HIDDEN COMPOUND MARKUPS
AND INFLATION

I recently read a very enlightening article written by Associate professor Constantin Colonescu from MacEwan University in Edmonton. His writing put a whole new twist and understanding on inflation coupled with compound markups. Wow!!  I never really thought about the connection. “Compound markups create higher prices and transfer wealth from consumers to owners of large corporations”. This can also create a drain on the Canadian economy if these profits of foreign corporations in Canada leave the country. As Associate professor Colonesu states “the concept of markups, which is how many times a price is higher than the cost of production, is not new.”

How reasonable and economically viable is this markup concept to the end user…you? Associate professor Colonesu’s research indicates that prices for many goods and services are up to five times higher than the natural cost of production. That appears, to me, to be excessive; however, this is capitalism. His uses bread as an example.  Bread is very real since most people love it and farmers grow the wheat needed for flour to make bread. Let me share his thoughts on the bread market. “His research implies that the price of bread includes substantial profit margins that go to a handful of large corporations. To produce bread, one needs wheat, which is sold in competitive markets because all wheat is the same and there are many wheat producers”.

“To produce wheat, however, one needs fertilizers, mostly sold in highly non-competitive markets by large corporations such as Nutrien Ltd; heavy equipment sold by corporations such as John Deere, pesticides….and other inputs from markets dominated by large corporations. Tractors need computer chips, steel, aluminum and tires that also come from large corporations. Each extra step in the production chain adds another layer of profit to the final product’s price…hence the compound markup”.

I agree with associate professor Colonesu that the Competition Bureau needs to look at these layers of markups and not just the end price for consumers. Is this more bureaucratic red tape…probably? A decision to make a change is needed…will it be based on PROFITABILITY, MERIT, or URGENCY.

For you reading pleasure I have attached the link to the article.

https://www.macewan.ca/campus-life/news/2023/01/news-comment-colonescu-23/

Your thoughts are always appreciated

Take care

Fred