Consumers don’t want lower prices at all costs
Consumers don’t want lower prices at all costs
Price sensitivity benefits corporations more than it helps consumers.
“Consumers want low prices, full stop.”
That’s a quote from Timothy Richards, an economist interviewed for a recent episode of Planet Money about grocery prices and anti-trust laws.
“The way anti-trust laws are designed is always what’s best in the mind of the consumer,” Richards said. “That is variety, that is assortment, that is cheap prices … Consumers want low prices, full stop.”
Amid a constant din of inflation talk these past few years, this un-nuanced assumption has been repeated over and over by journalists and experts. The discourse always assumes “what’s best in the mind of the consumer” is the lowest possible price.
Do you make all your purchasing decisions that way? I suspect you don’t.
Price sensitivity is extremely nuanced and varies from person to person and purchase to purchase. This assertion that customers are, above all, price-obsessed — almost always from well-placed academics and media personalities who themselves are probably not so price sensitive — is a reductive and condescending way to color our shopping decisions.
Price competition benefits corporations, not consumers
This Planet Money episode reported on a March 28 letter from 16 members of Congress to Federal Trade Commission Chair Lina Khan encouraging renewed enforcement of a long-dormant law called the Robinson-Patman Act (RPA).
Khan has been an anti-trust champion her whole career, and she’s been picking unprecedented fights with monopolistic corporations since President Joe Biden placed her in the position in 2021. According to Planet Money, she indicated in 2022 that the FTC is open to reviving the RPA.
The RPA was passed in 1936 as an anti-trust law designed to encourage fair competition by banning price discrimination from wholesalers. At the time, in a precursor to what we see today, a large, nationwide corporate grocery chain was using its size and buying power to negotiate low prices with manufacturers and wholesalers. That meant it could charge much lower retail prices than mom-and-pop stores. The law banned unfair price discrimination and made it easier for independent retailers to compete.
That law is still in effect, but corporate-friendly interpretations took the teeth out of a lot of our anti-trust laws around the late 1970s and the 1980s, and the FTC hasn’t meaningful enforced the law for at least 40 years.
Instead, like Richards indicated, the focus in business regulation has been on “efficiency” — the economics code word for “low cost” that washes over the human exploitation and environmental destruction necessary to produce and sell products cheaply. The message for decades has been that consumers want cheap products, so regulators’ No. 1 job is to ensure companies can produce products cheaply.
But consumers don’t want cheap products. We want economic conditions that allow us to afford quality products.
Massive retailers benefit from encouraging price sensitivity in consumers, because that’s the easiest place for these companies to compete. They use their massive buying power to negotiate low prices with manufacturers that independent businesses can’t even come close to. (Or, in many cases, intimidate would be the better word. When Walmart gets more than 25% of the grocery business in the U.S. — more than four times that of each of its closest competitors, Costco and Kroger — it has a lot of pull over companies that manufacturer the products it sells.)
These monopolistic retailers force prices so low that independents and mom-and-pops can’t do business in the industry anymore. This doesn’t happen because consumers were begging for lower prices before Walmart showed up. It happens because Walmart showed up and told consumers they should want lower prices.
Price sensitivity also follows corporations around because these companies bring low-paying jobs with them and decimate local economies. Of course our communities are counting pennies at the grocery store after all the stable jobs are replaced with minimum-wage work!
How higher prices benefit consumers
The “efficiency” coalition against fairness measures like the Robinson-Patman Act argues that ending price discrimination between large and small businesses wouldn’t only mean lower prices at local businesses. It would also mean Walmart, Costco and Kroger would start charging higher prices because they could no longer enjoy their deflated costs.
As Planet Money reporter Wailin Wong put it, even if local grocers’ prices would go down, “Higher prices at the places where most of our grocery dollars go is a very tough sell.”
And that’s true. Because consumers have been trained to need lower prices. But “higher prices at Walmart” doesn’t have to be the headline here, as much as large corporations and their backers want it to be.
(There’s an entire aside here about the fact that these corporations could absolutely absorb higher costs without raising prices for consumers and just survive without exorbitant profits for executives and shareholders, but I won’t take us on that full journey today.)
The headline of RPA and other anti-trust enforcement should be about the spirit of these laws: fair competition.
As one grocery wholesaler CEO, Randy Arceneaux, told Planet Money, “The end game is [for] the opportunity to be the same.”
All businesses would get a fair chance to attract customers. That means they’d have to do what’s truly best for customers to win and keep their business: sell quality products, provide quality service, treat customers fairly and with respect, contribute positively to the local economy and culture.
Plus, success for local businesses means better job opportunities for folks who live in those communities. It means local business owners don’t have to slash their costs to compete with corporate retail prices, so they have more cash to put toward wages and benefits. Those changes lead to higher productivity and lower turnover, which are better for business and create a more positive work environment. Thriving local business means more cash flowing through the local economy and more tax dollars for local governments to make our communities safer, more beautiful and more sustainable.
Unlike monopolistic retailers, local businesses don’t require massive municipal-planning projects that disrupt our neighborhoods, make our towns ugly and suck our tax dollars away from the community. Local business owners live in the community, are invested in local government decision making and contribute to shaping the local culture.
We know this, so where’s the will to change?
This isn’t new. We’ve been seeing news reports about Walmart’s — and, now, Amazon’s — destruction of local economies and ways of life since I was a child. (In other words, we’ve known about it since the beginning, but regulators let it happen, anyway.)
Why is it so hard to enforce existing laws that have been proven to improve the lives of Americans?
In the case of the RPA, I blame the narrative about consumer price sensitivity.
We might read the letter of the law with enthusiasm about fairness, but when the industry points out that it would mean higher prices — in some places, for some products — for consumers? That enthusiasm wanes.
Even if we’re not personally concerned about prices, we think others are, and a condescending pity settles in. How will the poor people eat if they can’t even afford groceries at Walmart? For working-class conservatives, like the folks in my rural town, it’s a fear of being hoodwinked yet again by a corporation, or a genuine belief that they can’t afford the change.
Under budget culture, price consciousness is the No. 1 consumer skill. We simply believe it would be foolish to buy something for more than we can buy it for now.
But there was a life here before the monopolies moved in, and there’s a clear path forward to life after we push them out. Folks in my small town can own businesses instead of doing the same work for corporations for less pay, worse benefits and zero ownership. Our money will support the people we love and the people who need extra help in our communities. Our kids will have better parks, sidewalks and schools to grow up around, and they might even stay when they grow up because there will be something for them to do here.
Groceries might cost more in a fairer future — and we’ll have the money to buy them.
P.S. If you buy groceries at Walmart, Costco or Kroger (I do!), no judgment! This is a problem of regulation, not individual consumption.
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