Corporate Greed or Pandemic Pricing

Siny Joseph, Kansas State University,
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Initial Publication Date: November 30, 2022

Summary

Students will answer questions related to a Planet Money podcast "Corporate Greed or Pandemic Pricing" and reinforce their understanding of factors that cause inflation and its impact on markets.

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Context for Use

This activity is appropriate for Macroeconomics Principles course.
Students should have prior knowledge about demand and supply.
No limit on class size.
One 50-minute class period would be sufficient for this activity.

Overview

This activity allows students to dig deeper into the causal factors of inflation in the context of market concentration. A Planet Money podcast is assigned prior to class which questions the reasons for inflation. This macroeconomics topic is tackled from the lens of microeconomics. Inflation is explained by market demand-supply dynamics and pricing in concentrated markets. In class students will discuss the podcast and answer questions in the context of the podcast. The activity will reinforce their understanding of inflation and its impact.

Expected Student Learning Outcomes

Upon successful completion of this learning activity, students will be able to:
Attribute increase in prices to market dynamics or market failure.
Understand applications of demand-supply and market structures.

Information Given to Students

Students are required to listen to Planet Money podcast "Corporate Greed or Pandemic Pricing" prior to class.
Activity:
Which is the best argument against the assertion that high inflation in the Covid era is due primarily to the market concentration of many industries?
A. The market concentration of industries did not change much during the pandemic.
B. Prices in competitive industries rose along with prices in concentrated industries.
C. Uncompetitive firms are relatively slow to pass cost increases on to consumers because they seek to protect their market share.
D. Tacit collusion among oligopoly firms is illegal and closely monitored.


Assessment SLO Question Diagram (Microsoft Word 2007 (.docx) 60kB Aug31 22)



Teaching Notes and Tips

The debrief should begin by focusing on the narrow assertion that firm exertion of market power is driving inflation. The facilitated discussion ought to lead students to conclude that market power doesn't explain much. Only at that point should the class-wide conversation turn from the market power explanation to demand-supply forces.
Discussion on demand -supply factor can include decrease in supply due to supply disruptions and increase in demand due to increased stimulus payments. Some discussion about the degree to which increases in money supply contribute to inflation can be added as well.
The podcast needs to be assigned before class. Students should have prior knowledge of supply and demand, and characteristics of a concentrated market. The activity requires students to be able to discern the most important explanatory factor to demonstrate their understanding of the causal factors of inflation.
All four options are defensible and discussion worthy. Option A might entice a student group but should be ruled out because it is likely that supply disruptions affect concentrated industries more than competitive ones and the change in concentration would not be necessary to drive inflation. Option B is the best explanation to rising prices which hinges on the Demand-Supply framework.
The following follow-up questions are recommended for facilitating the debriefing conversation:
1. What is tacit collusion?
2. Why is competition better than monopoly?
3. Why is there record inflation- pandemic pricing or corporate greed?
Closing remarks: It is vital to conclude with demand-supply factors to explain inflationary trends. It can be admitted that while price gouging in concentrated markets is a possibility, it would not be a norm.

Assessment

The average net income margins, or profit margins, of about half of the 28 food and consumer goods manufacturers listed on the Fortune 500 have risen compared to the pre-pandemic levels, according to an analysis performed by Fortune.

The discussions around companies' price increases often conflate the idea of profiteering and price gouging. What do you think is the difference between the two terms?
Profiteering essentially occurs when a business makes, or seeks to make, an excessive or unfair profit.
Price gouging happens on the consumer level when a seller increases the prices of goods, services, or commodities to a level much higher than is considered reasonable or fair.

References and Resources

https://www.npr.org/2022/03/10/1085846628/corporate-greed-or-just-pandemic-pricing