Is scarcity the new money making trick ?

[Deschodt]

I'm wondering if the invisible hand of the market is stuck in a vice somewhere...

Reading & listening to news here and there, I was learning that the price of a shipping container say from Europe or Asia to the US coasts had basically risen 10x (as high as 20x at the worst).... At the same time the logistics person was saying that while this was maybe justified early on with lockdowns, it was certainly not the case now, in terms of availability of ships and crews - maybe at most x2... Yet apparently there's some collusion between shipping companies for the prices not to return to normal...

In supermarkets, we used to have these overfull shelves as the norm, and there also the merchandisers have figured out that a little scarcity is good for the margins... Make a show of a missing item, have an empty shelf here and there for a day (even if you store the product) and people will be reminded of potential scarcity and gratefully pay 50% more for the item next to it on the shelf - especially the cheaper stuff. In terms of profit margins, though, big win that more than makes up for the empty shelf!

In the same vein, I was asking my neighbor who works for a german car dealer how they stayed in business with their pathetic inventory - he explained that they now sell broadly only 15% of the amount of cars they sold pre-covid, but compared to before it's so easy now they are laughing all the way to the bank! Because of scarcity there is zero haggling, cars sell before they reach the lot, or in one day, to their chosen customers who are on "begging" lists ! At times in the past they barely made $500 on a car for a salesman and $1000 for a dealer, now with big MSRP markups vs the old small commission, immediate turnover and therefore less costs for storage, ultimately they made way more $ in profit. If you make more $ doing 15% of the old work, why would you want to go back to the old situation? Sure car makers have supply chains issues but they figured out people will pay more if they make less of something, will they go back ? Why should they ?

I think this will repeat all over - scarcity is the new way to make $, some of it was indeed justified 2y ago, but I believe a lot of it is artificially maintained now. Porsche and others closed factories because of lack of wiring harnesses from Ukraine. You're telling me that the VW group has no contingency for this and only one subcontractor ? Couldn't starting production in say Portugal or something ? well as a manufacturer, if you used to make 3% on a car and now you can make 10% by selling cars for more - you can sell 3x less units, pay less folks, and maintain profits... why try too hard resuming production ? Auto makers don't collude? Ha, remember diesel gate ! There's enough rich folks that will pay more right now and the rest can pound sand and eat the scraps. And then we'll get another fun Chinese variant or something (see lockdowns in China now), maybe another local conflict, rinse repeat... Maybe I'm sarcastic and jaded but it looks to me like those folks pulling the strings have figured out a new way to keep the masses in line and get more $ for less work. Brilliant.

[unclebilly]

Its the same story with Beef. Farmers are not getting paid more for their product but beef is very expensive at the supermarkets right now.

Middle men...

[911 Rod]

You nailed it!
Greed will corrupt.

[flatbutt]

How is scarcity different from the old tried and true supply and demand?

[Superman]

Scarcity IS supply/demand. Yes, players have been manipulating this since long before the S/D curve was ever drawn on a cocktail napkin.

[tabs]

Originally Posted by Deschodt

I'm wondering if the invisible hand of the market is stuck in a vice somewhere...

Reading & listening to news here and there, I was learning that the price of a shipping container say from Europe or Asia to the US coasts had basically risen 10x (as high as 20x at the worst).... At the same time the logistics person was saying that while this was maybe justified early on with lockdowns, it was certainly not the case now, in terms of availability of ships and crews - maybe at most x2... Yet apparently there's some collusion between shipping companies for the prices not to return to normal...

In supermarkets, we used to have these overfull shelves as the norm, and there also the merchandisers have figured out that a little scarcity is good for the margins... Make a show of a missing item, have an empty shelf here and there for a day (even if you store the product) and people will be reminded of potential scarcity and gratefully pay 50% more for the item next to it on the shelf - especially the cheaper stuff. In terms of profit margins, though, big win that more than makes up for the empty shelf!

In the same vein, I was asking my neighbor who works for a german car dealer how they stayed in business with their pathetic inventory - he explained that they now sell broadly only 15% of the amount of cars they sold pre-covid, but compared to before it's so easy now they are laughing all the way to the bank! Because of scarcity there is zero haggling, cars sell before they reach the lot, or in one day, to their chosen customers who are on "begging" lists ! At times in the past they barely made $500 on a car for a salesman and $1000 for a dealer, now with big MSRP markups vs the old small commission, immediate turnover and therefore less costs for storage, ultimately they made way more $ in profit. If you make more $ doing 15% of the old work, why would you want to go back to the old situation? Sure car makers have supply chains issues but they figured out people will pay more if they make less of something, will they go back ? Why should they ?

I think this will repeat all over - scarcity is the new way to make $, some of it was indeed justified 2y ago, but I believe a lot of it is artificially maintained now. Porsche and others closed factories because of lack of wiring harnesses from Ukraine. You're telling me that the VW group has no contingency for this and only one subcontractor ? Couldn't starting production in say Portugal or something ? well as a manufacturer, if you used to make 3% on a car and now you can make 10% by selling cars for more - you can sell 3x less units, pay less folks, and maintain profits... why try too hard resuming production ? Auto makers don't collude? Ha, remember diesel gate ! There's enough rich folks that will pay more right now and the rest can pound sand and eat the scraps. And then we'll get another fun Chinese variant or something (see lockdowns in China now), maybe another local conflict, rinse repeat... Maybe I'm sarcastic and jaded but it looks to me like those folks pulling the strings have figured out a new way to keep the masses in line and get more $ for less work. Brilliant.

Those were not Potato chips you were eating as a kid but paint chips..

[Arizona_928]

Originally Posted by Superman

Scarcity IS supply/demand. Yes, players have been manipulating this since long before the S/D curve was ever drawn on a cocktail napkin.

Aka as capitalism.

[masraum]

Back in the late 80s, there were several ethylene glycol plant fires. I was told that Prestone sent letters to stores that sold their anti-freeze to say "we've still got plenty of capacity. You'll keep getting your anti-freeze and we aren't going to raise the price."
But the price at the stores doubled or tripled anyway.

[coldstart]

This strategy may work in the short-term. Sure. But long term companies are creating an opening for competition or diversity in their industries. There will be someone else who will fill that need by doing it better and/or cheaper and/or differently. These companies are creating new excess demand by not meeting end users’ needs at a reasonable cost. Theoretically.

[craigster59]

Originally Posted by unclebilly

Its the same story with Beef. Farmers are not getting paid more for their product but beef is very expensive at the supermarkets right now.

Middle men...

I heard a farmer talking about this today on the radio.

He said the small ranchers are essentially getting screwed by the processors. He talked of corn being up to $7 a bushel and ready to go to $10.

I'm paraphrasing "People who used to be able to afford a steak, they won't be able to afford the bone".