I was wondering about how the knowledge or beliefs of actors regarding economic theory might affect market prices.
For example, while Austrian theory points out that value is imputed from ends to consumer goods to factors of production, many people still believe prices are determined by the cost of production plus some profit margin. Company representatives often cite rising production costs as the reason for increased prices.
Another scenario is franchises; people may expect each franchise location to charge the same prices regardless of the differences in supply and demand for that particular store. One could argue it would make sense to adjust prices on a store-by-store basis to avoid shortages or surpluses, but companies seem to base pricing on regions and customers just put up with the occasional depletion of stock.
Do consumer beliefs about what prices "should be" create a sort of self-fulfilling prophecy? Perhaps companies figure the backlash from the perception of "price gouging" does more damage to their reputation than temporary shortages.
Any thoughts on this?
Consumers only ever "put up with" something in the absence of any alternatives. All State regulation of commerce has a cartelizing effect which reduces competition and, thus, consumer choice, forcing consumers to have to "put up with" things like shortages in a nominally free market.
Clayton -
I remember reading just the other day about firms in Japan choosing not to raise prices out of fear of being branded as "price gougers" and "exploiters", when increased prices is exactly what needs to happen for resources to get to the most needy.
Government Explained 2: The Special Piece of Paper
Law without Government