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Good News: You Don’t HAVE to Pay the Current Inflated Prices

Good News: You Don’t HAVE to Pay the Current Inflated Prices

February 21, 2023

Plenty of you have probably noticed what has happened to the price of eggs as of late. For those who haven’t noticed, the price of eggs has increased pretty dramatically. Now, in simply making that statement, I am essentially looking at one side of a transaction. In other words, you could also say that the value of a dollar has declined, at least in terms of how many eggs a dollar will buy.


What this highlights, though, is that in any transaction, you do, indeed, have two sides: a willing seller and a willing buyer. The ultimate price of something settles where a willing seller and a willing buyer “agree." This agreement is signified by the simple fact that the seller produces the eggs and the buyer consumes the eggs. Otherwise, the eggs wouldn’t be produced and/or consumed. The agreed-upon price is called the market price.


Why does this matter? Well, the article that was introduced in our previous post describes goods and services being offered at prices that have been adjusted by the seller, irrespective of input from the buyer.

Wait, that’s not right.

If a transaction takes place, and a transaction is a sign of agreement between seller and buyer, then the seller does have the benefit of input from the buyer. The input is the simple act of the buyer parting with his/her money, which is a tacit agreement on price. Otherwise, the buyer would keep his/her money and forego the good or service being offered, or attempt to obtain it elsewhere.


The reason why this matters is that the article speaks as if consumers are simply at the mercy of producers. Well, do the consumers not have a choice? And does that choice not include the option of foregoing a good or service? Of course it does.


To drill down into this a bit, the approach taken in the article is to isolate certain examples of how prices are adjusted under dynamic pricing. Specifically, the article discusses how restaurants, parking lots, retail stores, etc. all use dynamic pricing to influence consumers or capitalize on circumstances. There are several things not discussed in the article, however, that might be most revealing, especially as the discussion relates to inflation.


The only scenario in which it can be credibly argued that consumer choices in the aggregate are being shaped by changes in prices is when the price of everything, or the vast majority of things, is changing. Some evidence of this could be gathered in changes to spending trends at the population level. In other words, if aggregate discretionary expenditures were to trend downward, while aggregate spending on staples, or necessities, increased, one could most likely tell that the average consumer was having to forego luxuries so that they could continue to afford necessities—i.e., the choice of whether to afford a luxury was being made for them, simply by virtue of not having enough money left over after purchasing necessities.


When this interdependency of expenditures is visible, so to speak, we can say that the consequences of inflation are taking hold. This is the precise reason why dynamic pricing cannot explain the current experience of inflation. My evidence? Well, it’s two-fold.


  • First, the article completely ignores necessities. Restaurants? Not necessary. Online shopping? Definitely not necessary. Parking? Not that either. I won’t bother with continuing any further.
  • Second, the article doesn’t discuss how consumers are not engaging in transactions related to the goods and services discussed. The article actually paints the exact opposite picture in describing how consumers are forced to pay more—I don’t recall if the article stated that explicitly, but it definitely left me with that impression.

I’ve got news for anyone willing to listen: only the government can use force, and that includes seizing your property—i.e., money, in this case. So, if transactions continue to take place, irrespective of how sellers are using dynamic pricing, then that is evidence of an agreement—i.e., a market price has been established, which means you have a willing seller and a willing buyer.


If the author had fleshed out the topic of dynamic pricing a little more thoroughly, I presume that he would have eventually stumbled across the points that it’s the immediacy of price changes and the fact that one side of the transaction is essentially dictating the changes that really define it. The noteworthiness of the immediacy of the price changes can be highlighted by this simple question: do prices not undergo changes, ever? Of course they do. So, it must be the sudden onset of the changes that make dynamic pricing remarkable.


There’s just one problem, though.

I don’t ever recall hearing that market prices are only market prices if they are stable for a certain period of time. Further, is the stock market not a market? And are the prices of stocks not market prices? And are stock prices not pretty volatile? Would this not be evidence of just how fluid true market prices could be? Yes, the answer is yes.


What this means is simply that the fact that one side is effecting price changes is insufficient to establish that we are not dealing with market prices, and again, our evidence is the simple fact that a transaction still takes place. Setting aside the tacit agreement of buyers, though, something else that needs to be introduced is that dynamic pricing actually has potential benefits.


One negative example given in the article is that of Coca-Cola. Specifically, the article discusses how in the late 1990s Coca-Cola introduced drink machines that would charge more for drinks when it was hotter outside. The article relates that “people felt exploited and were furious,” and I would say rightfully so.


Surprised that I might agree with that? Well, you shouldn’t be, because while hotter temperatures can lead to higher demand for drinks, hotter temperatures, alone, are insufficient for a new market price to be established. To explain, let me present you with a slightly different scenario involving drink machines.


Let’s say that you’re enjoying an outdoor activity—concert, hiking, etc.; and let’s say that it is on a hot day, just like the consumers were facing in the anecdote about Coca-Cola. As a result, you work up quite a thirst. In the distance, you spot a drink machine. As you approach the drink machine, you observe someone appearing to attempt to purchase a drink, only to walk away empty-handed and visibly frustrated and parched. You ask them what’s going on and they explain that the machine is completely sold out.


If the amount of money you were willing to offer for a drink could dictate whether you could actually acquire a drink at that point in time, how much would you be willing to pay? Let’s up the ante: what if you were legitimately dehydrated? How much would you be willing to pay for water? What this reveals is that dynamic pricing holds the potential to be used by either side of a transaction—the seller or the buyer—to achieve the benefits they desire.


We have a real-world example of this as well: surge pricing with Uber. The way surge pricing works is that when there is greater demand for rides, relative to the supply of drivers, prices for rides increase for as long as those conditions exist. The most immediate thing to highlight about this is that it is only when, both, supply and demand are impacted does surge pricing kick in. In other words, if Uber only increased prices when demand was high, then they might not be any better than Coca-Cola raising prices only when it was hot outside.


With Uber, increased prices for rides creates an incentive for drivers who are not working to login and start giving rides. This would obviously be an immediate increase in supply, which would, eventually and ironically, lead to a decrease in price, especially in the instance that the supply of drivers outweighed the demand of riders.


While increased prices could theoretically lure a drink delivery person to restock a drink machine, it’s not obvious that the connection is as direct as it is with Uber. In other words, does the delivery driver benefit directly from the increased prices?  Further, is it known with the same immediacy that restocking is needed?


It’s not really my concern what similarities are shared between the examples of drink machines and Uber rides. It’s just important to understand the likely differences and how they translate into differences in pricing that can be understood using the concepts of supply and demand.


To close out, let me let you in on a little secret: one of the motivating reasons for writing this post is to simply illustrate that not all sources of information are created equally. In some previous posts, here and here, we discussed all of the folks competing for your attention and the motivations they might have, which don’t necessarily guarantee that you will receive solid advice. What this means is that it’s important to use what we know to understand that which might not be all that familiar. I hope that this post serves to augment your knowledge a bit to better understand the world as we are currently experiencing it.