It constantly amazes me that so many people believe inflation is due to the greed of business people. They talk of “corporate greed” as if it’s fully explanatory. For example, they might think the reason egg prices this past year or so went from roughly $1.20/dozen to more than triple that (I think the highest I paid—a month or so ago—was about $4.50) to corporate greed. Of course, they don’t believe that decreasing prices are due to anything like corporate charity or beneficence. Yet I recently paid $1.07 for eggs.
Of course, one of the ways businesses compete is with the way they price what they sell. If they charge higher prices they risk losing sales and thus risk lowering their income. So, in fact, lowering prices is plausibly about corporate “greed.” (I doubt that fits with a proper understanding of the term, but I doubt the term properly applies in any of these cases.)
During and after the pandemic, the idea of “greedflation” became more popular. Indeed, a U-Mass Amherst economist, Isabella Weber, co-authored a paper on what she terms “Sellers’ Inflation.” On her view, the market power of sellers is at least partially responsible for recent inflation. Her view is more nuanced than many take it to be, but I nonetheless think it is misguided.
As I understand it, what Weber is really saying is that corporate profit seeking has left prices higher than they might be, at least temporarily. In part, that is not surprising. Essentially, the higher prices of inputs during the pandemic (due largely to supply chain problems) caused businesses to raise their prices on consumer products and they found that they could keep those higher prices even after the costs of their inputs fell. Again, it’s not surprising that they would like the increased profit margin.
What would be surprising is if the firms could keep their prices at inflated levels indefinitely. As my egg example suggests, that is unlikely.
Prices go up, in the short run, for any number of reasons. They may be held high for a bit because of corporate profit-seeking (I guess we can call that “corporate greed”) but that can’t last long. If the firms—even those with oversized market power—don’t bring their prices back down, they will face new competition from lower pricing entrants to the market—unless, we should note, there are such significant barriers to entry that new competition is thwarted. What would thwart new competition? Obviously government intervention could do it, whether by requiring higher than necessary investment, grants of monopoly power, import tariffs, or something else. Absent such interference to limit competition, it’s not clear what would enable “greedy” firms to keep prices high.
Perhaps, though, firms can maintain inflated prices without government intervention on their behalf. How? If a firm can convince people that the product it sells is worth more (in particular, worth more than it was selling for before the inflation), people may continue to pay those higher prices. It might be that a particular product really has improved in its value for some reason. Perhaps the firm made a food product healthier or tastier or both. Perhaps people became more habituated to using product X because they spent more time at home over the pandemic and now can’t give it up. Alternatively, though, it might be a matter of brand loyalty—an emotional commitment to the products of a particular firm. If some people will only buy product of type X from Company A and will not stop buying it at an increased price, than the increased inelasticity of demand from that group of consumers will allow Company A to keep its prices up.
We have, now, 3 reasons the price of a product might stay high: government intervention on behalf of the firm producing it, genuine increased value of the product (whether because of a change in the product or in the customers), and brand loyalty.
As a libertarian, of course, I would oppose government intervention on behalf of businesses. I think almost all of us oppose that.
If the product has genuinely increased in value to you, it doesn’t seem particularly interesting to note that its price has increased. In any case, it isn’t something I think we can reasonably complain about.
What about brand loyalty? I think we ought to reject it—but must realize that it is more about the consumers than the businesses. That is, it isn’t a complaint about the firms that sell products at higher prices than we were accustomed to, it’s a complaint about consumer irrationality. A consumer who is so loyal to a particular brand that he continues to pay inflated prices when there are similar options available is, on my view, irrational in much the same way I think someone who fully identifies himself or herself with a particular group is irrational. The reality is each of us is (almost certainly) a member of a large intersecting set of groups, none of which can fully explain who you are. (See Irshad Manji’s wonderful book.) Commitment to a brand, like commitment to a group, is a problem. I am as opposed to brand loyalty as I am to any group loyalty (any form of identity politics; for more on this view, see this excellent piece by Erec Smith).
To be clear, I do not deny that people have reason to favor some brands (or groups) over others. I simply think you should always be willing to consider that your view is mistaken, whether it be about religion, politics, groups, or brands. Maybe your brand happens to make the best X today, but maybe their quality falls off or a competitor improves their’s or another firm enters the market making a better product. It’s worth checking if the competition’s products are more worthwhile—not always, but from time to time. Similarly, it’s worth checking from time to time to see if people that don’t have your “identity” have views with more merit than you antecedently know. Of course, if you value sticking with a particular brand (or group or…), that is something to consider. That I think you shouldn’t value brands for themselves—or at least should only value them as rules of thumb, always subject to change—is something you may reject.
At the end of the day, if you are getting more value—whether because the product has improved, you have changed in a way that makes the product more important to you, or you have (what seems to me an irrational) commitment to a brand—you can’t complain about a higher price. If, on the other hand, the prices are only high because the government has interfered, we should oppose that interference. I’ll also continue to discourage emotional commitment to brands.
I suspect that we would all do well to limit the degree to which we are loyal to any particular brand in the same way I believe we would all do well to limit the extent to which we identify with any particular group.