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    Saturday, July 13, 2024

    Rising prices: because they can

    This appeared in the Chicago Tribune.

    Rushing to your gate at Chicago’s O’Hare International Airport, your eye might alight on a book for sale at Barbara’s Bookstore. Its title? “How to Raise Prices.”

    It must be a bestseller. Anyone who has eaten out has felt the sticker shock of a $13 fast food lunch or an entree at the neighborhood bistro that was $21 just a few months ago and is now $29.

    Why is this happening? You’ve likely read about the obvious reasons many times. Inflation, still surging. Rising wage bills thanks in part to government action. Health care costs. Lingering supply chain issues.

    But there’s another cause that gets less attention: business are raising prices because they can. Simply put, they can do so right now with relative impunity.

    One fast-food franchise owner recently told us he had raised his menu prices four times over the last year alone. Sure, that’s partly in response to increased costs, especially labor. But it’s also, he said, because everyone else is raising prices and thus the resistance from the consumer is vastly reduced. If people are expecting to pay more, then they are more likely to have to pay more.

    And the owner does not know how long this situation is going to last. So up the prices go, while they can.

    When the dawn of internet shopping arrived, it was widely assumed by retail economists that there was to be increased price transparency going forward. If consumers could compare prices at every store in the world on their computers, the thinking went, there would be a shift toward what economists call perfect competition. The market would have fewer impediments and consumers easily could more find the best deal. And only the fittest retailers would survive.

    But that’s not what happened. Retailers became much more adept at obscuring prices, whether through unbundling, airline-style; requiring monthly fees or memberships to qualify; promoting private labels; or using social media data to squeeze the maximum juice from consumers.

    If you don’t know how much you’re really paying, price resistance is reduced. We’re seeing that everywhere.

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