Bills Seem High? Blame Sticky Prices…


Have you ever heard of the term “sticky prices”?

In real estate, we experienced sticky prices when sellers were in denial (not a river in Egypt) about the housing price correction and falling prices.  Eventually, sellers got the message and began to price homes competitively.

 

Well, now the same “sticky price” phenomenon continues in other areas or the economy.  Like when companies raise prices or add a surcharge on products and keep those prices higher even when there is no longer a reason…like soaring oil prices.

 

Let’s take a look at pricing.  Consumer prices are set by companies.  Commodity prices are set daily on the open market.  So, once a price increase is set in place it virtually never goes away.  The only factors that can drive the price back down is a lack of demand, or a competitor in a category cutting prices to lure customers away from another brand.

 

Unfortunately for us consumers, the brands and banding together raising prices in unison…and none are worried enough about one trying to break away with another’s customers by cutting prices.  That is very bad for us guys.  But, as soon as the first in a category drops a price, others will follow to protect their consumer base.

 

Seems like consumers are always in a mess these days….your comments are welcome.

And thank you for making me Your Orange County Real Estate Connection.

 

Best regards.

Michael Caruso, Broker ABR ABRM CRB CRS GRI

2007 President, Orange County Association of Realtors

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