Progressive policy experts testified at a U.S. Senate hearing on 'shrinkflation,' the practice of reducing the size or quantity of a product while maintaining the same price. The hearing, titled 'Higher Prices: How Shrinkflation and Technology Can Impact Consumers' Finances,' shed light on the simultaneous rise in prices and corporate profits. A study by the Kansas City Fed revealed that corporate profits were responsible for half of the price increases in 2021. Companies have been engaging in 'shrinkflation' by discreetly reducing the size or volume of common household items, allowing them to charge consumers more for less. For essential goods like household paper towels, shrinkflation accounted for approximately 10% of the price increase over the past four years. Corporate profits have surged since 2020, with a recent study indicating that they contributed to 53% of inflation during much of 2023. In response, Senators Sherrod Brown and Bob Casey introduced the Shrinkflation Prevention Act, which seeks to regulate companies engaging in shrinkflation and enable civil actions against them [28cf41db].
Shrinkflation is a form of inflation where companies shrink the amount of stuff they provide in packages. To combat shrinkflation, consumers can pay attention to unit prices at grocery stores. Unit prices provide a standardized measure that makes it easier to compare the value of different package sizes. While some states have enacted unit pricing laws, many stores still do not display unit prices. Consumers can calculate the unit price themselves by dividing the total price by the amount in the package. The Food Marketing Institute found that 78% of consumers use unit prices if they're displayed. New Jersey recently fined Walmart over $1.5 million for inaccuracies in displayed unit prices. Bringing a calculator or using a smartphone can help calculate unit prices if they're not displayed. Alternatively, consumers can advocate for policies that encourage stores to post unit prices [fca4286f].
Markups, the ratio of firms' prices to their marginal cost of production, have risen noticeably over the past decades. Firms operating in a competitive market would have little power to raise their prices above their costs. However, a rise in markups suggests that competition has declined, harming consumers. Markups in the U.S. averaged 26% from 1950 to 1980 but increased noticeably starting in 1980 and are now averaging above 38%. The services sector played a key role in driving the rise in markups, with the average markup within services higher and growing faster than in the manufactured goods sector. Changes in supply or demand do not fully explain the rise in markups, as the number of services-producing firms and establishments grew significantly over the past four decades and barriers to entry have not disproportionately affected services-producing firms. Instead, technological progress and the increase in consumers' incomes appear to be stronger drivers of the rise in markups over the past 70 years [52f55161].
Consumer sentiments about the American economy have reached a 7-month low, highlighting a disconnect between economic data and consumer cynicism. While the American economy may be thriving, exploitative pricing practices by corporate behemoths have contributed to consumer dissatisfaction. Corporations are using consumer data to create deceptive pricing strategies, including personalized pricing that results in different prices for different customers. Junk fees, hidden charges added to transactions, are prevalent in various industries. Surge pricing and one-click subscription lock-ins are examples of deceptive pricing practices. In the housing market, algorithmic price fixing has led to higher rents and exacerbated housing affordability issues. Federal and state regulators have taken action against monopolistic domination and unfair pricing strategies, with the Biden administration and antitrust regulators cracking down on these practices. The goal is to restructure markets towards fairness and empower consumers [c2297791].
According to a recent analysis by the Ohio Capital Journal, corporate behemoths are rigging the system to keep prices high. They are using junk fees and technology to exploit consumers. Personalized pricing, based on browsing history and location, allows companies to charge different prices to different customers. Surge pricing and one-click subscription lock-ins are other deceptive pricing practices employed by these corporate giants. In the housing market, algorithmic price fixing has resulted in higher rents and worsened housing affordability. Federal and state regulators have taken action against unfair pricing strategies, with the Biden administration and antitrust regulators cracking down on these practices. The analysis emphasizes the need to rebalance power in the marketplace, create transparency, and ensure fairness for consumers [ed8424b3].
U.S. Senator Bob Casey's office released a report detailing the increased costs and decreased quality of online streaming services, which they refer to as 'streamflation'. The report highlights how streaming platforms offer less content and more restrictive services while charging higher prices. Casey believes this is a result of corporate greed and is straining Americans' finances. In January, Casey wrote to the Government Accountability Office to examine the consequences of corporate greed on consumers. In February, he introduced the Price Gouging Prevention Act, which aims to create a federal ban on excessive price increases. The report points out that every streaming platform has increased prices in recent years, with Disney announcing another price increase. Paramount Plus dropped 64% of its offerings in one year. Jordan Petsas, an economics professor, explains that inflation and increased production costs put pressure on profits, and companies try to justify the higher prices by offering additional incentives. Petsas suggests that legislative action and well-perceived policies can help address the issue [f643808c].