THE PRICING:

Understanding How Pricing Works

Pure economics or some corporate whim in the mix?

$ $ v

Share

$ $

$ $ $ $ $

For most, it’s a delicate balance between raising markups (retail prices) and loosing economy class customer base; and, raising profits through higher sales and a larger share of the market (more customers than competitors).

When corporations grow big enough, the power play changes. All factors below increase a company’s flexibility and whim in raising prices when the opportunity arises:

9.5%

THE BIG PRICE-TAG ENERGY OF BIG BIZ

Price hikes reported in press some time during the pandemic years.

18.2%

5.5%

On the previous page there are a few examples various economics resources have reported on the extent of price-hiking by well-known mega-corporations. Figures are typically percent average price increases for Q2 or Q3 of 2022.

Groundwork Collaborative is a non-profit run by senior economics scholars and they have sat on hundreds of quarterly earning calls of big companies this past year. They have witnessed CEOs and chief financial officers of these companies admit to price-hiking beyond costs and raking in huge profits as a result. More on this subject in the next few pages.

Research at the Roosevelt Institute studied the price-hiking behaviors of 3,698 firms on the US soil throughout 2021. Their research confirms that the price-hikes in 2022 came upon a wave of earlier hikes and a pattern that follows the pricing power factors.

Lindsay Owens, PhD. Economics, is the Executive Director of the Groundwork Collaborative, who have become one of the flagship researchers and go-to resource for representatives fighting corporate power abuses.

While firms have raised markups consistently since 1955, the hike has never been as steep as since 2019. Especially, one of the graphs from Roosevelt Institute leaves no doubt that the bigger a company in terms of market capital, the greater and greater price hikes it has given over the last few decades. This also indicates the power of big firms in influencing inflation. When big brands behind a product feel free to raise prices when, where, and how they see fit, the rest of the market follows to a certain extent. Thus the general upward trend of inflation becomes more steep, as high market power companies concentrate behind a product.

Economists say “profits do not drive inflation.”

But what of when inflation drives profits?

Companies have discovered they can use their ‘restrained capacity’ excuse from the pandemic and ‘rising cost’ excuse from the war to hike prices as high and for as long as they can.