March 10, 2022 | Reading Time: 6 minutes

Inflation – or price gouging disguised as inflation?

Prices are peaking, because market concentration has peaked.


Share this article

Inflation is serious, especially when you live paycheck to paycheck. (Today’s top news is inflation rising to its highest point in 40 years. Bloomberg said it peaked on rising gas, food and housing costs.)

Inflation is as complex as it is serious, though. Unfortunately, most press reports simplify it by pegging it to a tiresome media narrative about a Democratic Party heading for the killing floor in the fall.

That obscures a lot, especially the way it can help normal people. It inflates wages. It inflates savings accounts. It inflates away debts, too. 

Prices are also more complex than your average press report suggests. And with attention going to what the president is going to do, and how inflation will affect his party, we’re all missing key nuances, to wit:

High prices are one thing. 

Pricing power is another. 

Price gouging under cover of inflation is another still.

“Corporations with pricing power can raise prices far in excess of the costs of production. Sometimes, they can individually raise prices to boost profit margins and profits. At other times, they do so in collusion with their competitors, who agree to raise prices together.”

Gouging comes from pricing power, which in turn results from high market concentration. After 40 years of pretty much unfettered mergers, corporations like Walmart and Amazon have grown so titanic they can levy taxes, in effect, on entire sectors of the US economy. 

In short, inflation is not a consequence of growing wages, as the Wall Street Journal’s editorial page would have you think. It is also not a consequence of government spending, as Joe Manchin and other vestiges of the “economic freedom” gang would have you think.

Prices are peaking, because market concentration has peaked. As Joe Biden said, during the State of the Union, regarding meat packing: 

Small businesses and family farmers and ranchers, I need not tell some of my Republican friends from those states, guess what? 

You got four basic meat packing facilities. That’s it. 

You play with them or you don’t get to play at all. And you pay a hell of a lot more. A hell of a lot more because there’s only four.

The democratic solution is breaking them up. The democratic means is federal antitrust laws that have been on the books since the early 20th century but that have been gathering dust for the last four decades. 

Sandeep Vaheesan, legal director at Open Markets, an anti-monopoly think tank, testified Tuesday before the House Financial Services Committee. He said the root of the problem goes back to the Reagan administration. I caught up with Sandeep after his testimony.

Everyone’s talking about inflation. Some are blaming higher wages for pushing prices higher. Is this correct or partly correct?

I don’t believe that is correct. Contrary to the assertions of some conservative commentators, the current inflation is not a general increase in the price level. Rather inflation is driven by higher prices in a few important sectors – energy, food, automobiles and housing.  Supply chain bottlenecks and corporate pricing power – not higher wages – appear to be the key factors.

Can you explain more about the role of “pricing power”?

Corporations with pricing power can raise prices far in excess of the costs of production. Sometimes, they can individually raise prices to boost profit margins and profits. At other times, they do so in collusion with their competitors, who agree to raise prices together. 

This type of pricing behavior is commonly called “price gouging.”

The president highlighted gouging in the SOTU. That was a good move, no? Redirecting attention from wages to greed.

It was a good move politically and based in fact. 

CEOs and CFOs at many corporations have boasted about their pricing power and higher margins on earnings calls. They are not shy about it. 

I noted earlier that inflation is driven by higher prices in a few sectors. This appears to be having some bad spillover effects in other markets. 

Corporations outside of food, energy, cars, and housing have said they are using inflation as cover to raise prices. In non-inflationary times, such hikes might justify outrage from customers and the public.

These higher profit margins appear to be economy-wide.

In your remarks before the House Financial Services Committee, you touched on the Reagan administration and its choices regarding concentration. Can you give a Cliff’s Notes version of that history?

The administration of Ronald Reagan practically opted to stop enforcing federal anti-merger laws in the early 1980s. 

Ignoring policy choices made by Congress, the Department of Justice and the Federal Trade Commission had the effect of asserting that corporate mergers generally produce efficiencies that would benefit consumers. (A theory with little factual support.) In effect, they rewrote the law to permit virtually unchecked consolidation. 

Unfortunately, subsequent administrations (Democratic and Republican) followed what the Reaganites started. As a result, we’ve had hundreds of thousands of mergers over the past 40 years. 

Mergers have produced highly concentrated markets in which corporations have great pricing power and contributed to present inflation. The Biden administration is revisiting this momentous policy choice and may restore the strength of federal anti-merger law.

The government should crack down on mergers and go after monopolies across the economy – eg, the tech giants, but not just them. While I am optimistic the Biden administration will start this process, a great deal remains for future administrations and Congress.

It would seem that blaming wages for inflation would contend with a new Treasury report showing that concentration is holding wages down by as much as 20 percent. Can you flesh this out for us?

Concentration harms workers in at least two ways. 

First, research from 2017 shows many local labor markets are highly concentrated, which means millions have few potential employers in their line of work. This is associated with significantly lower wages. 

Second, large retailers like Walmart and Amazon have acquired enormous power over their supply chains. They use this power to squeeze suppliers and obtain lower wholesale prices. The suppliers in turn cut wages and benefits to maintain margins and profits. 

Sociologist Nathan Wilmers found that retailer power accounts for about 10 percent of the wage stagnation (the divergence of wages and productivity) that the US has experienced since the late 1970s.

In addition to concentration, employers of all sizes use restraints such as non-compete clauses to keep workers in place or restrict their freedom to switch jobs or start a business. At present, tens of millions of workers in the USare subject to non-compete clauses.

“Corporations outside of food, energy, cars, and housing have said they are using inflation as cover to raise prices. In non-inflationary times, such hikes might justify outrage from customers and the public.”

The Post reported today that 4.3 million quit their jobs in January. I guess I’m asking what a “labor shortage” has to do with this?

Calling it a “labor shortage” is an anti-worker frame. Employers can still find workers provided they pay fair wages. 

What has changed in the past year is that millions of workers, mainly those nearing retirement age, have left the workforce due to family obligations, Covid relief programs and unwillingness to risk their health and life for poorly paid jobs. 

This means those remaining in the workforce, notably in sectors like fast food and retail, have power for the first time in a long time. They can switch jobs and get higher wages or demand better wages and conditions of employment from their current employer. 

What some call a “labor shortage” is actually millions of workers enjoying some real power. This shift in the balance of power is admittedly jarring for many employers, but it is a good thing for workers and society. It could force many employers to shift their business models away from reliance on a low-wage workforce.

That brings us to history. Are we seeing a shift? Biden demanded more competition. Workers have more power. Are we turning away from what you called “conservative beliefs about economic life”?

We are in the early stages of a possible ideological shift. 

The president has appointed progressives to key labor and antitrust posts. But we are still awaiting major substantive action. I hope 2022 will be the year for big cases and rulemakings to structure labor markets in favor of workers (at least less in favor of employers).

I am glad you mentioned the word “competition.” 

I think it is a word that all sides like to claim. 

Defenders of the largest corporations on earth insist they are in support of competition, as do their progressive critics. I wish the president had articulated (at the SOTU or another occasion) what he means. Competition is not always a good thing. 

Sometimes it is quite destructive (think of Uber taking over cab markets through below-cost pricing and flouting of labor, employment and cab regulations), while other competition can be beneficial for consumers, workers and suppliers (consider two employers competing to hire a worker by offering higher wages and benefits.)

Competition is different from “disruption,” as the Uberers say.

Right, both can be good or bad. 

Legislators, policymakers and the public should openly debate what types of competition or disruption we want as a society.

John Stoehr is the editor of the Editorial Board. He writes the daily edition. Find him @johnastoehr.

Leave a Comment

Want to comment on this post?
Click here to upgrade to a premium membership.