“Can ordinary people fight price gouging?”
“then, as now, capital’s defenders exonerated business elites for playing any role in the price increases”
“In our own time, centrist economists and commentators have spent the past two years jeering at the idea that market power and profiteering can be responsible for price increases as “greedflation,” an irrational belief akin to a conspiracy theory”
“According to the centrists’ story, populists blaming “corporate greed” are looking for a scapegoat to blame for the workings of the impersonal forces of supply and demand, and are wrongly targeting corporations”
“For the anti-greedflation crowd, the blame obviously lies on the demand side, with pandemic stimulus overheating the economy. Worse, this overheating led to a too-tight labor market, which caused wages to rise, resulting in a wage-price spiral of rising wages and prices. In other words, prices are high because ordinary people have had it too good. The only solution is to raise interest rates, which will cool demand, raise unemployment, and lower wages”
“But the textbook model is incomplete. To understand why, a good place to start is the work of Alan Blinder, former member of the Council of Economic Advisers and former vice chair of the Federal Reserve Board of Governors”
“Blinder and his colleagues wanted to understand how firms set prices. Unusually for economists, who prefer running regressions to talking to people, Blinder’s team decided to simply ask executives about their pricing policies. What they found, published in the 1998 book Asking About Prices, surprised them”
“First, they learned that companies rarely changed prices — only about four times per year. Far from constantly optimizing by charging the profit-maximizing price on their demand curves, they kept prices steady for long periods, despite day-to-day shifts in supply and demand”
“Second, companies revealed that the major constraint on their ability to raise prices wasn’t supply and demand or competitive pressures at all. Rather, it was the fear of “antagonizing” customers”
“Firms offered it, without prompting, as the most common explanation for not raising prices, even when raising prices was the “profit-maximizing” thing to do”
“In the textbook model of supply and demand, competition from other firms is the factor keeping corporations from raising prices”
“As the historian E. P. Thompson pointed out, the “moral economy” of bread riots was another. Because of their fear of antagonizing the community and triggering a riot, even bakers with local monopolies could not and did not exploit all of their pricing power”
“Contrary to centrist straw-manning, no one is arguing that “greed” suddenly shot up. Rather, firms with preexisting, but unexercised, market power saw the sudden softening of the moral economy constraint as an opportunity to exercise latent market power that they had all along”
“Enough firms do this, and it can result in market power- and profit-driven inflation, or what economists Isabella Weber and Evan Wasner call “sellers’ inflation.””
“Moreover, once prices settle at the new, higher level, firms can tacitly collude to keep them there — for example, through public communications on earnings calls”
“collective bargaining through a socialist organization tempered the monopoly power of a local retailer, bringing prices closer to the “competitive price,” which was nonetheless below the profit-maximizing price that neoclassical economists would have read off of Ventrone’s supply and demand curves”
“Prices throughout the ordeal reflected social bargaining as much as supply and demand”
“prices and inflation are not mechanical forces of nature, but always the outcome of multiple social forces”