be able to sell it again. This means the current price has to account for the future costs adjusted to inflation. And this is when inflation gets exponential.

Re: Why is inflation so sticky? It could be corporate profits

#65

Post by medion »

paxys wrote: post #58

Their argument is basically that while normally a company raising prices would mean that some of their customers move to a competitor, in today's environment there is an implicit agreement that every company will keep prices high. So are they saying that the free market is basically not a thing anymore because of covid, and no company wants to get an edge over its competitors by undercutting on price despite having r…

Anecdotal, but it feels like there are less competitors. So…

Re: Why is inflation so sticky? It could be corporate profits

#66

Post by vjk800 »

tiedieconderoga wrote: post #13
silisili wrote: post #9

Earlier quoted context omitted.

Perhaps you went to a better school than I did. I only did 101 and 102, but even then the professor always spoke in terms like we were some old village, probably to make things easier to understand. But obviously those analogies don't apply to the world today, mostly.

The problem is that people aren't rational, and they don't have perfect information. So the history of finance and commerce has been a cat-and-mouse game where the cats find new ways to cheat people, and the mice try to recognize and prevent those schemes. One example: cartels. If an industry is dominated by a small number of large players, they can collude to set prices and stifle competition through regulatory capt…

The lack of information (or information asymmetries) are such a huge deal and not often appreciated.

I would pay a lot more for many small electronic gadgets if I knew that they would 1) work better and 2) last longer than the cheap ones. However, It's basically impossible for me to find out how good is the signal on my bluetooth usb stick or how long my plant LED lights are going to last without breaking so I just buy the cheapest since the price doesn't seem to be a very reliable indicator of either of those things. I'm sure there are players on the market who make things that I'd like to buy, but it's impossible for me to find them and verify that they actually do what I want so they are not getting my money.

Re: Why is inflation so sticky? It could be corporate profits

#67

Post by tzs »

simiansays wrote: post #38
silisili wrote: post #3

It's a likely theory. But economics teaches us when a player overcharges, others will step in to undercut and take all the market share. So, we're at a point where we need to admit that mantra isn't true in the modern age, or admit that we've done a terrible job at preventing effective monopolies/duopolies from forming.

Why not both? The modern dismantling of antitrust regulation and enforcement is a significant driver of both. It's gotten way worse now than ever, to the point where private equity firms like Vanguard and Blackrock can be the biggest shareholders in direct duopoly competitors (KO and PEP are an example), or where investors and producers are permitted to fully horizontally and vertically integrate (AMZN is an example)…

Econ 101 is using those models for the same reason Phys 101 uses Newtonian mechanics in a vacuum with rigid bodies of low mass and no charge and with all collisions being elastic.

They are a good enough approximation to reality in a lot of useful situations, and understanding them does help in later classes when they bring in relativity, electromagnetism, fluids, thermodynamics, quantum mechanics, bodies that aren't rigid, and so on.

Even after you've got all that stuff under your belt the Phys 101 stuff remains useful, because often something that cannot be modeled accurately enough with just Phys 101 material can be modeled accurately enough if you take the Phys 101 model and tweak it a bit with the rest.

I believe its the same in economics.

Re: Why is inflation so sticky? It could be corporate profits

#68

Post by klysm »

rhacker wrote: post #59
paxys wrote: post #58

Their argument is basically that while normally a company raising prices would mean that some of their customers move to a competitor, in today's environment there is an implicit agreement that every company will keep prices high. So are they saying that the free market is basically not a thing anymore because of covid, and no company wants to get an edge over its competitors by undercutting on price despite having r…

Technically does that mean the FTC can literally go after all the companies for collusive price fixing?

Tacit collusion isn’t illegal

Re: Why is inflation so sticky? It could be corporate profits

#70

Post by praptak »

zhte415 wrote: post #53
silisili wrote: post #3

It's a likely theory. But economics teaches us when a player overcharges, others will step in to undercut and take all the market share. So, we're at a point where we need to admit that mantra isn't true in the modern age, or admit that we've done a terrible job at preventing effective monopolies/duopolies from forming.

If an econ forum started a discussion of physics with discussion of what the ether teaches us, it would be quickly dismissed. Yet HN's fine, again, with the equivalent as the starting block, indeed highest voted comment, for discussion of an econ topic. Wisdom of the crowds perhaps, though crowds of people did once stone crows.

Econ can't hold a light to physics in terms of falsifiability of hypotheses yet people still treat it as hard science.
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