Prices are still high for many things consumers need, like groceries — suspiciously high, according to the Biden administration. On Thursday, Federal Trade Commission Chair Lina Khan said the agency plans to launch an inquiry into grocery prices to try and assess if companies are inflating prices.
The sticker shock many of us are experiencing at the grocery store caught the attention of federal regulators, and not just because cereal is more expensive.
“Grocery prices have been running much higher than average inflation, and grocery profit margins have been quite high as well,” said Lindsay Owens, executive director of the Washington thinktank Groundwork Collaborative. “And while the input costs come down, grocery prices are still high, and that’s been a problem for many families who are trying to keep food on the table.”
Grocery stores and food producers have said higher costs of labor and supply chain disruptions have been keeping prices high. And as for the profits … well, it’s not illegal for a company to make money. In fact, shareholders demand it.
“So the FTC’s job, if anything, is to convince us that there is something else going on,” said Rik Chakraborti, who teaches economics at Christopher Newport University in Virginia. “So for example, maybe big companies are somehow colluding among themselves, and they’re fixing prices.”
That kind of behavior is illegal.
Another avenue for the FTC to explore is whether market concentration is to blame. “If, for example, there’s — through mergers and acquisitions — a considerable concentration of sellers, then the market may no longer be competitive,” said Luís Cabral, an economics professor at NYU’s Stern School of Business.
If there’s only one or two grocery stores in an area, they can kinda set whatever prices they want. And it would be one thing if the concentration and high profits were in a sector like luxury goods, according to Kaitlin Caruso, who teaches at the University of Maine School of Law.
But when it comes to food, “people don’t like the idea that their unexpected vulnerability is being taken advantage of,” she said.
Caruso added that the line between pricing responsive to market conditions and price gouging isn’t always clear.
Dozens of states have laws against it but “many economists will tell you that anti-gouging laws are wrong-headed and bad for the market, and yet they are very popular and increasing in number rather than decreasing,” said Caruso. “Because I think there’s some element of partially moral regulation going on there.”
But a moral argument may not be enough for the government to step in. For that, the FTC will likely need an economic argument, as well.
