Greed doesn’t pay after all in a competitive market, no one is free to raise prices with impunity

Over the past couple of years we have all become familiar with “greedflation”. With inflation rising to levels not seen since the 1980s, prices were obviously going up, but it seemed to many people that they were going up at an accelerating rate, and by far more than was necessary. Indeed, plenty of left-leaning economists started to argue that ruthless corporations determined to make more and more money were the main reason inflation was so high. A few even argued for price controls.

It was hard not to have some sympathy. Energy and labour costs had clearly risen, and lockdown snarled up supply chains, so most companies had to push up prices just to stay afloat. Yet a generation of managers who had never witnessed sustained inflation before – given that prices had not risen at this rate since the early 1990s – also appeared to see it as an opportunity to raise prices by more than costs. After all, who would notice? Margins would be improved, profits would go up, and everyone would get a bonus.

The customer is king

But instead we have increasing evidence that the companies that pushed up prices are getting punished for it. Last week the Swiss giant Nestlé, which makes KitKat and Nescafé among hundreds of other products, reported that sales volumes dropped by 0.3% in the latest quarter. That follows the decision to raise prices by 7.5% over the last year. The shares are down by 10% over the last year. Likewise, French yoghurt-maker Danone reported that its sales fell by 0.4% after it pushed prices up by an average of 7.4%. Its profits are now falling as well, as the extra money it makes from each sale is offset by lower volumes. The British consumer-goods giant Unilever, which makes Dove soap and Magnum ice-creams, last year said it was raising prices by an average of 13% – yet that doesn’t seem to have helped the company much.

It stabilised sales in its latest figures, but admitted it was losing market share in many categories. Likewise, UK sandwich chain Pret A Manger – now owned by the private-equity firm JAB Holdings – put up the cost of its sandwiches by eye-watering amounts and has now had to reverse that. In February, the company said it was cutting the price of many of its sandwiches by as much as £1.

It’s not hard to work out what happened. Customers might be busy, and don’t alwa