Chris Conlon on Price Gouging

He is an econ prof at NYU.

Twitter thread.

"What does the evidence say? 

Net Inc/Rev (Net Margins) for largest grocery sellers Q2 2024:

Wal-Mart 3.16%

Costco 2.87%

Target 3.84%

Kroger 1.44%

Albertsons 1.64%

Ahold Delhaize 2.06%

for ref: McDonads 30%+ Where did all the excess profit go?

Why cite profit share of VALUE ADD for the second half of 2023? (a weird period & inflation cooled). For 2023, Labor share was 93% of value add - a number that never gets reported because it makes this whole exercise seem ridiculous (bc it is!).

Tip for reporters. If someone says "Profit share was 50% of price increases 2023", ask them what the labor share was. Answer: 93% 

Since the beginning of 2021, the profit share of value added has been a measly 19%. This whole thing is dumb, because if you raise prices because your input costs go up that doesn't affect VA. At best you describe share of VA but NOT PRICE CHANGES!

"Are driving" is silly. This is at best a flawed accounting exercise from the NIPA tables. More importantly a better question is what has the profit share been since inflation started (19%?) (not just for two quarters in 2023 as inflation slowed).

 

NYT also cites a report which tries to calculate profit margins by computing the difference between the CPI (prices paid by consumers) and PPI (prices received by domestic sellers). This tells you nothing about profits but a lot about how firms don't buy houses.

 

What could we could do to fight 1.4% net margins? The model legislation we have for a price-gouging bill would be this Warren bill from 2022 that was reintroduced in 2024. Here is what I said then (bill is largely unchanged)

 

New legislation on "price gouging" just dropped #econtwitter. Summary: fight inflation by making price increases illegal (Bonus: implement a strong Robinson-Patman like ban on price discrimination by large firms).

 

You violate the law by 1. Using shocks as a "pretext" to raise prices 2. Raising prices an unspecified "excessive" amt 3. Charging more than a competitor 4. Charging different prices to different buyers (sorry Costco) 5. Maybe having $1b in revenue ???

 

When you violate the law the MINIMUM penalty is 5% of parent company revenue from the previous year. Raise the price of parking at Disney World on a busy day? ->Forfeit 5% of all corporate revenues- unrelated to damages.

 

Bonus 1: I am pretty [sure] every airline and hotel would immediately be in violation of the law for changing prices not based on costs. Bonus 2: You have to post your pricing strategies, category-level prices and costs which is great for monitoring your cartel."