When Scarcity Becomes a Business Model

When discussing the current state of the U.S. economy, the conversation usually splits into two contradictory camps: those asking "What recession?" and those lamenting that "everything is simply too expensive."

Meanwhile, the underlying financial reality is grim. By the fourth quarter of 2025, credit card debt soared to a record \text{\1.28 trillion}$. The precariousness of the average citizen is evident in the following:

• Increasing numbers of people are living paycheck to paycheck.
• Proximity to homelessness is at an all-time high.
• 111 million Americans (roughly 40% of the adult population) are unable to settle their monthly credit card balances in full.

The Blueprint for "Greedflation"

The catalyst for this crisis is a straightforward, albeit predatory, corporate strategy: limit the supply, spike prices far beyond what the shortage justifies, and then maintain those high prices indefinitely.

The COVID-19 pandemic provided the ideal smokescreen. Amidst global chaos and supply chain collapses in 2020, companies realized they could hike prices without immediate pushback.

The Shift in Margins

In a single year, the average markup over cost surged from $56\%$ to $72\%$—the most aggressive climb since 1955.

$\text{Markup Growth} = 72\% - 56\% = 16\% \text{ absolute increase}$

While the public assumed these costs were driven by "upstream commodity pricing" or pandemic-related shortages, the data tells a different story:

• Corporate Profits: $\uparrow 50\%$
• Real Hourly Wages: $\uparrow 3\%$

By mid-2023, even after supply chains had stabilized, corporate profits were responsible for $53\%$ of inflation (having driven over a third of it since the start of the pandemic).

By 2026, a combination of deregulation, collusion, and a lack of competitive pressure has allowed goods to increase in cost by $3\times$ or more over a six-year span.

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"Rockets and Feathers"

In academic circles, this phenomenon is called Asymmetric Price Transmission. In plain English, it is known as "Rockets and Feathers": prices shoot up like rockets during a crisis but drift down like feathers (or not at all) once the crisis ends.

The Financial Divide (Q2 2026)

At the 2023 CNBC CFO Council Summit, Richmond Fed President Tom Barkin discovered a startling trend: when polled, the majority of executives planned to raise prices, some planned to hold them steady, and zero executives intended to lower them.

"Companies won’t give up pricing power 'until they have to,'" Barkin noted, observing that prior to the pandemic, corporations didn't believe they possessed the leverage to raise prices so aggressively.

The "Gap" Strategy

The goal is no longer just to cover costs, but to widen the margin. As DuPont CEO Edward Breen explained:

“Obviously, our goal if a recession hits, and commodity costs come down, would be to then get a gap, maintain a gap going forward where obviously, we’re maintaining more price than the decrease on the commodity.”

This pattern has repeated across 11 key sectors:

1. Eggs
2. Cars
3. Rent
4. Groceries
5. Gasoline
6. Auto Insurance
7. Lumber
8. Shipping
9. Building Materials
10. Pharmaceuticals
11. Baby Formula

Market Incentives and the "Price War" Fear

The stock market currently rewards this behavior. For example, PepsiCo saw volume decline for nine straight quarters, yet they raised prices by $10-17\%$, and the market approved. Between 2021 and 2023, consumer packaged goods saw a $13\%$ rise in dollar sales despite a $6\%$ drop in actual units sold.

Conversely, companies that attempt to be "the good guy" are penalized by investors:

• Albertsons: Stock plummeted $21\%$ in one day after lowering prices to compete with Aldi and Walmart.
• BJ’s Wholesale: Stock dropped $8\%$ despite beating earnings, simply because their merchandise margin dipped by ten basis points.

The Psychology of the C-Suite

Professor Marco Bertini of Esade explains the reluctance to lower prices: "Why would I be the first to cut my margins when we just went through a period where we had the world’s best excuse [inflation] to recover margins?"

He argues that the competitive advantage of lowering prices is fleeting, while the loss of profit is immediate. An anonymous CFO summed up the feeling during the CNBC call:

"We’re all a bunch of cars on a highway… Who hits the brakes first? 
Who wants to hit the brakes before the person in front of them hits the brakes?"

Beyond Coincidence: Ongoing Collusion

While one could argue this is just "market forces" where firms act independently, history suggests a pattern of intentional coordination. Collusion is a federal crime, yet it persists.

Example of Industry Misconduct: