The Economics of the Shortage, Explained

I don't like it but I would accept it. I'm not seeing any .22 to buy locally, so a price hike would not affect me.
If your theory worked, I might start shooting again as I would eventually have a chance to buy.

"Prices will continue to be high until either A) the market demand falls because people stop panic-buying or B) production increases to match demand."
With the caveat that the market demand is not self-sustaining, of course. Unlike many other products that peak in price, ammo is easily hoarded, and can be gathered in small (i.e. cheap) quantities regardless of market price. Very much like currency, or more accurately, precious metal. Which means it's possible for anyone and everyone to constantly be buying ammo in some quantity, which results in a demand still hundreds of times the ordinary level, indefinitely. Lots of guys who normally sight in one box a year are now buying that much every week when they visit the local store for other tasks; it's become part of their routine, is easily affordable even at significantly elevated price levels, and doesn't take up a ton of room at home. That means there is very little incentive for these folks to stop buying. They aren't really hoarding, they are diverting their savings into ammunition, and until those savings are required probably years or decades from now in most cases, they can keep stockpiling a few boxes at a time. For one guy, not a huge burden; just a few bucks a week. For the thousands of guys consistently buying 100's or 1000's of times their normal usage? A ludicrous increase in demand which can be counted upon to devour years of peak production (even as it is increased as quickly as possible)

Perfect storm:
1) Price shock --predictable Xmas/Hunting season pricing increases
2) Supply shock --all the stores pre-emptively drained inventory from distributors (see #1) and more strongly than normal because of predictable election year increase
3) Demand shock/panic --Newtown shooting lands atop a market already pulled taut by #'s 1) and 2). Rapid calls for control aggravates this factor.

It'd be like if we'd gone to war against a major power during the gas crisis of the '70's.

I'm not sure a "notable" if not critical segment of the US economy has seen this kind of sustained trauma in recent history, and not drawn some modicum of attention from our governing bodies. I honestly think that tells us all we need to know about how seriously our leaders take the shooting sports. If a similar shortage of Beanie Babies had dragged on for years, you can bet the POTUS or congress would be demanding and proposing all sorts of things to either ease the increase in production (loosening regulations or adding incentives) or seek to calm the demand. I've not heard anything beyond the stupid homeland security conspiracy circus addressed by elected leaders. Most non-shooters are completely ignorant that a billion dollar industry is subject to the kind of strain it's under now. When it was Beanie Babies we heard about it daily on the nightly news and people rapidly learned there was nothing to panic over. When it's guns, the rumor, myth, and rationing are allowed --or rather, encouraged-- to fester and grow.

TCB

All of us will now jump on the next cheap brick of ammo, primers, powder, etc. that we see.

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"Cheap" is a relative term, and "all of us" is presumptuous. I have a pretty decent stock of ammo, and I certianly do not consider a $30 brick "cheap". I have decided that I will simply shoot less and entertain myself with another hobby that is cheaper today than it ever has been:



$35 worth of nitro fuel provides a lot more hours of entertainment right now than $35 worth of ammo.

Of course, I agree with you. It is simple economics.

The longer this whole thing goes on, the more interesting it becomes to me. How long can this demand be sustained ? You make a case that it could go on forever. It may be possible.

It's hard to imagine that at some point, the casual shooter (who paniced) wouldn't decide that they had stockpiled enough ammo. But, when you consider the number of people involved in this run on ammo, it could actually be possible that it would never end.

I have been though a number of these runs on ammo (and guns). None had the staying power that this one has had.

I wonder if at some point something will come to a head. And at that point people who have been buying every round of ammo they see will wonder what they are going to do with it.

As a side note:
I have had a number of discussions with a couple shooting buddies of mine about how much ammo an avid shooter burns though. I am not talking about carelessly burning up ammo. I am talking about a guy that goes out once a week (or so) and fires a couple hundred rounds of ammo at a range session. If you do the math, the numbers can be quite surprising: even among people who regularly shoot. Not to insult your intelligence, but if you shoot 200 rounds a week for a year, you will consume 10,400 rounds of ammo per year. At various points in my life I have averaged far more ammo than that per week. When you look at those numbers and start thinking about how many people do that in the US, the numbers are staggering.

Like you 444, I am just watching it go on and getting more and more curious about when the dam will break. I am starting to conclude that it never will. This is the new normal and unless significant increase in production occurs we are going to be stuck at this level of 22's for some time.

I know I have cut back my 22 shooting even though I have about 25 bricks sitting on the shelf. I still blow a brick or two a month but it is not the brick a week it was for a while there. So until I can easily replace the bricks I have cut back.

I am sure others have cut back also but yet the ammo is essentially missing.

So the logical conclusion is that that their are more shooters and more buyers and since the market is still empty, this problem will not be solved for a long time. If more production is added then as availability increases shooters like me will get back into the game and essentially consume the new production.

We need a lot of production and a lot of imports to solve the problem. I don't forsee either happening for at least 3 years.

You are 100% correct OP in the simplest of terms. I have been trying to explain that on these boards for nine months. Some agree. But some will just never understand.

This has been covered at length in a recent thread.

Can you provide a link to the recent thread?

I don't know how to post a link via iphone, but the title of the thread was:

22 LR Solution - RAISE PRICES THROUGH THE ROOF

Started by WinthePennant, 11-29-13

MachIVshooter - nice car, I've got an electric stampede 4x4 with castle motor/esc, I agree its a much cheaper hobby once the original purchase is made, plus the kids love seeing me ramp it and once I hit 50 mph the neighbors start asking were did you get that.

But keeping on topic, some of my LGS raised prices on 50 count boxes of 22lr to $6-10 and they still sell out within a week. I havnt seen a brick in over a year other than a gun show and that was $75

Yes, raising the prices would reduce demand. I have reduced my .22 shooting also. I reload, and have been able to get all my components at near pre-panic prices. Yes, they've gone up a bit, but not astronomically like some ammo. So now I shoot more centerfire, and less rimfire.

I have been able to get a few bricks here, and there at fair prices, so I can still shoot .22, but just not as much. I asked the ammo manager/buyer at my local Cabelas for his opinion of the shortage. He said there was multiple reasons for the shortage, and kind of gave me an "all of the above" answer including hoarders, panic buyers, more demand due to the sale of AR-15, and other semi auto .22LR's, etc.

To add to all this, there may be a lot of people like me that realized things in this country are not getting any better.
Two years ago my wife and I decided to purchase firearms for protection. Several guns later we have in all purchased over 2500 rds of 22 lr, several 1000 bullets, primers etc. All before the Sandy Hook took place.
With all the new gun owners in these last couple of years, it is not hard to imagine an already stressed industry having an even greater time keeping pace for the old and new shooters.
This coming year as I look at what we have used, I'm sure we'll be purchsding a lot less than before.
If our case is the trend, maybe we will see a well saturated market again. Just my thoughts.

The question has changed from "How much ammo is enough," to "How much ammo is enough....if I can't get anymore?"

This has altered the buying dynamics of 10's of 1000's of people.

Raising prices through the roof won't stop anything! A good friend of mine is a commercial ammo manufacturer, he said he raised his prices to stem the flood. That just made people buy MORE!

I told people post SH to stop, look at their supplies and if they could go 6 months or more, don't buy anything. That and to tell as many people they knew on as many boards they could post on to NOT buy any ammo or supplies.

I pretty much knew what the answer would be but it was more like getting a battle ship dropped on myself over and over... People just don't understand, STOP BUYING .22 ammo!!! Tell everyone you know to do the same and the price and shortages will go away. If no one bought any for say six months to a year the market would crash. Most of this is artificial anyway, hoarding and people trying to make a quick buck are the driving force.

Now I'm sure someone will say, that's the wrong way to do that. The annumition companies will stop making .22 if no one buys it. Yes, to an extent that would happen but they don't always make .22 all the time. Most have to change out complete production lines to set up for different calibers. If they had a dedicated line for just .22 and ran it 24/7/365 they might be able to catch up if the demand stopped now!

Like most I just sit back and watch how people are losing their minds over this. Shoot something else find a different hobby to take your mind off of it or to have something to keep you occupied. But stop buying .22 ammo and shoot your other guns. Start buying knives or something else related to firearms, buy a reloader.... Get my point? Tell a friend and another....

There are tons of new shooters,, tell them not to buy ammo & see what reply you get.
I can load 9mm,38 spl & 357 mag as cheap as some 22Lr. I like hand loading as much as shooting, so time is no factor : )
Y/D

"The question has changed from "How much ammo is enough," to "How much ammo is enough....if I can't get anymore?"

This has altered the buying dynamics of 10's of 1000's of people."''


At least five years ago, a buddy and I (both very avid shooters) stopped off on the way home from the range for a couple beers. We had a serious discussion about how much ammo we would need if we suddenly were not allowed or not able to buy any additional ammo or reloading components. We calculated how much we shot. We tried to anticipate how our shooting activities would change with old age. We estimated how long we might be able to continue shooting health and age wise. In other words, this wasn't just some BS conversation. We came up with real numbers based on serious consideration.

We then went home and took inventory. And then started slowly to build up our supplies to the nessessary level. When current events come to pass like what is going on right now, we don't break a sweat. I never did anything crazy, every payday I bought more ammo that I shot. Every two weeks my stockpile grew a little bit.

The_Next_Generation said:

Hey everyone,

I did not want to hijack another thread so I am making this one. It seems that a lot of my shooting compadres (both on and off the internet) are confused as to what is causing the shortage of ammunition, specifically the .22lr stuff. Is it hoarders? Is it the government? No and no.

The reason we are experiencing the shortage under current conditions (read: at the current production rate) is because vendors are not charging high enough prices for their goods with respect to current demand. Plain and simple.

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So how is this different from the high prices are paying for ammo now. Are you suggesting price controls for ammo.

The_Next_Generation said:

For example, my local mom-and-pop LGS periodically gets 22 ammo in. Because they want to maintain a reputation for being good-hearted people, they haven't changed any prices. What this means is that when they DO get 22 ammo in, it sells extremely fast (obviously). If they were to hike-up the prices from $19 per brick to $50 or $60, only a handful of people would buy it. This would leave many bricks on the shelf. Eventually, a stock would build up as more ammo comes in but doesn't get sold. The LGS would then stop ordering so much ammo, so frequently.

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Your local mom and pop store want to keep their customers so they keep their prices at a level that allows them to keep the business open and their customers happy. You also make the false assumption that LGS's are getting the amount of ammo they want when they want it and that frankly is not the case nor has it been for the past year. Plus a business commits suicide if they follow your advice. Their job is to move as much product as possible as fast as possible. They lose money if it sits on the shelf.

The_Next_Generation said:

If all shops did this, then the supply would catch up and the prices would come down *slightly* as shops would need to sell at least some ammo at a slightly lower (maybe $40 per brick) to maintain profits. The problem is that the market demand for 22 ammo is extremely high, and will be for some time. If production does not increase, and prices are not raised, there will *always* be a shortage. That is a basic economic fact. The only way to combat this shortage without a rapid increase in supply-rates is to raise prices.

Prices will continue to be high until either A) the market demand falls because people stop panic-buying or B) production increases to match demand.

Note: I searched for threads that said what I have said, but it seems nobody has taken the liberty to do so yet.

Let me know if you think there are any flaws in my logic,






Your suggestion is to ask retailers to enter into a conspiracy to control/corner the market. Somehow that seems illegal.
- TNG

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My comments are in red above.

Raising prices through the roof won't stop anything! A good friend of mine is a commercial ammo manufacturer, he said he raised his prices to stem the flood. That just made people buy MORE!

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Obviously he didn't raise them anywhere close to enough. We're talking at least several orders of magnitude greater consumption and demand, here. Sad to say, doubling or tripling of prices won't come close to affecting consumption. Without external influence to calm the markets, only hyperinflation of prices can bring demand back down (think 10,000% increases). Offer that 22LR at $.10/rnd, see if it moves. Sell two boxes at that price quickly; double it, try again. If the dollars brought in per day drop below unsustainable levels (selling out too quickly is equally unsustainable) cut the price. This is basic stuff, but everyone gets up in arms (literally) whenever someone tries to correct market distortions since the distortions mean someone out there is getting a good deal, even if it is unprofitable for the market as a whole.

People don't just "demand" more ammo for this long. The fact is, there are new market forces present that simply make the ammo worth more to people. Prices haven't responded to this fact, so a secondary market has sprung up to exploit the gap in pricing. That market requires more transactions than if retailers would simply increase their prices in the first place, meaning demand is artificially high as a result of inefficiency. Unlike the true "panic" days following Sandy Hook, supply lines are stabilized enough for sellers to at least base a business model around. Before, no one knew if they'd get replenished for months, so there was actually no price they could set that would both sell and keep the lights on until the next delivery. There is now no excuse for experimenting with upward price pressures. If it don't sell, you can always drop it some and be assured that if it then flies out the door you can get more in a reasonable time frame. All I know is my pop paid something like 15$ for a box of 50 22LR at a firing range recently, and didn't even know that was a ludicrous price (granted it was some nice CCI, but still). Lots more people even less savvy than him truly think those "ridiculous scalper prices" are worth it to themselves. The rest of us are simply learning what a screaming deal ammo has been the last decade or so; we could even afford to waste it.

As we saw in Soviet Russia, consistent shortages are a great way to keep the suppliers in business, especially in an industry like ammo production where it is so difficult for new players to enter the field (capital costs and regulatory obligations are both sky high). I fully expect the ammo companies to drag their feet somewhat when it comes to increasing production capacity as opposed to simply focusing on increasing production with what they have. The combination of a safe seat in the market and a regulatory environment that wishes their demise is a tremendous force for stability and caution rather than healthy growth and risk-taking. Since we can't expect industry to solve the market problems for us, the onus is on the sellers (and the onus is actually never on the buyers in a free market, since they exist solely to exploit whatever deals are present)

TCB

Yarddog, that's my point.

It's basically a useless point trying to worry about this as you'll never get people to listen. People that have owned firearms for years and have a stash like 444 talked about know what I'm saying. Others will never get it because they're only worried about themselves.

It'd like I tell guys at work, we have to many independent contractors and that's why the company walks all over us when it comes to pay, vacations.... Ask yourself if you need 20 more boxes of overpriced .22 ammo right now?! Probably not, so why are you still trying to buy it?

Assuming (and I think this is a fair assumption) that the factories are producing steadily at pre-panic levels, the only explanation is that the panic continues to feed upon itself, and people are buying more than what they actually use or need. This is hoarding, plain and simple. I don't think that price has all that much to do with this, since people would continue to buy even at (within reason) inflated prices. Remember that, in economic terms, "fair market value" is the price at which the property would change hands between a willing buyer and willing seller, both having full knowledge of the relevant facts and neither being under any compulsion to buy or sell. Once panic and hoarding enter the picture, what you have is a form of psychological compulsion, and all the rational economic models (especially the idea of "price elasticity") go out the window. The situation just has to work itself out over time.

Who are we to state what other shooters, buyers, or speculators "need" or "deserve?" It's not like the rest of us are any more entitled just because we shoot the stuff; people are buying because they perceive a need to. A need that wasn't there previously. Now that the reason which will remain unnamed is around for the near future, the need will remain present in the market, too.

Like I said; price 22LR at .50/round and see how many takers there are. 1.00 a round? 5$? Everyone has a breaking point, so the fair market value can always be found on a price curve despite a shock. Especially since ammo isn't exactly a necessity like food, water, or shelter which people will forsake their health and well being for; as a luxury commodity, I would think it would behave even more like the theories suggest, with scant outlier effects due to human nature beyond the fear of imminent scarcity (which I think isn't even driving things at this point since it's one year later, and the supply channels are as predictable as before if slower for a given storefront).

Stockpiling is what people do during rationing. Why do you think we and the Soviets had to print up all those "Don't Hoard" posters during the war (and after, for the Soviets, whose entire system was based on rationing)? As soon as retailers give up rationing, prices will quickly spike, then stabilize, then fall gradually to whatever the market will bear.

But they won't do that, since rationing gives them a consistent demand, and increases the number of customer visits (much like site clicks) during which other goods may be sold --like inferior substitutes the buyer wouldn't normally consider. If only rationing were the anathema that hoarding is; they are two sides of the same coin. Instead we bash CTD for raising prices so as to maintain their stocks so that the guy who --really and honest to God truly-- wants a product NOW can get it (for a price, of course)

TCB

Instead we bash CTD for raising prices so as to maintain their stocks so that the guy who --really and honest to God truly-- wants a product NOW can get it (for a price, of course)

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There's a fine line between pricing to keep stock and profiteering, and it often boils down to timing. CTD was not only the first to raise prices, but they also raised them far higher than anyone else. $100 for a P-mag within hours of Newtown? Seriously? Especially when Magpul NEVER raised prices to distributors & dealers.........

CTD now reaps what they sowed, and deservedly.

Economics is not a simple science, and trying to oversimplify it is disingenuous (or foolish). Economics in a panic situation can be even more complicated. Figuring out proper pricing under normal conditions when the supply chain can keep up with demand is a matter of competition and demographics, but pricing during a panic is those, plus evaluating supply, trying to anticipate short and long term demand, and doing your best to stay stocked without burning too many people.

The stores that under price are consistently out of stock, which means no customers patronize, hurting the business now. The stores that overprice will sit on their stock and earn a bad rap, hurting their bottom line now and into the future. Stores that find the sweet spot price wise and/or ration will have some stock, and customers that understand paying a bit more than they're used to or getting less than they'd like is just the current situation. I have seen online and local brick-and-mortar examples of all three.

Nice summary MachIV.

Again, I feel it comes back to worldwide capacity. Since the hurdle to start a business here in the states is so high for ammunition like 22lr, I would expect the problem to be solved by imports and for at least 3 years, i think we are fighting a lack of imports.

The world has the capacity to meet the US demand if they could get the product here I believe.