Was it greed what killed the hen that laid that golden egg? Fact checking, monopoly power, corporate greed, inflation, and eggs

Robert Reich wrote:

“Egg prices are up 60%. That’s absurd. People are paying up upwards of $6 and $7 for a dozen eggs. Why? Corporate greed. Cal-Maine, the largest egg producer in the US, is raking record profits — $198 million in its latest quarter. That’s a 65% increase from a year ago.”

And the fact checkers on Twitter responded:

Egg prices are up because of an ongoing wave of avian influenza has killed 29% of US egg-laying birds. ers.usda.gov/data-products/…

A Cato institute guy responded by posting a graph of egg industry profits. The graph goes up and down, and is currently way up, however he took it as proving that corporate greed cannot be the cause of this current spike, because corporate greed presumably isn’t fluctuating over time, and thus can’t be driving price or profit changes changes.

Forbes wrote contemptuously of similar theories:

On January 19, an advocacy group called Farm Action filed a formal petition with the Federal Trade Commission, calling for an investigation into alleged anticompetitive practices by egg producers, aimed at jacking up the price of their products and thus harming consumers. This is the Corporate Greed Theory of inflation. Or, if you prefer a more malevolent expression, call it the Evil Capitalism Theory. In a few words, the Greed Theory holds that inflation often is caused by companies who take advantage of some shock or distress – war, especially, or an outbreak of avian flu, say – to extract unfair gain from the suffering and confusion of the public. It is rooted in a dark and conspiratorial view of the world.

I find the whole thing a pretty good example of why fact checking, except for the very, very simplest of matters, runs into matters of judgment and opinion very quickly. There is a mess of subtleties here. Robert Reich is probably, on the whole wrong, but it’s not the start of thing you can appeal to a neutral, easily accessible ground truth to refute. There’s a lot to say about it. On the whole my view is that Robert Reich’s critics are right, but mostly for the wrong reasons. They posit that the change can’t be driven by corporate greed, A) because it’s clearly caused by Avian flu, and B) because the corporate greed hypothesis doesn’t explain why egg prices aren’t high all the time.

What is meant by corporate greed? When I’ve spoken to be people pushing this idea in the past- that inflation is being driven by corporate greed- it’s pretty clear that what they really mean is monopoly power- the ability of a firm to set prices with little market restraint because of a lack of competition.

Now, in fairness to RR’s critics, I would guess confidently that most of the reason eggs are more expensive now is Avian flu alone- not Avian flu in interaction with “corporate greed” (monopoly power). As I understand it, the profit margin of the eggs industry on each carton sold isn’t that high. An increase of 65% in profits probably doesn’t justify Reich’s comments that this is “why” eggs are up 60% even if the entire profit bump is attributable to monopoly- profit on each cartoon just isn’t that high- as I understand it. But I am no expert- and am approaching this in a spirit of humility to make a purely conceptual point- the empirical breakdown of the exact contribution of each factor to price is beyond me.

But monopoly power and a supply shock (Avian flu) in conjunction simply cannot be ruled out. Recent research suggests that monopolies make inflation bite harder, (c.f. “Cost-Price Relationships in a Concentrated Economy” Bräuning et al. 2022 and “Monopolies amplify demand shocks” Flavio Menezes and John Quiggin -friend of the blog- 2022) so it follows that attributing inflation to a supply shock does not contradict attributing it to monopoly power. There are reasons to believe monopoly power makes the effects of supply shocks on price worse.

To really get into this, we’d have to peel back layers of semantics, . We’d even have to look at complex issues like “did market concentration and maybe enable the spread of Avian flu?”- I can see a few mechanisms by which it might have done this- so even if the profit margin isn’t large enough to explain the price hike, market power might still be ultimately responsible for the supply shock. I’d have to look at the institutional history of both the relevant firms and the relevant government agencies. We’d have to look at a lot of econometrics on topics from market power in the egg industry to the effects of monopoly on inflation. I’d have to read legal documents, court cases- it all sounds so terribly dull.

I don’t have the months this would require, so I’ll just make the following guess:

• The price rise is probably mostly due to Avian flu alone. RR is probably wrong. There’s a chance monopoly power explains a some of it though.

And the following points:

• The mere fact that a price increase was caused by a supply shock doesn’t guarantee it wsan’t caused by a monopoly, because monopolies can interact with supply shocks to make the subsequent inflation worth.

• Beware the idea that anything in social science can be sorted out by anything as simple as a ‘fact check’.

• Practice a kind of everyday skepticism. Every single social-scientific empirical issue you can think of is vastly more complex than you can imagine. Don’t trust your own thinking too much. Use multiple models and see if they converge. Make your critical assumptions as few in number as possible by relying on multiple routes, thoughts and strategies of argument. You would be shocked by how little you know even of that which seems commonsensical. If you try to reason about social science like a mathematician proving things from axioms with a golden thread of authoritative argument you’ll fail.