Ammunition Breaks The Laws Of Economics, Pleads ‘Not Guilty’
My friend Michael recently expressed his frustration with most peoples conceptions of why ammo prices haven’t increased to any meaningful degree, despite the fact that it’s in short supply. Admittedly, that isn’t quite true, prices have increased substantially on the second hand market (so substantially that I will not provide you with a link illustrating that because the numbers border on being indecent). Prices have also increased somewhat in the case of gun shops. However, when you take into account the larger businesses, I don’t know that I can say I have seen any price changes whatsoever. Thus, in the aggregate, prices appear to be almost identical to what they previously were.
By all the laws of economics this seems unbelievable. When demand rose and supply can’t keep up, you would expect to see prices go up by a margin that would reduce demand. In this case, that isn’t happening. Is our understanding of supply and demand lacking? Are we missing something?
The answer is that we understand supply and demand well enough, but we are in fact missing something.
Places like Wal-Mart don’t derive much profit from ammunition, the same is true of larger sporting goods stores. This is where it gets tricky, so try and keep up.
If you know anything about retail sales, you should know what the term, “loss leader” means. To save you the burden of clicking that link, the general idea is that you offer something for sale at a price at, near, or below it’s market value. You would do that because when people come to buy whatever the items in question are, they are like to buy other things while they are there. Hopefully that generates a net increase in sales.
The bigger stores don’t derive much revenue from ammo, and so I think they are choosing to forgo the increased profits from the rising value of ammo, in the hopes that people will regularly stop in and check on the ammo availability. Even if they don’t have the ammo in stock, the fact that the prices are lower than in gun shops means people may choose to wait and keep checking, rather than pay higher prices.
I’m stopping into stores on an almost daily basis now, and I almost always leave with some other crap I don’t really need, like milk, socks, books, and so on. I’m sure it’s the same for multitudes of others. I stop in because of the low prices, they don’t have what I want, and off I go to the beer aisle.
So, the truth is that prices have been increased to compensate for demand, but they are immediately dropped to their usual price, the difference between the two pricing levels is the loss stores are taking in return for more frequent shoppers. (example: 50 rounds of “x” used to cost $20, the store increases them to $40, with a 50% discount.) Now, I’m sure it is more complicated than all of that, but I think I’m on the right track to explain why ammo seems to be ignoring the laws of economics. Everything is working as it should, but many of the incentives presented by this particular crisis are unique to it
Lastly, to get back to the small gun and sporting goods shops, they make a substantial portion of their profit on ammo and so they have to increase prices to try and make up for the lack of supply, or risk going out of business, but the amount they can increase prices is hampered by competition from the larger stores, making the value of ammo appear lower than we would expect.
I might be completely wrong on all of it, but it makes sense.
As a footnote: The siege may be lifting. The Wal-Mart in Augusta, Maine, has two AR-15 rifles, and they have been there for the last 7 days. I was so shocked to see them sitting there on display that a unicorn might have walked up to the counter to buy a fishing license and I wouldn’t have given it a a second glance. Maybe I’ll get lucky soon and be able to find that Hi-Point carbine I’ve always wanted.