Researching Ammunition Pricing, Please Help

[freemjj]

Greetings TGT community:

I am a gun collector, shooting enthusiast and doctoral student currently working on a paper on the price elasticity of small arms ammunition. Yes, I know…strange combination!

I’m not writing this trying to “school” anyone, I am genuinely interested in your feedback to a theory. Moreover I am likely to post this same thing on several discussion boards, and apologize in advance if you end up seeing this in different places.

My question is this: did the ammo manufactures (and to a lesser degree retailers) that did NOT substantially raise prices during the 2012-2014 (or current for .22) ammo shortage potentially do the shooting community a disservice?

Here is what I mean: free markets work (when left alone) by prices being effectively negotiated between buyers and sellers. The stable price is the equilibrium point which maximizes profit. When ammo prices stayed artificially low to demand a home-grown secondary market was created where enterprising people figured out product delivery schedules and cruised every Wal-Mart in town buying every box of ammo they could despite the store’s attempts at purchase limits (or ammo never made it to the shelves because the employees grabbed it). All of this ammo subsequently showed up at gun shows, GunBroker, Craig’s list and local bulletin boards, etc. at dramatically higher prices. Had the manufacturers raised prices I am speculating that the hoarders / scalpers would not have been able to do this and there would be supply at your local sporting goods store (albeit at a much higher price) saving shooters the trouble of having to hunt for inventory. Moreover, in theory the extra profits generated would have gone to the manufactures that could have increased production capacity reducing the length of the shortage versus lining the pockets of the scalpers and extending it.

My hypothesis is that most manufactures didn’t raise their prices substantially because (a) they underestimated the huge demand and the length of time it would take for the ammo market to equalize, and (b) they didn’t want to damage their company and brand perception similar to the ire directed at retailers like Cheaper Than Dirt.

Thanks in advance for your thoughtfulness, I look forward to reading your responses!

 

[freemjj]

...and for those that like pictures here is a simple conceptual diagram attempt at representing the question:

 

[SA_Steve]

Hmmm
I'll try to think of some who did "Not substantially"
give me a minute

 

[freemjj]

Okay, that made me laugh at least :-)

 

[Dawico]

I think the manufacturers did the right thing by keeping their prices low. At least from a consumer standpoint anyways. When manufacturers raise their prices they tend to never come back down. In the long run them raising prices would have hurt us.

Yes, it would have killed the little neckbearding businesses but we all knew that was a temporary deal anyways. It has lasted longer that expected, but most of the big markets seem to be recovering and keeping supplied now.

Plus, if the manufacturers had raised their prices and now drop them suddenly they would all be seen like CTD and they know we tend not to forget. It is bad for business.

 

[andre3k]

I would check with the major ammunition manufacturers to see if they truly raised msrp or dealer pricing during the time frame you listed. As an FFL i never saw large price increasees from manufacturers or distributors, beyond the normal yearly increases. It was mainly on the retail side where you saw the exorbitant price increases.

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[boomgoesthedynamite]

I think it partially has to do with artificial demand on a short term basis. When panics start, people grab anything just in case there won't be more. You can look at grocery stores prior to a hurricane for examples.

The underlying costs have not increased significantly, so wholesale costs have not created a rise in prices. I would argue that the base price is inelastic based on costs. For the end price to be elastic, it would have to be based solely on demand rather than traditional retail for commodities.

It would be interesting to look at consumption, not simply acquisition. My guess is most people are stacking more than shooting.

It would also be interesting to look at ammo like other consumables such as gasoline, bread, bottled water, etc. there are laws against price gouging because people do it, people pay it and afterwards complain. This is similar in my opinion.

22lr is a microcosm of the industry. It is on shelves in many places again. The places where it is pre-panic, and likely still at acceptable margins to retailers, it flies off the shelves, likely to be sold at a higher price. Where it is not too bad, it typically sits and is available for longer. Where the price is high, it usually sits for a long time.

Please update this thread with your thesis when you are done.

 

[BRD@66]

I think it partially has to do with artificial demand on a short term basis. When panics start, people grab anything just in case there won't be more. You can look at grocery stores prior to a hurricane for examples.

^this

 

[stemoo01]

Yep, nothing like a little panic to push the price up.

Check out this ammo price history: Trending - AmmoSpy.net

See the little blip in 223/5.56 at the start of March? That was the M855 ban attempt.

Prices do inflate during a scare, how long it takes to fall appears to be dependent on the length/severity of it & time to restock.

Sure inflating the prices even higher could reduce the length of time to return to normal, but it's gonna leave a resentment that's hard to scrub off. Plus the "increased capacity from increase profits" argument has a huge lag problem. Not only do you need to get the extra profits (can't take a loan on a guessed length of panic), but then constructing & shipping...

 

[TheDan]

The manufacturers knew the spike in demand would be temporary and they have a brand name reputation to maintain. If they had raised their prices to match the secondary market, then it might hurt their brand reputation when demands falls again. Neckbeards have no brand reputation to hurt so they can charge whatever they want.