Shortages caused by refusal to raise prices

[dualstow]

Thanks, that's a step in the right direction.

Now, would you be so kind as to answer the following question seriously, without dismissiveness or humorous deflection?

During a crisis caused by an exogenous event, which is preferable regarding an item people need for survival: (a) An empty shelf with a low price, or (b) a stocked shelf with a higher-than-normal price?

I don’t mean to be dismissive in the sense of not even considering something. However, I do think that the the thread title is a false premise. I don’t even think there’s a shortage. There’s a spike in demand that is not normal (hoarding), and the supply will catch up when hoarders don’t have room for that 13th can of split pea soup. That’s what I believe.

So while (b) looks better than (a) in that no one wants an empty shelf, it’s the way you got to this choice that’s a problem.

Most importantly, groceries are special because they are sustenance. If a virus comes and causes panic and even a perception of a shortage, and that leads to hoarding, that creates a special circumstance about a special product.

If people go nuts and drive up the price of tulip bulbs or beanie babies because they think they will profit later, that’s on them. Don’t take these examples as flippant. I don’t think people are stocking up on food so that they can make a profit. I think they want to make sure they’re going to eat in June and July.

(Pug, if I had a dog there would be dog stories. :-))

[dualstow]

And again, those people who did stock up so they could make a profit would be stopped in their tracks by a per-customer limit.

[Smith1776]

I love the BH forum being the butt of all our jokes. It's honestly awesome.

I'll chime in on the items on the shelf dilemma. My superseding idea is that neither option A or B is inherently "preferable," and it shouldn't matter what we think. The market should clear at equilibrium, with no outside interference. Having said that, it seems to me that the market would naturally have an equilibrium point at high prices with stocked shelves.

The market will take care of itself. A high price will attract competition, and the influx of competition will, after a time, drive the price back down. An artificially low price will induce shortage, and the lack of high margins will fail to entice that competition to come in. You end up with perpetual shortage.

[dualstow]

Are you sure you’re Canadian? j/k

[Smith1776]

Are you sure you’re Canadian? j/k

I wonder if there is a lower propensity for Canadians to buy into the PP strategy, given that it does have that libertarian bent to it...

[I Shrugged]

I’m with Tortoise. I’ve long ago learned that my opinion is very unpopular. People aren’t logical. They are overwhelmed by the thought of unfairness.

I’d try to put finer points on it but I don’t like typing on the iPad. So please don’t take it personally.

[CT-Scott]

Oh, I'm late to this thread, and Tortoise has been fighting the good fight, IMO. I'm new here, so I don't know Tortoise well, but I'm with you on this. My thoughts in a bit...

I love the BH forum being the butt of all our jokes. It's honestly awesome.

I agree.

I'll chime in on the items on the shelf dilemma. My superseding idea is that neither option A or B is inherently "preferable," and it shouldn't matter what we think. The market should clear at equilibrium, with no outside interference. Having said that, it seems to me that the market would naturally have an equilibrium point at high prices with stocked shelves.

The market will take care of itself. A high price will attract competition, and the influx of competition will, after a time, drive the price back down. An artificially low price will induce shortage, and the lack of high margins will fail to entice that competition to come in. You end up with perpetual shortage.

I agree with this, but I think it's an oversimplification. The influx of competition (at "normal prices") could take time during a short-term crisis situation like this.

My random thoughts...

- Store has TP for sale at normal prices.
- Crisis hits, people fear for the apocalypse, buy more than normal, and store runs out of stock.
- Slow-people go to store and find no TP. Sad face.

Now what?...

A) Store owner gets more TP, is concerned about hoarders, and so institutes "2 packages per person limit." Average person goes to store to buy 1 package of TP, sees forced limit, thinks "short supply", and buys 2, even though they only intended to buy 1 (and really didn't *need* any). Stock runs out again. Slow-person go to store and find no TP. Sad face.

B) Store owner gets more TP, and doubles price. Hoarder goes to store to buy 1 package of TP, sees increased price, and thinks "Well, I actually already have 3 packages at home...I'm not paying double the price just to stock up on something I already have enough of." Slow-person goes to store to buy TP, sees TP on the shelf at double the price, curses the store, but slow-person has been completely out of TP for 2 weeks (gross), so they pay double the price to get 1 package of TP.

Either way: At some point later (if situation continues for an extended period), competition arrives to deliver competitive TP at an affordable price.

In the scenario above, if given the options of (A) or (B), option (B) looks like the best short-term option.

[dualstow]

I’m not going to argue with a guy named Scott about toilet paper. No, that makes sense that people might buy two packs of toilet paper if the limit is two, but can’t the store owner just change the limit to 1 after restocking?

Since it’s not food, I’d be fine with letting the magic of the market work it out with regard to toilet paper.
With food...I’d be inclined to see what happens with jobs, checks from the government, and a vaccine for the virus. It’s early days.

One thing Tortoise and I have in common is that we’re both curious how things are going at Trader Joe’s. (Do they even sell toilet paper?) I’ll have to ask my friend about it, but I’ll let someone neutral report back on that here, not me. Last i heard it was well stocked, but that was weeks ago, in other words a lifetime ago.

On the other hand, CVS, which exercises no limit, is still out of rubbing alcohol. I would love to see that at 1 per customer, otherwise I’m going to offer to take Maddy’s denatured alcohol off her hands (not really).

[dualstow]

Forgot to add: I think raising prices at this early stage may lead to looting, at least where I live. Then old people really are S.O.L.

[Smith1776]

Let's just settle this by agreeing to step into the shower after pooping.

Don't even need to spend money on a bidet attachment.

[dualstow]

Ha! Why settle, though? Before you wash your, er, hands of this, Smithers, I would love to hear any remaining thoughts, especially from the “Let the market handle it” side. Which is pretty much everyone else, including you. It’s interesting, and believe it or not, I’m stuck at home.

• If we limited things to one per customer, would that still be defeated by store hopping (almost like smurfing), or people getting back in line after running to their car?
* How would things play out if an algorithm did change prices and/or availability for those merely shopping via Instacart at home, but not for in-store shoppers? Did something like that already happen in real life?
* Have special senior citizens hours caught on at your groceries?
—
By the way, Reuters says

- U.S. consumer prices unexpectedly rose in February but could drop in the months ahead as the coronavirus outbreak depresses demand for some goods and services, outweighing price increases related to shortages caused by disruptions to the supply chain.

There were increases in five of the six major grocery store food group indexes last month, with prices for dairy and other related products surging 1.1%, the most since March 2014.

March 11, 2020 https://www.reuters.com/article/us-usa- ... SKBN20Y1U7
—-
A pro-Tortoise, anti-price-cap essay:
https://reason.com/2020/03/12/coronavirus-economics/
—-
This one says

Now, in a situation such as the coronavirus outbreak, the state may want to narrowly regulate prices for vital health-related services, which is all the governor’s executive order seemed to cover.

But a general limitation on the price of commodities during a panic is a very bad idea.

and goes on to toilet paper.
https://www.azcentral.com/story/opinion ... 900731001/

[Tortoise]

I'm glad dualstow and tortoise made up before the mods locked the thread down. Oh wait, NM, that's at BH.

I don't think I could stay mad at dualstow for long even if I wanted to. His ever-changing signatures are one of the most entertaining features of this forum, plus he's one of the few people other than me who's actually interested in etymology.

I don’t mean to be dismissive in the sense of not even considering something. However, I do think that the the thread title is a false premise. I don’t even think there’s a shortage. There’s a spike in demand that is not normal (hoarding), and the supply will catch up when hoarders don’t have room for that 13th can of split pea soup. That’s what I believe.

I agree that the supply chain is still pumping out just as much of everything as before the pandemic, but I stand by my assertion that there is a temporary shortage of certain items (such as TP and hand sanitizer). Demand for those items spiked while the supply remained fixed. The supply/demand imbalance has resulted in empty shelves of TP and hand sanitizer in most stores most of the time, and a shelf that's empty in most places most of the time is the very definition of a shortage.

If people go nuts and drive up the price of tulip bulbs or beanie babies because they think they will profit later, that’s on them. Don’t take these examples as flippant. I don’t think people are stocking up on food so that they can make a profit. I think they want to make sure they’re going to eat in June and July.

Totally agree. Most people who are currently buying more than they need of various foods and cleaning products are trying to be conservative and safe in the midst of uncertainty. Their motivation is understandable. (But when it comes to milk, cottage cheese, sour cream, etc., I'm baffled. That stuff doesn't have a long shelf life and doesn't freeze well, yet it's still been selling out sometimes at my local grocery store. That one makes no sense to me.)

In a crisis, I agree that per-customer limits are probably the best approach to try first. But if certain items (such as TP and hand sanitizer) are still consistently hard to keep on shelves even with per-customer limits, it seems sensible to try raising the price incrementally (not necessarily 1,000,000%!) until the shelves cease to be perpetually empty.

One idea that occurred to me the other day is that a store owner could make it clear to customers that any difference between the higher "crisis price" and the normal price would go straight into a charitable crisis fund to help the poor or something -- to make it clear that he's raising prices only to keep certain items on the shelves, not to personally profit off of people's misfortune.

[Tortoise]

Let's just settle this by agreeing to step into the shower after pooping.

Man, I'm glad I'm no longer a college student sharing a shower with a bunch of other guys in a dorm. "Poop showers" in that situation would be... interesting.

[Mountaineer]

Image.jpg (31.43 KiB) Viewed 4435 times

[dualstow]

I agree that per-customer limits are probably the best approach to try first. But if certain items (such as TP and hand sanitizer) are still consistently hard to keep on shelves even with per-customer limits, it seems sensible to try raising the price incrementally (not necessarily 1,000,000%!) until the shelves cease to be perpetually empty.

One thing I didn’t realize (which I think you did) was how quickly prices can change (without artificial suppression) in response to temporary shortages. Maybe the cap goes back to one possibility you considered in the OP: fear of the perception of price gouging. The economics are certainly wholly on your side. With non-food items, even I’m on your side, from post 1.

If I were really the owner of a grocery store, I might still go with what was mentioned in the second article: to still maintain some control on life-preserving items. Food. Partly because of what I Shrugged mentioned - putting logic aside in the quest for fairness (except I’d be doing it consciously) and partly not to look like a gouger.

The first article talks about how politicians seem to forget how this works, but of course it’s not that they forget. It’s that they can condemn the rising prices for free. If they condone price hikes, they’re probably done. So, getting no help from the government, if I’m the evil grocer, I think I’d have to see not just a few bare shelves but widespread scarcity, to the point where it looks like latecomers can’t keep themselves fed. Then, I guess it’s down to choice B even for bread, and hope that it’s short-lived. One of the two articles suggest that demand and prices are going to drop.

Hey, I forgot you were into etymology. I’ll have to put more in the sig line.

[dualstow]

Totally agree. Most people who are currently buying more than they need of various foods and cleaning products are trying to be conservative and safe in the midst of uncertainty. Their motivation is understandable. (But when it comes to milk, cottage cheese, sour cream, etc., I'm baffled. That stuff doesn't have a long shelf life and doesn't freeze well, yet it's still been selling out sometimes at my local grocery store. That one makes no sense to me.)

I forgot this part. (Sorry for all the posts & words). Though I don’t know the answer either, it reminded me of the reason my wife gave me for stocking up on certain things in the first place. She never expected a shortage of any kind. She was just determined to return to the store as infrequently as possible, well before the announcement of an official lockdown.

Having bought more bread than we usually eat, we started buying more things to spread on the bread that we normally eat. We also started buying more dairy items. This is because, if you’re not going out to meet with the public, you don’t have to worry about your lactose intolerance. So we have a lot of cream cheese in the house.

The items you mentioned that don’t freeze well or keep well- I guess it’s partly buying them to replace something else that is missing in their diet and partly a lack of thinking it through. Maybe?

I tried to order shelf-stable milk online last week, something like Parmalat. It’s like $26/gallon and doesn’t ship out until the end of April. I didn’t respond by buying extra milk, though.

[Mountaineer]

For etymology fans. I suggest you begin with episode 1. There are enough episodes to save one from boredom for quite a while.

https://podcasts.apple.com/us/podcast/t ... d538608536

[shekels]

I was surprised that there were limiting eggs and meat among other items at the stores here.
I asked the checkout person if the chickens had stopped laying, or came home to roost.
It took me a while to figure out the cause may be that people have stopped eating out.
So the eggs and meat at the grocer were not necessarily be hoarded,
there were just more people at home fixing there own meals.
So now my wife and I have to go to the market more often as we eat approx 3 dozen eggs a week.

[dualstow]

Sounds lovely. Actually, I’m not crazy about the taste of liquid shelf-stable milk, either. My housemates and I bought some TetraPaks of it during a semester in London because it was a novelty. It seemed popular at the time.

[Tortoise]

For etymology fans. I suggest you begin with episode 1. There are enough episodes to save one from boredom for quite a while.

https://podcasts.apple.com/us/podcast/t ... d538608536

Thanks, I'll have to sample that one! It looks like they even have an episode that mentions the Black Death -- apropos in these times of pestilence.

I was surprised that there were limiting eggs and meat among other items at the stores here.
I asked the checkout person if the chickens had stopped laying, or came home to roost.
It took me a while to figure out the cause may be that people have stopped eating out.
So the eggs and meat at the grocer were not necessarily be hoarded,
there were just more people at home fixing there own meals.
So now my wife and I have to go to the market more often as we eat approx 3 dozen eggs a week.

That's a good point. Groceries are substituting for a lot of restaurant meals right now. Another contributing factor to the empty shelves, according to something I read lately, is that most grocery stores and their supply chains are based on the (usually correct) assumption that most grocery customers make frequent trips to the store and buy relatively small amounts of food on each trip. During this pandemic, that assumption has broken down spectacularly as people buy more food in order to go to the store less often to reduce their exposure to potential coronavirus infection.

[dualstow]

Ah, I didn't even see that post from shekels. Makes sense. Eggs are also used in baking. We've been buying more for that reason. Baking more.
Thanks for the podcast link, M. I know what I'll be listening to tonight.

[Smith1776]

• If we limited things to one per customer, would that still be defeated by store hopping (almost like smurfing), or people getting back in line after running to their car?
* How would things play out if an algorithm did change prices and/or availability for those merely shopping via Instacart at home, but not for in-store shoppers? Did something like that already happen in real life?
* Have special senior citizens hours caught on at your groceries?

These policies remind me of something Steve Jobs talked about... I think way back in 2006.

An interviewer mentioned that the iPod's anti-piracy features were easily defeated through simple software apps that were freely downloaded from the Internet. Jobs acknowledged this to be true, but he said that absolute security was not the point. Jobs simply wanted the anti-piracy features to be a "nudge" that encouraged people to behave in a certain way. It wasn't meant to be airtight.

I think the policies you've specified above are very similar. We want to discourage hoarding, but it doesn't need to be airtight. I think a "nudge" implemented by the retailer can be a fine push in the right direction.

[dualstow]

Here’s a nudge, and you think I’m joking but I’m not: put a small black and white poster of an elderly man and woman looking at a bare shelf, shot from the back, at each and every checkout register.

[Smith1776]

Here’s a nudge, and you think I’m joking but I’m not: put a small black and white poster of an elderly man and woman looking at a bare shelf, shot from the back, at each and every checkout register.

I like it.

It's like the "WE WANT YOU" Uncle Sam poster for the Coronial age!

[I Shrugged]

I tried to order shelf-stable milk online last week, something like Parmalat. It’s like $26/gallon and doesn’t ship out until the end of April. I didn’t respond by buying extra milk, though.

IDK about availability during this insanity, but Carnation makes non-fat dry milk powder. It keeps near-forever, and you can mix up small batches as needed if you don't go thru a lot of milk. If only it actually tasted like milk.

It's out of stock too. Wife has been trying to buy it to use in baking bread.