It's called "sticky prices" -- the tendency for companies to delay both raising -- and then lowering prices in response to changes in the cost of raw materials. You see, what you pay at the grocery store has more to do with what competitors charge than it does with how much it actually costs to produce the item.
The AP explains:
Prices have been going up broadly across whole categories of products, meaning competitors have been hiking prices in unison. For example, both Anheuser-Busch Cos. Inc. and SABMiller's U.S. unit have been raising the price for beer, with neither one too worried that the price hikes will push customers to their competitor.
"They may be upset about it, but you really have fairly limited options as a consumer," Perner said.
For prices to drop, consumers have to hope that companies' competitive juices start flowing again. The drop in oil and ingredient prices is creating a high-stakes game of chicken in the shopping aisle, Perner said.
If companies keep their prices at current levels, they can reap higher profit margins. But if one company starts cutting prices to lure customers away from competitors, it could start a price war.
"As soon as the first (company) in a category reduces prices, the others will follow suit. But they're all hoping the other one doesn't" cut prices, Perner said.
...And in case you're wondering if the same applies to airfares... the answer is yes. Don't expect the airlines to let go of any of those new fees without a fight.
Grocery bill still high? Blame ‘sticky’ prices [Newsweek]
(Photo: Ben Popken )
Your not kidding. The price of cereal is out of line. THe same can be said for snack chips as well. That's why I avoid buying any of that crap. When I do by cereal, I do the same. Wait for a sale.
My grill has noticed the rising costs as well. I hardly use the thing anymore. There wa wa time I fired up the coals three or four times a week.
]]>@Marshfield: You know those moments one has when you start to feel old? One of mine is seeing the cost of cereal. My indignant reaction to the price of Frosted Mini-Wheats makes me feel like I ought to just throw in the towel and get myself a walker and a can of stewed prunes.
Mmm...prunes... ;-)
]]>The grocery inflation thing is killin' us here. I left my job because the cost/benefit actually was in favour of me staying at home (daycare costs here are ridiculous), but I'm looking at getting a part-time McJob (while kids are in school) to help alleviate the rising costs of basic household supplies. And we shop at the commissary, fer Chrissake! You'd think we'd be okay.
]]>Or not. I'm probably lazier than you are and I can't be bothered myself.
]]>I live in Canada, and it's the No Name brand from Stupidstore (technically Superstore); the beef flavour is surprisingly high in iron, I think they use actual beef blood.
]]>@GZA: Wish it was as easy to do as it is to sit there and say. To drive to my family in another country would be more than 3 days driving 1 way, rail would be about as long... an air fare even with all the fees allows me to actually see them with my time off. Unless I can move every relative to a short distance from me and bypass all the immigration junk I had to endure there's no viable alternative. Airlines have people with long-distance and international ties by the figurative balls these days.
]]>$4.50 for a box of breakfast cereal? No way! I'll wait until they are buy one get one free.
]]>Global warming has diminished grain harvests by 40 million tonnes so far. That's part of your grocery prices too, you know. [www.telegraph.co.uk]
]]>Our electricity is still supposed to keep going up this winter, so is our natural gas. So we are doing everything we can to insulate, get daytime sun for heat, anything to stave off using the furnace until we absolutely have to.
]]>There's no reason to skip salads (a perfectly reasonable healthy meal) if prices can come down for you. As MadameX said, croutons and bacon bits aren't healthy, and they're probably the most expensive of the ingredients you buy for your salads. Salad dresses can be made on the cheap, or you can buy your favorite in bulk or wait for a sale on your favorite.
]]>@ilves: Actually, I remember when Southwest bought that contract (IIRC, $48/barrel) that everyone thought they were nuts because the "Oil Bubble" would pop and it'd be back to $25 a barrel in notime. Turns out to be one of the most forward thinking corporate actions in a long, long time. And like Redwoodflyer said, Contenental is well and truly screwed at this point.
]]>@Kimaroo:
Do you really think your state public service/energy commissioners (who get a hefty kickback from energy companies) are going to demand a reduction in energy costs.
Really? If so, I want some of what you are smoking.
]]>If you skip the bagged salads and buy your own fresh lettuce and veggies, skip the croutons and bacon bits (more healthy that way, anyway) and make your own salad dressing (a little olive oil, red wine vinegar and some Italian spices is great), you can still do salad on the cheap. :)
]]>Just as a lower-income family may rely more on canned goods, with a combination of perishables such as bread and milk, my family relies more on fresh produce such as vegetables, meat and perishables, and less on canned goods, though we do have a lot of canned goods. Lower-income families not only have less money to spend on food (canned vegetables or frozen vegetables are always cheaper than fresh vegetables, unless there's some kind of huge sale), they also presumably have less time in which to cook.
For those who cook mainly with fresh ingredients, or mixed with canned or frozen ones, if prices of canned corn go up...I'll just buy a different brand or I won't buy it until I have a coupon or there's a sale. For a lot of lower-income people, those options aren't there. Presumably, there's less time in which to cook and shop around, and more limited options. They buy what they can afford, and when grocery companies price gouge and raise prices, it hits lower-income people, or those on severe budgets, the hardest.
]]>yea, but southwest is still somewhere around ~50 a barrel I believe (have no idea how they pulled that off). AA is pretty well off last I heard hedging somewhere around the 80s. But yea, some airline companies screwed themselves.
]]>I'm confused as to what this article had to do with credit cards.
]]>No, it is not price fixing unless the companies directly communicate their intentions to one another. There are many ways companies communicate implicitly without breaking the law. There's a special subset of economics called Industrial Organization and Game Theory that deals with how companies signal intentions to one another.
]]>@GZA:
Seriously, Oreos and Vacation are one thing and make a nice rhetorical package for you.
But what about food (to cook at home), gas (to drive my kid to her daily hospital visits) and so forth? I can't simply refuse to feed my child because I believe the price of food should be lower. Starting a farm in my non-existent backyard is simply not an option.
]]>I'm not surprised at all. Bastards (I'm pointing fingers on retailers and some wholesalers) are quick on raising prices, but slow to lower them when market prices go down.
]]>The companies only have the power to charge prices like this as long as people are dumb enough to buy them at that price. When I run out of the canned goods, I'll move on to something else that's cheap (probably generics).
If everyone did what I'm doing, 1 month of no profit would be enough for companies to lose the attitude towards pricing. But, no, there's enough stupid people out there that will pay $1.99 for a can of Beefaroni (priced at my local "cheap" grocery store). *sigh*.
]]>We all know that CC companies charge retailers something per transaction so to me it almost looks like a gas station with different cash/cc prices is saving money by taking cash and *gasp* passing some of those savings on to the customers.
]]>Other way around. They can call cash a "discount" all they want. They can't control that. But merchants are not allowed to say there is an additional FEE to use credit. THATS the part they can't do.
]]>I really miss salads though.
]]>I don't fly unnecessarily anymore, but sometimes we have no choice. And the airlines know that.
]]>I turn on my Freezer next month. I shop hard for 2 months and little on the other 10.
]]>"...And in case you're wondering if the same applies to airfares... the answer is yes. Don't expect the airlines to let go of any of those new fees without a fight."
In Canada, WestJet dropped their surcharges once oil fell, and has promised to keep it this way so long as oil stays below $100/barrel.
]]>Funny how one farmers market near me expanded its store in the recent 2 years and business is up exponentially at it, there used to be 1-2 cars in the parking lot every time we went now there are 20 or more.
]]>Last 3 times I've been shopping the prices have been the same. I only shop once a month....of course raman and beer prices don't change that much.
]]>@Canino: Yeah, sooner or later the temptation to outsell the competition becomes irresistible. I don't know if prices will go back down to previous levels, but they will go down.
]]>Once a company raises prices, it has very little excuse to lower them back down because it will actually be harder to raise them a second time.
It seems like it would be easier to keep prices the same and wait until the price raise evens out.
]]>If one company drops their prices, others must either follow suit or lose business, but there's no motivation really to drop your prices if you are priced competitively and still make a decent profit margin. It becomes a waiting game to see which company will take a chance and lower prices first.
]]>@OletheaEurystheus: The gas station at the end of my street charges 13-15 cents more per gallon for a credit card purchanse. I refuse to give them, or any gas station that charges more for credit, my business. I drive 2 miles more out of the way to get gas at a station that does not do this... and the price for everyone where is cheaper than the credit price at the other one... Though it's about 5 cents more per gallon than the cash price.
]]>I disagree with the article. There is always some lag in changing consumer prices when commodity prices change. That doesn't mean the prices are permanent. Someone will lower the price of a can of corn 10 cents and the price war will be on.
]]>Don't expect me spending tons of money on brand new useless crap like i used to either. I am saving now.
Screw you VISA.
]]>What I'm waiting for is the price of electricity to go down... I'm wondering if the same "sticky pricing" goes for them too.
]]>Price fixing is an agreement between business competitors to sell the same product or service at the same price.
If they collude to fix prices, communicating with each other to make an actual agreement, then it's illegal. If it just so happens that they all arrive at similar prices, then it's not price fixing, it's a fortunate coincidence for them.
]]>The company owned ones dont do this, but just about all the independents around here still are.
]]>