THE PANDEMIC:

The Pandemic Introduced New Pricing Dynamics Recent Price-Hiking Strategies Have Taken Advantage of the COVID Era

By economists own admission, corporations have always been greedy and have applied various price-hiking strategies whenever the opportunities arose. When the pandemic arrived stateside and the continent followed the world into lockdown mode, the businesses suffered at first since everything was shut. However, as the world came up with new protocols and operation strategies, businesses not only opened again over the next few months, but more than made up in recovery through various price-hiking strategies. Same thing happened this year as the Ukraine-Russia war left a strain on supplies, driving up Producer Prices inflation. The infographics below present the strategies observed in various federal reports and those collected directly from company officials in earning calls by the Groundwork Collaborative.

1 . Rockets & Feathers Assymetric Pass-Through

The most alarming strategy which explains massive inflation. Prices shoot up like a rocket as soon as production costs justify a hike. But as producer prices inflation eases, the markups at the consumers end only come down in light feathers.

Federal Reserve Vice Chair Lael Brainard noted in September that the data has not so far shown business reducing markdowns in response to economic factors.

These past two years, small businesses shut down permanently while workers are losing their purchasing power.

Meanwhile, big companies report profits in trillions.

“Empty restaurant during the coronavirus lockdown in New York City, USA.” Paulo Silva, Unsplash License.

Logos on Pages

According to the direct statements collated on the Groundwork Collaborative reports, several CEOs and CFOs have expressed their intentions to keep applying assymetric pass-through even as the cost pressures “start to ease” to keep up profit margins.

2 . Limiting Supply

Restrained Capacity or Losing Affordability Customer

Many companies have been happy to lose market share by limiting supply. Airlines have admitted to offering less seats. Oil companies admit keeping production low. And other retailers and producers admitted to restraining capacity in other ways.

All these strategies have created the excuse to jack up prices well beyond actual costs. Sure, companies have lost their economy class customer base this way. However, the mushrooming revenues through jacked up prices have more than recovered margins.

This directly leads into rockets & feathers. Companies plan to expand capacity only minimally. They will recover some of their lost customer base through reducing prices by feathers, despite lowering production costs. The net outcome of this equation will balance on the fat profit margins side.