Greedflation Vs Underinflation
RE:
thekaka.substack.com/i/136463213/higher…
IMHO - Underinflation or Underestimated Demand pricing leading to both inflation & higher profit taking.
Providers - Manufacturers/Service providers etc, have a fixed costs that come with providing goods and services & other costs do not directly scale with per unit production.
Providers design their production facilities around providing for what they estimate to be normal demand & pay for such costs as a portion the returns the units of goods & services sold.
When demand for the overall units drops below what is considered normal & the fixed cost to Providers still remains in a similar range, then the Providers have to raise the per unit rate of return to keep operating, either raising the per unit price or pulling a fast one on the consumer ( shrink-flation ).
In times of lean demand, it is in the Providers self interest to underestimate actual demand, setting the unit rate of return higher than what would be needed given the resulting actual demand. This is because setting the unit rate of return lower by overestimating demand is a quick way of getting yourself into debt & going out of business.
The resulting price increases is made worse because by necessity each Provider in the chain of providing component good & services is probably doing the exactly the same.
When actual demand almost inevitably exceeds the underestimated demand, the result is that either Providers that keep up with demand get a higher profit overall, or if the Providers don't keep up with demand, the per unit prices can go up even higher in a bidding war.
Running a vehicle with underinflated tires is a recipe for disaster, so is running an economy on underinflated demand.
