Grocery stores across Newfoundland and Labrador have been struggling to keep hard bread in stock since a fire at the Purity factory in March put a crimp in the company’s baking operations.
Is it really that hard to raise the price to keep it in stock?
I love how in economics, a shortage can be solved by increasing the price instead of by increasing the quantity. It really makes you understand that the field of economics uses stupid definitions of words.
Economics says in the event of shortages, make supplies only available for more wealthy people. This 'solves' the problem because the wellbeing of less wealthy people is entirely irrelevant to economists.
If you are trying to slow down sales to the point that you are able to consistently replenish stock before the last batch sells out, raising the price will reduce the volume of hard bread being sold. At some point the volume should be low enough that it stops going out of stock.
Just “having hard tack in stock” isn’t the objective to solve for, though.
I’m actually skeptical this shortage affects people too badly, since the stuff lasts forever. Probably enthusiasts have enough in their pantries to last them through a temporary factory downtime?
Why would they stockpile it when they're used to just buying it in the supermarket?
It's not bought for its long-shelflife property anymore, it's basically just an ingredient in some popular traditional local recipes. Sure, those recipes emerged because the shelflife used to make hard-tack a reliably available source of calories, but that's basically gastronomical skeumorphism.
Raising the price doesn’t “solve” shortage and no one in economics makes that claim.
Instead, the claim is more limited - that even in times of shortage if you want to make sure that the item in question is still available, raising the price will accomplish two things: it will encourage marginal production and discouraged marginal consumption.
Without prices, the only mechanism you would have to accomplish the same effect, would be a political decision about who did or not deserve to have hard bread, while you work out the production issue.
In both systems, you’re doing rationing, just by different means.
Whether under capitalism or collectivism the way you solve a shortage is always the same - you produce enough for everyone who wants the thing.
The difference is the presence for absence of the feedback mechanisms like prices. The problem with collectivism is that once you get rid of prices, there is no explicit feedback mechanism. There may be implicit mechanisms such as a waitlist, but ultimately the decision to increase production is turned into a political decision. I doubt many people care if production decisions about hard bread are made by politicians or business people, but in more consequential areas, such as housing, we have a century of experience of what happens in production decisions are collectivized and politicized. (it is illegal to increase the national stock of interior residential floor space by even one square foot without prior political approval, I.e. rezoning, variances, etc.)
Raising the price doesn't increase the supply, it just selects who can access it. Most of the people will still not get it, just for a different reason.
Probably not, right? Demand is already there. The factory is already incentivized, it’s just damaged and needed time to get back to full capacity. A contender isn’t just going to spring up because prices are temporarily high.
Even if you already had a factory that could easily be converted to this product, you’d have to factor in the switching cost, opportunity cost, shipping, marketing and regulatory stuff. This likely offsets the consumer’s willingness to pay extra during the shortage, and as soon as the original factory is back, they’re going to price you back out. They’re already operational, as per the article.
In the longer run, maybe, but if the factory is already working to rebuild then arguably that incentive is already met and it's more just the time it takes to get capacity back up, which is not as flexible with spending money on it as people would like.
This is not the goal. The only mitigation that could make sense is to impose limits per person or household to avoid someone hugging all the supply.
This allows there to always be supply available for purchase
By the very few who can afford it, by definition of raising the prices until the products barely sell. If you have 100 items and 1000 people you guarantee that at least 90% of people won't get an item. It doesn't matter if it's because there is none left, or because it's too expensive. If you're hungry because the shelf is empty, or the shelf is full but you can't afford it, what's the practical difference for your stomach?
It is what the stores are having a hard time accomplishing.
It's a proxy for what the stores have a hard time accomplishing. The goal is to fulfill demand. Do you genuinely need the explanation why a store's goal is to sell not "have on shelf"?
From the store's perspective it is still in stock and supply is available
I guess I do need to explain. Now I'm starting to think this is intentional hard headedness :). If the goal was just "have X on the shelf" they'd put one item and price it like gold. Or put it really high on the shelf. Goal achieved. When the authors of these articles say "have on shelf" they assume the reader is reasonable and intuitively makes the connection to "fulfilling demand, people able to buy".
How much people eat of it is separate from what the article is discussing.
You're right. What the article is discussing is how much people can buy. If there is no supply then people aren't buying. But make no mistake, the buying is important, not the being on the shelf. Maybe some stores put the breads in a basket ;).
The situation here is that there is a temporary supply shortage. If you raise the prices to drop sales and guarantee you have stock it means you priced out most of the people. You narrowed your market only to the few who can afford it and those few are slowly going through that stock.
How does that help the situation? At the end of the day some people will have the bread (because they were in the store early, or because they have money) and other won't.
Raising prices in this situation only helps make more profit, extract more from the existing market. It does nothing to solve the problem of people having bread.
Not in this case. You're citing Economics 101 without addressing the situation from the article.
The current primary supplier had a temporary setback caused by a fire in mid-March and operated at reduced capacity, before going back to full capacity in July. Whatever flexibility competitors had to increase capacity with little to no investment was probably captured. A few months of marginally improved prices won't incentivize any competitor to invest. Hard bread isn't the kind of product that can command a big price before customers lose interest.
I considered that. It's a fair point, there are things that you couldn't give away, but almost always somebody would want them, if the price was zero. Hard bread, for example, would become like a natural resource, full of calories, to be turned into nicer bread.
Which part? You see this depends on your prior assumptions about how much stock there should be, and those are based on the state of affairs that you're used to and that you consider to be the natural order of things. But if you imagine that the proper natural order of things is for everybody to have as much of everything as they like, to squander profligately, then there's always a shortage of everything, relative to that state. On the other hand, if you consider the natural order of things to be that hard bread is very expensive, then raising the price (to stop it being too cheap) would indeed remove the shortage. You see? I'm saying that declaring a shortage is a kind of mild Chauvinism, an assumption that what you're used to having is proper and correct. But of course that might be true, in a way.
Comments
Is it really that hard to raise the price to keep it in stock?
How does that solve the problem?
I love how in economics, a shortage can be solved by increasing the price instead of by increasing the quantity. It really makes you understand that the field of economics uses stupid definitions of words.
Economics says in the event of shortages, make supplies only available for more wealthy people. This 'solves' the problem because the wellbeing of less wealthy people is entirely irrelevant to economists.
If you are trying to slow down sales to the point that you are able to consistently replenish stock before the last batch sells out, raising the price will reduce the volume of hard bread being sold. At some point the volume should be low enough that it stops going out of stock.
Just “having hard tack in stock” isn’t the objective to solve for, though.
I’m actually skeptical this shortage affects people too badly, since the stuff lasts forever. Probably enthusiasts have enough in their pantries to last them through a temporary factory downtime?
Why would they stockpile it when they're used to just buying it in the supermarket?
It's not bought for its long-shelflife property anymore, it's basically just an ingredient in some popular traditional local recipes. Sure, those recipes emerged because the shelflife used to make hard-tack a reliably available source of calories, but that's basically gastronomical skeumorphism.
"struggling to keep hard bread in stock" the article says it is what the stores are struggling to do. It is the objective they are failing at.
Well if the goal is to never be out of stock, just keep one more packet in the back room and never sell it.
That clearly isn't the goal.
Raising the price doesn’t “solve” shortage and no one in economics makes that claim.
Instead, the claim is more limited - that even in times of shortage if you want to make sure that the item in question is still available, raising the price will accomplish two things: it will encourage marginal production and discouraged marginal consumption.
Without prices, the only mechanism you would have to accomplish the same effect, would be a political decision about who did or not deserve to have hard bread, while you work out the production issue.
In both systems, you’re doing rationing, just by different means.
Whether under capitalism or collectivism the way you solve a shortage is always the same - you produce enough for everyone who wants the thing.
The difference is the presence for absence of the feedback mechanisms like prices. The problem with collectivism is that once you get rid of prices, there is no explicit feedback mechanism. There may be implicit mechanisms such as a waitlist, but ultimately the decision to increase production is turned into a political decision. I doubt many people care if production decisions about hard bread are made by politicians or business people, but in more consequential areas, such as housing, we have a century of experience of what happens in production decisions are collectivized and politicized. (it is illegal to increase the national stock of interior residential floor space by even one square foot without prior political approval, I.e. rezoning, variances, etc.)
The GP provided a great example for why metrics are often shit.
Raising the price fixes the metric (is it in stock?) but doesn't fix the actual problem.
Sure, but price is both a mechanism and another important metric.
The problem with the capitalist mechanism here is
- the producer has already repaired the factory that will restore supply shortly, so the signal is effectively useless
- your customers are going to remember that you gouged the shortage situation
Raising the price doesn't increase the supply, it just selects who can access it. Most of the people will still not get it, just for a different reason.
A higher margin increases the incentive for people to make more, though.
Probably not, right? Demand is already there. The factory is already incentivized, it’s just damaged and needed time to get back to full capacity. A contender isn’t just going to spring up because prices are temporarily high.
Even if you already had a factory that could easily be converted to this product, you’d have to factor in the switching cost, opportunity cost, shipping, marketing and regulatory stuff. This likely offsets the consumer’s willingness to pay extra during the shortage, and as soon as the original factory is back, they’re going to price you back out. They’re already operational, as per the article.
In the longer run, maybe, but if the factory is already working to rebuild then arguably that incentive is already met and it's more just the time it takes to get capacity back up, which is not as flexible with spending money on it as people would like.
Would you make a hard bread factory if the price was higher? How high?
I'm not a hard bread expert but at high enough prices, I know plenty of enterprising people with kitchens.
Cool are they licensed for commercial use?
It doesn't increase supply, but it slows down how fast the supply sells out. This allows there to always be supply available for purchase.
This is not the goal. The only mitigation that could make sense is to impose limits per person or household to avoid someone hugging all the supply.
By the very few who can afford it, by definition of raising the prices until the products barely sell. If you have 100 items and 1000 people you guarantee that at least 90% of people won't get an item. It doesn't matter if it's because there is none left, or because it's too expensive. If you're hungry because the shelf is empty, or the shelf is full but you can't afford it, what's the practical difference for your stomach?
It is what the stores are having a hard time accomplishing.
From the store's perspective it is still in stock and supply is available. How much people eat of it is separate from what the article is discussing.
It's a proxy for what the stores have a hard time accomplishing. The goal is to fulfill demand. Do you genuinely need the explanation why a store's goal is to sell not "have on shelf"?
I guess I do need to explain. Now I'm starting to think this is intentional hard headedness :). If the goal was just "have X on the shelf" they'd put one item and price it like gold. Or put it really high on the shelf. Goal achieved. When the authors of these articles say "have on shelf" they assume the reader is reasonable and intuitively makes the connection to "fulfilling demand, people able to buy".
You're right. What the article is discussing is how much people can buy. If there is no supply then people aren't buying. But make no mistake, the buying is important, not the being on the shelf. Maybe some stores put the breads in a basket ;).
That implies that everything with a price is always out of stock.
No, it implies that everything with a price and a supply issue will likely still face that supply issue even with a higher price.
Everything with a price has a supply issue.
No, it doesn't.
Oh, OK.
I'm really glad we sorted this out.
I don't know where you got that honestly.
The situation here is that there is a temporary supply shortage. If you raise the prices to drop sales and guarantee you have stock it means you priced out most of the people. You narrowed your market only to the few who can afford it and those few are slowly going through that stock.
How does that help the situation? At the end of the day some people will have the bread (because they were in the store early, or because they have money) and other won't.
Raising prices in this situation only helps make more profit, extract more from the existing market. It does nothing to solve the problem of people having bread.
Of course it helps, pricing increases make it more attractive to build more supply.
Not in this case. You're citing Economics 101 without addressing the situation from the article.
The current primary supplier had a temporary setback caused by a fire in mid-March and operated at reduced capacity, before going back to full capacity in July. Whatever flexibility competitors had to increase capacity with little to no investment was probably captured. A few months of marginally improved prices won't incentivize any competitor to invest. Hard bread isn't the kind of product that can command a big price before customers lose interest.
It implies no such thing.
The presence of a price "selects who can access it", hence there's not enough stock to give it away for free. (Sometimes deliberately.)
There’s plenty of stuff you couldn’t get rid of if you gave it away for free. You seem to be ignoring demand.
I considered that. It's a fair point, there are things that you couldn't give away, but almost always somebody would want them, if the price was zero. Hard bread, for example, would become like a natural resource, full of calories, to be turned into nicer bread.
Wut? That makes no sense.
Which part? You see this depends on your prior assumptions about how much stock there should be, and those are based on the state of affairs that you're used to and that you consider to be the natural order of things. But if you imagine that the proper natural order of things is for everybody to have as much of everything as they like, to squander profligately, then there's always a shortage of everything, relative to that state. On the other hand, if you consider the natural order of things to be that hard bread is very expensive, then raising the price (to stop it being too cheap) would indeed remove the shortage. You see? I'm saying that declaring a shortage is a kind of mild Chauvinism, an assumption that what you're used to having is proper and correct. But of course that might be true, in a way.
You know what's really oversupplied in this subthread? One sentence contrarianism.
(not that I haven't done it myself occasionally, but guys you really are not helping anyone here including yourselves)