my contention is definitely stronger than Rolex, macroeconomiy significant, but also “it depends”. as Donovan suggests, it’s a market by market thing. 8% on a once every 10 year purchase just gets passed through. 1/

but things more frequent and salient, those proverbial nappies for example, sellers feel constrained in their ability to raise. they really do care about reputation and customer pushback in ways not discernible on a supply/demand graph. 2/

you see this on the other side, when during earnings calls they were very candid and even exuberant about using the 2022 general inflation as cover to raise prices and increase margins. 3/

but now US importers face the opposite, no general inflation to provide cover but rising costs. where they must, they will partially pass through, partially lose margin, incidence determined by relative elasticities like an Econ 101 class. 4/

but real businesses are sprawling and creative and have choice sets that go far beyond price and quantity. they face constraints like “we will be punished in the stock market if the profits we report at a firm level decline”, not discussed with Marshallian scissors. 5/

when the toothpaste of profitability is squeezed in one place, a large firm try to make up for it in another. when members of a consolidated industry are similarly situated and face similar challenges, they will tacitly coordinate to make that work. 6/

(they may be competitors in consumer markets, but they face a common adversary in potential discipline and defenestration via stock markets.) /fin