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Corporate profits account for almost half the increase in Europe’s inflation

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Re: Corporate profits account for almost half the increase in Europe’s inflation

#341

Post by whimsicalism »

clysm wrote: post #340
whimsicalism wrote: post #282

Earlier quoted context omitted.

The point is that if the market is inefficient, profits rise to encourage new entrants into the market to bring it back closer to efficiency. Get rid of the profit rising mechanism and you're stuck with a broken market that nobody wants to enter and fix.

New entrants into hard to enter markets that require tons of capital, resources, and time to spin up manufacturing on? Yea, just tell everyone to hold on and wait for good times to come when they can’t afford cars or food.

Rewarding new entrants with high profit margins is a good way to get enough people to pool capital together to make it happen.

Re: Corporate profits account for almost half the increase in Europe’s inflation

#342

Post by berniedurfee »

rgbrenner wrote: post #33

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 companies will go out of business.”

Many of those companies will be producing superior products, niche products vital for a small market or are simply more focused on delivering value rather than leeching profit.

The surviving companies in a rough market turn never seem to be the ‘best’ companies.

Re: Corporate profits account for almost half the increase in Europe’s inflation

#343

Post by clysm »

whimsicalism wrote: post #341
clysm wrote: post #340

Earlier quoted context omitted.

New entrants into hard to enter markets that require tons of capital, resources, and time to spin up manufacturing on? Yea, just tell everyone to hold on and wait for good times to come when they can’t afford cars or food.

Rewarding new entrants with high profit margins is a good way to get enough people to pool capital together to make it happen.

Show me how many new auto companies and farmers entered the market then to solve the supply and costing issues that we continue to have.

The theory sounds great in an Econ 101 classroom, but is problematic in practice.

Re: Corporate profits account for almost half the increase in Europe’s inflation

#344

Post by s1artibartfast »

vjk800 wrote: post #279
matrix_overload wrote: post #190

Earlier quoted context omitted.

The answer is competition. Most of markets nowadays are dominated by 2-5 big players with the CEOs going to the same golf club. Wink-wink, nudge-nudge, prices go up, nobody can do nothing. If we had 50 competing players, there would be enough incentive for a hungry challenger to lower prices and undercut the competition. Except, over a decade of leveraged acquisitions and antitrust regulators being asleep at the whee…

The problem with competition is, what happens after someone wins it? This is essentially what has happened in many markets; lots of small companies have been killed by or conglomerated into giant ones that rule the market. Sometimes antitrust regulation can't even help with this; what if there are no acquisitions, just one company doing stuff better killing all competition?

If a company can win a market, that begs the question why. Are there regulatory barriers preventing competition? Can competitors not compete on price?

The answer is the former then we should remove governmental barriers to competition. If competitors can't theoretically undercut the price, then it's hard to see how more competition would favor the buyers. Surely they're not better off with 10 competitors at Double the price.

Last, there is the issue of time. Competition doesn't happen overnight

Re: Corporate profits account for almost half the increase in Europe’s inflation

#345

Post by ntr-- »

ars wrote: post #336
Abroszka wrote: post #250

Earlier quoted context omitted.

> start your own gas company with competitive margins Are you serious? Why would existing large companies allow this? And even if you succeed they are just going to buy up the company. Beautiful example of this is large IT companies buying startups and stopping competition.

> And even if you succeed they are just going to buy up the company. Wonderful! Easy money. Then you go and start another company. Keep doing that and enjoy the profits. Your large competitor can't afford to keep buying you out forever.

> competitor can't afford to keep buying you out forever

Not saying this is in fact the case, but with trillions of dollars of QE and the Cantillon effect it seems entirely possible that in some industries they could.

Re: Corporate profits account for almost half the increase in Europe’s inflation

#348

Post by whimsicalism »

clysm wrote: post #343
whimsicalism wrote: post #341

Earlier quoted context omitted.

Rewarding new entrants with high profit margins is a good way to get enough people to pool capital together to make it happen.

Show me how many new auto companies and farmers entered the market then to solve the supply and costing issues that we continue to have. The theory sounds great in an Econ 101 classroom, but is problematic in practice.

I don't really know anything about cars, but you can look up the farmer thing, there's generally been a trend of farmers exiting the market (due to other factors), but this has considerably slowed down/reversed in the last few years.

Re: Corporate profits account for almost half the increase in Europe’s inflation

#349

Post by smt88 »

pbhjpbhj wrote: post #42
koboll wrote: post #16

Earlier quoted context omitted.

"corporate and conservative propaganda" Most center-left economists are pretty dismissive of the idea that inflation is a corporate-profits-driven phenomenon too.

What do you say that those left of centre are blaming inflation on then?

Supply shocks, increasing corporate profit margins (i.e. unnecessary price increases that don't reflect increased costs), long periods of free money (<3% interest rates)

Re: Corporate profits account for almost half the increase in Europe’s inflation

#350

Post by narcraft »

smt88 wrote: post #303
narcraft wrote: post #65

Earlier quoted context omitted.

I think it's fair to call my comment unhelpful because my point wasn't to suggest that the article's contents were unsurprising, but rather to criticize the HN title and provoke further reflection on causation. The article doesn't explicitly suggest that profits are the largest driver (which I interpret as cause) of inflation, but it does use the word drivers for categories in a graph, which I think is unfortunate wo…

> my point wasn't to suggest that the article's contents were unsurprising, but rather to criticize the HN title and provoke further reflection on causation If that's what you wanted to do, you should have done that. A single glib sentence with no content in it isn't enough to "provoke further reflection on causation".

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