Originally Posted by
garyschmitt
If store A has $50 in fuel costs per pallet of rice, and store B has $500 in fuel costs per pallet of rice because they are ten times further from the distribution point and a fuel increase amplified the difference, fuel costs are in fact eaten by the store. If they passed the $500 in fuel costs on to the customer, they would sell fewer units, and lose profit. Store B cannot charge higher than market price simply because they have more costs.
They're not at all driven to increase costs. There's no incentive. The drive is the opposite, choosing the path of lesser cost (to maximize profit).
Nonsense. The restaurant can't move the price higher than market, or they'll lose even more than the $500 they already lost. Competitors control the price, not incurred expenses. If a mom and pop store were to increase the price on the basis of their cost, they need a better bean counter because it's a naive business judgment.
The primary assumption seems to be that if the merchant prices to include the cost of fraud, then it prices itself above the market. Ignoring the fact that this does not happen to just one place, it happens everywhere. And ignoring the fact that the market may decide to move with it, as we saw with baggage fees. Same thing here- if it's happening to everybody, then everybody can push their prices up. At some point, reduced cost burden (more cost pushed onto consumers) justifies reduced volume (higher prices driving lower-end customers away).
Also, percysmith seems to have made the point better than I have.
And on the last point- that mom-and-pop store better kick up their prices on the basis of cost. The other option in the case of restaurants is to lower the quality of ingredients. Three words- drainage ditch oil. No thank you.