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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

#301

Post by doublespanner »

AnthonyMouse wrote: post #296
doublespanner wrote: post #96

Earlier quoted context omitted.

Only if the infrastructure is something tangible, often the startup costs are regulatory, and not necessarily transferable. There is also the problem that if the incumbents move to undercut, then any onlooker would assume that even if they bought the infrastructure they would also face the same undercutting; and would therefore have to remain solvent longer than an incumbant to make a return. I think this is why ther…

Regulatory costs aren't lost in acquisitions. You buy the whole company. > There is also the problem that if the incumbents move to undercut, then any onlooker would assume that even if they bought the infrastructure they would also face the same undercutting; and would therefore have to remain solvent longer than an incumbant to make a return But the incumbent has the same problem. If the unit cost is $1 and they're…

Again, not all costs associated with regulatory compliance are transferable; this is by design to keep a barrier to entry. Many accreditations/certifications have a reset clause when something significant in a business changes (like owner), or have a not widely available cheaper streamlined version for long-standing businesses.

This is even assuming that selling the whole businesses is the best way to exit; taking over the whole business rather than just the machinery (for example) is a restriction that might be detrimental.

The thing you are not understanding, is that you have to be able to loose money for longer than the competition; it either requires an investment on the same scale as the total valuation of the incumbent, or a string of failed attempts from others to set the stage... And you can estimate ahead of time how long you can operate for, and how long the competition can, so you can likely tell before you start that you are going to be one of the failures.

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

#302

Post by doublespanner »

mitthrowaway2 wrote: post #275
lores wrote: post #161

Earlier quoted context omitted.

That's hitting the nail squarely. If your margin is 5%, going to 10% is far better and far easier than doubling your market share.

Perhaps, but that's sort of like pointing to the prisoner's dilemma and saying "clearly, the best and easiest option for both prisoners is to both cooperate, thus achieving the best outcomes for both". We usually expect that competitors would try to compete , and going from 5% to 10% market share would result in getting undercut so badly that you lose far more customers than the higher margins are worth. It's not so…

Well no, there is no real dilemma, because unlike the prisoners you can change your choice at any time. You can do research and make a decent guess at the units sold at a price point of you only make a small increase, and then your competition does the same, and as long as you can all keep pushing the price each small increase is absorbed. This is essentially a mechanism for discovering inflation, it continues step by step until people stop buying.

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

#303

Post by ThunderSizzle »

chii wrote: post #272
ThunderSizzle wrote: post #203

Earlier quoted context omitted.

My property taxes currently falls on my tenant. And my rent currently pays for my landlord's property taxes

If there wasn't a property tax, would you have decreased the rent (all else being equal)?

In a similar way I would try to charge more rent if my costs went up.

As much as the market permits, as the rental market also competes with actually just buying the house.

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

#304

Post by senectus1 »

jfabre wrote: post #177
senectus1 wrote: post #64

oh come on! Corp profits dont help, but they're about as consequential as wage increases. Its sticky because of the money printing done in the past, and still happening. They printed a TON of money, its devalued our $$$'s. This is the direct consequence.

I honestly can't believe you're being downvoted when you have the most sensible answer here. The government here in Canada created MASSIVE supply of money out of thin air to keep up with the US and put almost 1/3 of the population on social welfare and everyone is pointing fingers to find who's the most greedy. It's the dumbest thing ever. https://www.youtube.com/watch?v=GJ4TTNeSUdQ

The media seems to be doing its damnedest to push any theory that does not tie into the quantitive easing/money printing.

Its fascinating to watch what i suspect is another bigger collapse (than the GFC) start, and NOBODY in the MSM is looking at the elephant in the room wearing a big loud hat that says "IT WAS ME".

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

#305

Post by ShadowBanThis01 »

WalterBright wrote: post #282
ShadowBanThis01 wrote: post #140

Earlier quoted context omitted.

Over-simplified and not true when oligopolies run rampant. Higher interest rates have one squat, and that’s why. Yet no one is hammering the government on it. HUH.

> not true when oligopolies run rampant Oligopolies are not able to increase the money supply by charging higher prices, so they cannot create inflation.

So you're saying that the recent spate of price increases isn't inflation. Got it.

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

#306

Post by prepend »

BirdieNZ wrote: post #297
prepend wrote: post #201

Earlier quoted context omitted.

That’s interesting. Why is land tax not a cost that’s passed on to the consumer while all other costs do? Typically inelastic goods mean that prices can increase because demand will not drop as prices go up.

(Usually) rents are already as high as they can be, in aggregate. In other words, the market cannot bear a higher cost for the good, so an increase in cost has to be eaten by the landlord. This is actually very easy to see in countries with no 30 year mortgages, because landlords have to refix their mortgage rates every 1-5 years. This means you can see regular landlord cost changes as interest rates fluctuate, as we…

> Usually) rents are already as high as they can be, in aggregate. In other words, the market cannot bear a higher cost for the good, so an increase in cost has to be eaten by the landlord.

How do you explain rising rents?

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

#307

Post by mitthrowaway2 »

doublespanner wrote: post #302
mitthrowaway2 wrote: post #275

Earlier quoted context omitted.

Perhaps, but that's sort of like pointing to the prisoner's dilemma and saying "clearly, the best and easiest option for both prisoners is to both cooperate, thus achieving the best outcomes for both". We usually expect that competitors would try to compete , and going from 5% to 10% market share would result in getting undercut so badly that you lose far more customers than the higher margins are worth. It's not so…

Well no, there is no real dilemma, because unlike the prisoners you can change your choice at any time. You can do research and make a decent guess at the units sold at a price point of you only make a small increase, and then your competition does the same, and as long as you can all keep pushing the price each small increase is absorbed. This is essentially a mechanism for discovering inflation, it continues step b…

The "and then your competition does the same" is precisely what I'm talking about. If their input costs have not gone up, there's no reason they need to do follow in step rather than take your customers away. It doesn't matter whether it happens gradually.

Multilateral increase in margins demonstrates a lack of competitiveness between competitors.

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

#308

Post by BirdieNZ »

prepend wrote: post #306
BirdieNZ wrote: post #297

Earlier quoted context omitted.

(Usually) rents are already as high as they can be, in aggregate. In other words, the market cannot bear a higher cost for the good, so an increase in cost has to be eaten by the landlord. This is actually very easy to see in countries with no 30 year mortgages, because landlords have to refix their mortgage rates every 1-5 years. This means you can see regular landlord cost changes as interest rates fluctuate, as we…

> Usually) rents are already as high as they can be, in aggregate. In other words, the market cannot bear a higher cost for the good, so an increase in cost has to be eaten by the landlord. How do you explain rising rents?

Rising tenant incomes. As incomes increase, landlords are able to increase rents proportionally. This is only true where demand outstrips supply, but that's the case in most developed cities in the West, as well as many other cities.

Tenants have several fixed costs to pay: taxes, food, rent, and transportation being the main ones. If their incomes go up, rent typically consumes the increase, because housing is a fairly uncompetitive market.

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

#309

Post by doublespanner »

mitthrowaway2 wrote: post #307
doublespanner wrote: post #302

Earlier quoted context omitted.

Well no, there is no real dilemma, because unlike the prisoners you can change your choice at any time. You can do research and make a decent guess at the units sold at a price point of you only make a small increase, and then your competition does the same, and as long as you can all keep pushing the price each small increase is absorbed. This is essentially a mechanism for discovering inflation, it continues step b…

The "and then your competition does the same" is precisely what I'm talking about. If their input costs have not gone up, there's no reason they need to do follow in step rather than take your customers away. It doesn't matter whether it happens gradually. Multilateral increase in margins demonstrates a lack of competitiveness between competitors.

It's because both competitors are making the same calculation where a loss in market share is worth less than the per unit profit increase.

This isn't really a matter of competition, it's that people's willingness to pay (in nominal value) is much higher.

If people's willingness to pay were less, then increasing prices would loose a greater portion of the market.

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

#310

Post by mitthrowaway2 »

doublespanner wrote: post #309
mitthrowaway2 wrote: post #307

Earlier quoted context omitted.

The "and then your competition does the same" is precisely what I'm talking about. If their input costs have not gone up, there's no reason they need to do follow in step rather than take your customers away. It doesn't matter whether it happens gradually. Multilateral increase in margins demonstrates a lack of competitiveness between competitors.

It's because both competitors are making the same calculation where a loss in market share is worth less than the per unit profit increase. This isn't really a matter of competition, it's that people's willingness to pay (in nominal value) is much higher. If people's willingness to pay were less, then increasing prices would loose a greater portion of the market.

How is the calculation you're describing different than the calculation of optimal pricing for a monopoly?
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