How E-Commerce Enables Inflation

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Blame the rise of e-commerce for at least some of the inflation we are seeing – we no longer live in a “price is right” world where a given item has a known real price that is broadly unchanged from one day to day or store to store. Instead, prices constantly fluctuate and are unpredictable, which makes them much easier to rise.

Why is this important: Prices, like phone numbers, are things we don’t need to remember – we can look them up on the internet if we need to know them. However, as we pay less attention, we become less price sensitive, which gives companies more leeway to raise prices.

How it works: Historically, it has been difficult for traders to change prices. Economists speak of “menu costs” – if a restaurant wants to raise its prices, it has to reprint all of its menus, often at great expense.

  • If the restaurant menu is a QR code, on the other hand, raising the prices is just changing the numbers on a single webpage. This is why online outlets usually change their prices much more frequently than physical stores.
  • Physical stores are following suit: e-ink displays in supermarkets can change as frequently as a price on Amazon, while a single item from a single restaurant can have a whole range of different prices depending on where and how. it was ordered.

Where is it : It’s getting harder and harder to know what everything is supposed to cost. The prices sometimes seem to be the product of a random number generator: here, a loaf of bread is $29, and there, Jasper Johns’ five-volume catalog raisonné is $199. If you paid face value for your concert ticket, you’re in the minority.

The bottom line: Most prices are dynamic these days. Until recently, this worked in favor of consumers, as merchants competed to offer the lowest price. Now it’s playing against us as they try to maintain and even increase their margins in the face of higher costs.

  • The American public, stunned by their last $100 trip to the gas station, is increasingly barely blinking the latest improbable price for, say, a 10-minute Uber ride. We may not be able to afford it, but we pay for it anyway.
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