Does general inflation justify any price increase?

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Inflation is a problem everywhere. However, in most cases, if one seller overdoes inflation-related price increases, you move on to the next one, which takes a more moderate approach. Thus, prices automatically balance each other.

Another thing is if prices are not determined by competition, but are set by a company with significant market power or the state. Of course, these prices can also be affected by inflation – but is a general increase in inflation necessarily pure evidence of rising prices in state-owned companies? New results from foreign studies indicate that industries that do not have strong competitive pressures can have an inflationary effect. It has been found that in situations where there are only a few suppliers, more “cost shocks” are transmitted compared to “normal” competitive situations. Cost shocks are sudden events, such as supply disruptions, energy price spikes, or labor market stresses, that have a significant impact on costs and are passed on to consumers. In the extreme case, that is, in the case of “market power”, this unfavorable phenomenon is likely to become even more obvious. Therefore, it was almost to be expected that companies of this kind would become greedy. Whether it should be provided is another matter.

Let’s be clear: how should headline inflation-based price increases be treated if there is untapped potential for efficiency gains? Should we insist on using them, or should we cover them with a cloak and compensate for inflation?

I am crystal clear on the first one: in the healthcare sector, more specifically in the field of hospital and doctor rates, I know from many years of experience that there is still a lot of potential to increase efficiency without the risk of reducing quality. . Six years ago, a group of experts estimated this potential at about 20 percent (!) (current inflation is 3.4 percent). A recent study by the University of Basel indirectly confirmed this. The “price question” here stands in the most direct sense: is it permissible to raise prices here with a banal general reference to rising inflation?

The same question arises in public transport: is it worth turning the fare screw while there are still more than half a dozen sales channels in operation, even if the self-service fare for actively used SBB channels is 95 percent and more than 7 out of 10 ticket purchases are through digital channels?

From my point of view, adjusting prices based on general inflation is not a law of nature for companies in this category. I can assure you that I will consider these concerns in the light of the overall situation. I don’t see a quasi-automatic free pass for price increases.

Source: Blick