« Some signs of life? | Main | Do some businesses gain from a recession? »

March 11, 2009

Keeping low prices

People usually focus on businesses as the player that sets prices in our economy, but often overlooked is the other player, the consumer, and the importance the consumer has in ensuring low prices. Describe the role of the consumer.

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, it's really a two-person game: businesses on one hand and consumers on the other hand, and the economic game doesn't work well unless you have both playing very hard. So, we need competition obviously between businesses. We need businesses to strive to provide what consumers want, but we also need consumers to keep businesses on their game. We need consumers to actually play one business off another by shopping around and comparing prices, and comparing quality. That's what keeps businesses on their toes, and if consumers don't do that, we can see one of the impacts being higher prices. A good example of this is gasoline prices. Now everyone knows gasoline prices have come down dramatically, but we've had a little bit of a bounce upward recently. Some economists think that's due to the fact that consumers simply aren't shopping around as much for low gas prices. Now we did that a lot when gas was $4 a gallon. Now that gas is under $2 a gallon, we say, 'Oh, well, it doesn't matter as much.' And that gives those businesses, those retailers, a little bit more pricing power. They're able to punch up that price just a little bit more. So again, you need both players in the game. You need both players playing very hard to keep the game on line."

Posted by Dave at March 11, 2009 08:00 AM