101–110 of 476 posts
I think this talk about costs vs profits sounds important to lay people, but is completely irrelevant. Companies do not price goods based on the goodness of their hearts. They price it at the point that maximizes volume*(unit price-COGS). Companies are constantly testing this price point. For example, a promotion may produce data that can indicate how consumers will respond to a price change. In an inflationary perio…
I think this talk about costs vs profits sounds important to lay people, but is completely irrelevant. Companies do not price goods based on the goodness of their hearts. They price it at the point that maximizes volume*(unit price-COGS). Companies are constantly testing this price point. For example, a promotion may produce data that can indicate how consumers will respond to a price change. In an inflationary perio…
> Some of these higher profits will be passed on upstream Profits by definition are not passed upstream, as profits are what remains after you take out costs from revenue. Anything that gets passed upstream comes from costs
I think this talk about costs vs profits sounds important to lay people, but is completely irrelevant. Companies do not price goods based on the goodness of their hearts. They price it at the point that maximizes volume*(unit price-COGS). Companies are constantly testing this price point. For example, a promotion may produce data that can indicate how consumers will respond to a price change. In an inflationary perio…
> Companies do not price goods based on the goodness of their hearts. Governments etc. argue that employees should not demand higher pay to match inflation to avoid a "spiral" out of the goodness of their hearts. If employers catch the absolute currency value increase of inflation the employee employer balance is shifting.
EDIT: I mean advocating not just that we should avoid a wage/price spiral through other means, but specifically that individual workers should accept/volunteer for lower wages than they could otherwise get?
Edit 2: seeing several cases of "$Reserve_Bank_Person says wage increases are too high and need to come down", not a lot of "Please turn down your pay increase so we can fight inflation." The reason no one would actually say the second is it is a ridiculous collective action problem that is obviously unsolvable on the employee side. The Australia governor warned against a 5.75% pay raise for govt employees (I think), but he was addressing the employer in that case, not individual workers.
My econ training is very limited, and perhaps this is a pointless idea, but
- the central bank approach to curbing inflation seems to assume that actors in the economy won't change their spending patterns (and decrease firms' price-setting power) until they're unable to continue (i.e. are laid off, can't access financing, etc) or are at least afraid of being unable to continue
- but if we can make people emotionally motivated, can we get people who are secure about their income to cut spending even if they aren't afraid? If you can get securely employed people with good emergency reserves to increase their savings rate out of a stubborn desire to "punish" gouging corporations ... we'd remove corporation's pricing power earlier, right?
- there have been a bunch of "unconstructive" recent examples of people willing to change their spending habits without being forced, for emotional reasons (e.g. boycotting budweiser), which I think do demonstrate that not much is needed to nudge (some) people to shift their behavior
I find it hilarious when companies are following their stated goal of making profits, while everybody else is rushing to explaining rising prices by factoring in everything but profits.
This is a write up of a working paper, not published yet. Here’s the link to the actual paper: https://www.imf.org/en/Publications/WP/Issues/2023/06/23/Eur... Here’s the abstract: > We document the importance of import prices and domestic profits as a counterpart to the recent increase in euro area inflation. Through a novel consumption deflator decomposition, we show that import prices account for 40 percent of the…
A better thing to keep in mind is if your economy is in a wage inflation cycle where companies are increasing the amount of money to pay out to employees because their costs are increasing which makes inflation goes higher and higher. It wouldn’t be as companies are just hiking prices but, YMMV. I also don’t want to say that corporate profits are something to desired for and that the outcome that the paper outlines i…
Earlier quoted context omitted.
OR governments have demonstrated that they can take extreme decisions without warning, so businesses price accordingly. If you operate in this economy with unstable decision-making, then it creates margins to prepare padding. Even if all businesses were cash-flow-positive during Covid, the environment is still more unstable.
This. If govs can print out 2x the money supply in a few years, you want to “cash out” profits as fast as possible instead of reinvesting them.
I think this talk about costs vs profits sounds important to lay people, but is completely irrelevant. Companies do not price goods based on the goodness of their hearts. They price it at the point that maximizes volume*(unit price-COGS). Companies are constantly testing this price point. For example, a promotion may produce data that can indicate how consumers will respond to a price change. In an inflationary perio…
> And this permits companies to increase prices, and produce higher profits. It's worth noting that this mostly reflects short-term pricing power. It takes a lot of time for new competitors to enter any industry. So we should expect these price increases to occur rarely and be somewhat time-limited as competition ultimately reestablishes itself.
I mean market finds its way, people can move to small stores and non-branded products if it gets bad enough, but to paraphrase, market irrationality can outlast people's well being.
I'm not in favor of some more regulations which usually only help big players, but corporations power steadily climbs and I expect it to become bigger than those of governments.
New big companies, some decent competition, come from places when there was none. They hardly ever can push themselves into existing markets. They create new ones. But we still need groceries, gas, electricity etc.
1. https://www.reddit.com/r/coolguides/comments/elzqf2/eleven_c...
I think this talk about costs vs profits sounds important to lay people, but is completely irrelevant. Companies do not price goods based on the goodness of their hearts. They price it at the point that maximizes volume*(unit price-COGS). Companies are constantly testing this price point. For example, a promotion may produce data that can indicate how consumers will respond to a price change. In an inflationary perio…
> Companies do not price goods based on the goodness of their hearts. Governments etc. argue that employees should not demand higher pay to match inflation to avoid a "spiral" out of the goodness of their hearts. If employers catch the absolute currency value increase of inflation the employee employer balance is shifting.
Source?
I think this talk about costs vs profits sounds important to lay people, but is completely irrelevant. Companies do not price goods based on the goodness of their hearts. They price it at the point that maximizes volume*(unit price-COGS). Companies are constantly testing this price point. For example, a promotion may produce data that can indicate how consumers will respond to a price change. In an inflationary perio…
> And this permits companies to increase prices, and produce higher profits. It's worth noting that this mostly reflects short-term pricing power. It takes a lot of time for new competitors to enter any industry. So we should expect these price increases to occur rarely and be somewhat time-limited as competition ultimately reestablishes itself.
Unless by long term you mean waiting until the EU has a competitive economy. That's not what most economists do.