Sierra Bullets take on the .22 LR shortage.

[Rick38]

Picked up a new gun a few days ago and there were no fewer than 5 people who came in in those 20 minutes asking for .22 ammo, and then leaving when told there was none.The demand is real, a logical reason for that demand..I have yet to discover.

 

[22-rimfire]

Yes to asking.... eventually customers or potential customers stop asking. That often means fewer trips to the local gunshop and fewer sales opportunities for the store.

Oh... you have some 22LR... How much ($)? Oh.... that is too rich for me or I need one bulk pack, but I'll take 5.

After a couple trips to that shop and seeing no 22 ammunition available, I don't go back often and I certainly don't window shop. That's why pricing 22 ammunition low is a good thing, even if it sells out. .... had some yesterday. Getting more in.... stop back....

 

[hardheart]

Ammunition can be found on the secondary market to capture the demand at higher prices. But raising the price at the supplier or retailer level is meant to create a deadweight loss of benefit, as everyone who posits this argument states by saying it will leave ammo on the shelves. Whatever manufacturers are willing and able to do now apparently has not increased their costs substantially, as retailers are still willing and able to compete at price levels allowing for fast inventory turnover, which they aren’t bothered with. Leave it to the resellers to hold onto inventory in their homes, don’t burden businesses with this increased cost.

To leave ‘enough’ ammo on the shelves for the outliers means the price is too high for the majority of consumers who are buying it now. Well, if ammo is priced for those "desperate", then you end up with too much inventory and lower asset utilization, as you are missing many of your consumers. This is not of benefit, as it simply forces the consumer into a situation where the price allows economic profits, and the consumer only purchases at a point of desperation. Typing NEEDS in all caps suggests this pricing. This is a reduction on consumer surplus. It depends on the elasticity of the demand for 22, since the elasticity for all ammo and outdoor activity in general is much lower. Practice with BBs, pellets, airsoft, centerfire, archery, slingshots, etc. The price for most of these alternatives does not appear to have tracked with the recent scare, other than centerfire, which is increasing in availability now. A temporary shift to the right for 22LR may lead to a long run shift to the left if it has caused people to explore other options. And that really would mean that expanding 22LR capacity would be a terrible idea.

Since manufacturers have not substantially increased their production nor their costs here, at least relative to their existing capacity, then retailers are likely paying the same costs on their contracts, and therefore earning the same margins at the same prices. In a competitive environment, they lack reasons to charge above marginal cost for the good. If an ammo manufacturer only made 22LR, or Wal-mart only put 22LR on the shelves, then the situation might be different. But machinery and labor costs and the contribution to earnings for other product lines is playing in to the situation, so there is no vacuum for 22LR pricing to exist in. There may appear to be a loss of total benefit if the price is below what consumers are willing to pay, but that loss will subside as demand from this “bubble” falls.

If manufacturers do not feel demand has actually shifted, which is why they would refuse, yes refuse, to expand capacity, then they are being responsible in the long run. To refuse to waste money is not a negative. You said they aren't refusing, and in the next two sentences say they are refusing, just with a possible explanation. They wouldn't refuse out of spite, they would refuse out of good business sense. There just is not enough asset mobility to bring in new capacity with the high cost involved. There hasn’t been a new start-up in rimfire manufacturing, so the extra revenues flowing into 22LR that higher prices could bring just will not increase rounds available for new shooters without this inducement .

Retailers could be acting in the same way, realizing that consumer sentiment in the long run is worth more than the short term economic profits, as the positive profits may turn negative with reduced inventory turnover and a loss of competitive status. It would be better for the bubble to burst on the secondary market. There is apparently no uncontrollable factor of future expectations that the manufacturers and large scale retailers expect, so they are not raising prices now, and so many did not during the height of the panic. Since the price of other ammo is coming down, and shelves are filling, the ability to shoot centerfire or other rimfire is most certainly salient. These are substitutes for the majority of the market, and if their prices do not increase substantially in the long run, then 22LR cannot increase in price and maintain the same volume pre-2012.

I don’t know what their margins are on 22LR, maybe they make enough now that they don’t care. The equipment is rumored to be old, and they change caliber production seasonally, and they produce centerfire for recreational, hunting, self-defense, law enforcement, and military. Why care too much about rimfire?

 

[Tirod]

The election of a new administration won't have any direct impact on ammo shortages. What it will do is reassure the public who IS buying that there won't be any more subterfuge or agenda trying to bring down the 2A. They will see light at the end of the tunnel - or decide they aren't in the tunnel now at all. Their fear won't be focusing them so narrowly - same concept as being in a gunfight, you have to train to open up your prospective for danger behind you.

"I still see no logical reason for a shortage." is exactly right - it's entirely panic by the general shooting demographic across the board. To put it impolitely, Elmer woke the heck up and realized that there actually were people coming after their guns and ammo. It wasn't just those assault rifle owners, it was THEM. So they are reacting in their usual way, focused only on solving their immediate needs - having enough ammo hoarded back to last awhile.

Since a lot of shooters like .22 - including all the newer ones who turned to it for practicing their AR battle skills more cheaply - the new demand quickly outstripped supply. 18 months after a panic buying spree, .22 is still in high demand - because it's the cheapest and we can buy it in large quantities. You can carry 1,000 rounds in a small backpack, try that with .30-06. Plenty of folks can shoot 500 rounds of it in one practice session, most won't even try 100 rounds of .30. They want to keep shooting just the same as they always have, so instead of buying a box or two, they buy bulk and the race is on.

It's been explained over and over, if the general public starts buying something at 10x the rate they were previously, it creates a shortage. They are buying 9 other guys ammo. What part of buying up 9 other shooters ammo for the week, as often as twice a week, for the last 18 months, doesn't create a shortage? It only take 10% of the shooters doing that to make it happen, and we have all the rest scrounging and complaining about it to make the situation sound even worse.

It's panic buying. People do it ahead of bad weather, strip the grocery store shelves of bottled water and toilet paper, taking 10 or 50 times what they need to "survive" a few days of worry about running low. If you buy a package of ten rolls of toilet paper every two weeks, but buy three ahead of a storm, then two others aren't getting any. It's why business has has to come out with rationing - the irrational panic zombies who don't care are stocking up and to heck with everybody else.

If you were buying a brick of .22 every time you got ammo for the last ten years, ok. But, in the last 18 months, if you go out frequently to stores you don't even patronize in other times, buy two bricks, and do it again across town, you are hoarding. You just removed the opportunity for three others to buy their's.

Is it a free country? Does money talk? Sure. Not understanding that others are buying up YOUR ammo to hoard it, resell it, or just trade it for guns isn't something I would brag about. It basically says somebody doesn't have much connection to other shooters or an appreciation of how the public reacts. It's been explained in dozens of posts on dozens of shooters forums for 18 months.

If there really is a lack of understanding, please, read the posts in this thread and ask questions about what isn't understood. Everybody simply can't buy ten times the ammo all of a sudden - manufacturing cannot and does not work that way. When the toilet paper is all gone, you will wait for next week's shipment, and expect to be able to only buy one package at a time. That is exactly what is happening at BoxMart and other retail outlets.

 

[Constrictor]

While the ammo/component/firearm shortage was initially fueled because of unfounded fears of gun legislation and internet conspiracy theories, there was never any legislation or political action that directly led to the national shortage. Unlike the Hi-cap mags after 1994, this was a fear driven shortage, partially driven by folks with political grudges against those in power. Since the .22 shortage has been in decline for several months, as has been the shortage of firearms and other ammo, forecasting that inventories will continue to increase is a no brainer. Especially when ammo companies have been assuring us the shortage is demand driven and much of the shortage lately is logistics. Kinda like predicting the sun is coming up tomorrow. While keeping pro-2nd Amendment folks in power is a good way to assure our gun rights will be protected in the future, it' hard for me to give folks credit when they haven't done anything. This is like saying that the Harley shortage in 2001-2004 was eliminated because John Kerry was defeated.

False,
this was very much fueled by actual gun legislation that came up,
Fienstein's bill failed but other state bills passed. The fears were
not unfounded.

 

[Sam1911]

Ammunition can be found on the secondary market to capture the demand at higher prices.

Sure, but "everyone" seems to be in agreement that re-sellers are "gougers" and are Satan's most despised children. Surely we don't want to promote their actions?

But raising the price at the supplier or retailer level is meant to create a deadweight loss of benefit, as everyone who posits this argument states by saying it will leave ammo on the shelves.

Raising the price in a carefully considered manner does two things. a) It gains more income for the seller, and b) if done in a moderate, measured way, it slows the most rampant demand ("I grabbed all they had!!!) and lets SOME product linger on the shelves until (or nearly until) the replacement supply comes in. The model here is to ideally set pricing so the product moves just so you have ONE box left on the shelf when the resupply truck pulls into the parking lot. The retailer is making almost exactly the maximum profit, and yet sits on no un-sold inventory, and the buyers can expect that there is product on the shelf when they want it, at some moderate (not discount) price.

If the price is adjusted too high, the product doesn't sell and there's lots sitting when the resupply comes in. If the prices is adjusted too low, half of the supply cycle is spent with nothing on the shelf and the retailer is not making as much as they could from selling that product so quickly/cheaply.

In other words, there's no bonus prize for selling out fast. There IS a reward for pricing smartly (and flexibly) to capture the demand curve as accurately as you're able.

Leave it to the resellers to hold onto inventory in their homes, don’t burden businesses with this increased cost.

There's no burden. You've got that backward! If the price is set correctly, there's no inventory held over to the next supply cycle (or that one box, maybe). But the product is sold at whatever the highest value is that will balance the demand against the supply and get the most cash per unit into the register.

To leave ‘enough’ ammo on the shelves for the outliers means the price is too high for the majority of consumers who are buying it now. Well, if ammo is priced for those "desperate", then you end up with too much inventory and lower asset utilization, as you are missing many of your consumers.

Ok, yes, you did miss the point.
If the seller is moving almost every unit of stock over the course of each supply period, then the price is right for the "majority of consumers." If he's not selling almost all of his stock during that period, he's overpriced. If he's selling out on the first day or in the first week of the supply cycle, he's priced too low. A balance between sales price and demand gets him his best profit and keeps SOME supply around for his customers to buy during the majority of his supply cycle.

This is not of benefit, as it simply forces the consumer into a situation where the price allows economic profits, and the consumer only purchases at a point of desperation. Typing NEEDS in all caps suggests this pricing.

When the demand is far outstripping supply, that's actually quite correct. The buyers who most need the product, and thus are most willing to pay the current higher price ($XXX), will get what they need. The less pressured buyer, who will only pay $XX for that brick, will be encouraged to wait, and thus leave the product on the shelf for the more motivated purchaser. It's the natural system of supply and demand.

Since manufacturers have not substantially increased their production nor their costs here, at least relative to their existing capacity, then retailers are likely paying the same costs on their contracts, and therefore earning the same margins at the same prices. In a competitive environment, they lack reasons to charge above marginal cost for the good.

Eh? When there are folks looking all over town for A brick of .22, then that's not really a competitive market. When you've sold out in the first 1/2 hour, you've just thrown money away that you could have made.

In WalMart's case, they do that deliberately as a loss leader to get folks into the store -- every day in some cases -- where they'll generally buy other stuff out of convenience. WalMart wants to be seen as the discount guy. Losing potential income on ammo sales is a small price to pay for keeping that bargain-basement reputation, in their eyes.

There may appear to be a loss of total benefit if the price is below what consumers are willing to pay, but that loss will subside as demand from this “bubble” falls.

Right. Once the demand bubble falls, the prices would come back down. Simple supply-and-demand economics. In the meantime, bank the profits.

If manufacturers do not feel demand has actually shifted, which is why they would refuse, yes refuse, to expand capacity, then they are being responsible in the long run. To refuse to waste money is not a negative. You said they aren't refusing, and in the next two sentences say they are refusing, just with a possible explanation.

I don't disagree that IF they "refuse" they're doing so out of responsibility in the long run -- that's what I said. However, several manufacturers have disclosed their efforts to make serious production increases, so not all feel that this is a risky venture and/or a bubble that will burst in the long term.

There hasn’t been a new start-up in rimfire manufacturing, so the extra revenues flowing into 22LR that higher prices could bring just will not increase rounds available for new shooters without this inducement .

Aguilla and Wolf have been bringing in .22 LR to a degree I've never seen before. You can now buy Colt branded .22 LR. Made by? Aguilla. Some of the most popular match .22 is now made by Wolf. Whether or not Remington or Olin/Win can bring new production on line quickly enough (or whether they WANT to) others have been trying to fill the gap.

Retailers could be acting in the same way, realizing that consumer sentiment in the long run is worth more than the short term economic profits, as the positive profits may turn negative with reduced inventory turnover and a loss of competitive status. It would be better for the bubble to burst on the secondary market.

This seems to be running to extremes, though. Sellers could make significant profit increases without jacking prices so very high as to alienate their customer base. My seat-of-the-pants feeling is that if WalMart had moved their per-brick price for bulk ammo from ~$18 or so pre-panic, up to maybe $30 at the height (not the $70-$100 some places were charging), the rest of the market would have followed along, and there would have been a natural quelling of the huge unreasonable demand boom.

Instead, they hold to $20 or less and then every shooter who happens to end up at the front of the line on delivery day feels like he's found the lucky pot'o gold and has to buy every round they'll sell him, and his wife and kids, too. Instead of buying a brick, he's bought three, or six, or nine... "well, shoot, they're SUCH a good deal, and you can't find this stuff these days!"

 

[buck460XVR]

False,
this was very much fueled by actual gun legislation that came up,
Fienstein's bill failed but other state bills passed. The fears were
not unfounded.

The last substantial federal gun control law was the AWB in 1994 and that has expired. State laws did not create the national shortage and in most cases new gun legislation by the states(other than korneyforney) was pro-gun and not anti. While the fear of new laws may have drove the shortage along with the conspiracy theories and the claims of "new" unconstitutional executive orders, there is no federal legislation in the last decade that made ammo, especially .22 ammo unobtainable for the average gun owner. Again, while the voting in and the keeping of pro 2nd Amendment legislatures is key to keeping our rights, the recent increase in .22 ammo supplies is not directly related to any new or upcoming legislation. Only supply catching up with demand.

 

[ford8nr]

I'm guilty of being part of our problem. I shoot a couple thousand rounds a year in various leagues and use to keep a couple bricks on hand. With what season was coming up I'd pick up the appropriate flavor of ammo. Then last spring I had to scramble to find ammo for Siloutte league and paid a premium price. Said NEVER AGAIN would this happen. Ordered a case of target ammo and a case of Std velocity. Got the target ammo last summer and the std velocity just came last week after 13 months. Got another case of target on backorder which I may cancel and a case of CCI MINI MAGS slated for Nov 2014. I'll never let my supply drop below 5000rds again, use to be under 1000 didn't bother me.

 

[hardheart]

There is no point in slowing sales so there is a box left when the truck comes, other than for the retailer if they actually hit a price that allows that. There would be a point of increasing resupply so there is still a box left because the truck is coming more often, for both the supply and demand side. To want that state of inventory on shelves is fine, but to want it to be achieved by reducing demand, rather than increasing supply is not a net gain.

In either instance, what is the net benefit? A seller can move a hundred bricks in a day at $20 each, or 99 bricks in a month at $50 each, as a very rough example. If the truck comes once a month with 100 bricks no matter the retail price, due to production limits, there is no increase in the supply to consumers. If the gougers buying at $20 each are reselling 99 boxes a month at $50 each, then there is no difference in market price. The supply stays the same, as it is constrained well above the point of sale, so the total sold before resupply stays the same, and the current market price stays the same for the same quantity sold, because it would only be changed by another shift in demand or an actual change in supply.

Changes in price happen by movements along the curves, or of the curves themselves. The supply curve has not been altered substantially, as no one has entered the market. I, and many others, were buying Aguila well before this recent bout started. If CCI, Aguila, Federal, Remington, etc. will not boost production beyond their current capacity, then that same truck with that same hundred bricks will come in that same monthly cycle, since we are at a point where it has become obvious they cannot ship any more any faster, or these businesses are willingly foregoing revenues from unused capacity.

The only change in price will come from another shift in the demand curve. It isn't marketing or product quality that are changing the demands of consumers, so suppliers aren't doing anything different an aren't affecting things to any degree greater than what they were doing in other demand situations. They are running the same production lines to produce the same product. I suppose they are doing that because other products have been deemed more worthy of expansion and focus.

 

[Sam1911]

There is no point in slowing sales so there is a box left when the truck comes, other than for the retailer if they actually hit a price that allows that.

1) The closer the retailer comes to that, the closer they're coming to making the most profit they can off each unit they sell. That's one point.

2) Point two is in hindering the tendency for all their stock to be sold very quickly, there is stock on hand for the customers that want/need some. Having some to sell is a service to their customers -- period. That's two points.

3) The third, and more major/meta point is that by having ammo on the shelf they reassure their customers that there is ammo to be had, and thus no reason to panic buy everything they can grab every time they see some hit a shelf somewhere.

There would be a point of increasing resupply so there is still a box left because the truck is coming more often, for both the supply and demand side. To want that state of inventory on shelves is fine, but to want it to be achieved by reducing demand, rather than increasing supply is not a net gain.

Ok, sure, it is BETTER to increase supply. That's a slow, difficult road that we're all on right now. We get that. Great, increase supply if and when that's even possible.

However, in the absence of available additional supply -- the situation we actually have been facing in the real world for the last year or so -- YES increasing price is a gain. The demand is there, obviously. A retailer selling out in hours or days is the clearest possible indicator that the price is much lower than the market will support.

By raising the price:
1) the seller reaps more profit -- good for him

2) keeps a bit of his stock on the shelf a little longer because it is a bit too expensive to panic buy "just because" -- good for the rest of the folks looking to buy some ammo

3) Also lets the general consuming public see product on the shelf most days, which reduces their perceptions of a physical shortage of that product. Less perception of shortage = panic slacking off = rampant panic demand falling. Those are all positive things.

 

[Sam1911]

In either instance, what is the net benefit? A seller can move a hundred bricks in a day at $20 each, or 99 bricks in a month at $50 each, as a very rough example.

A rough, and POOR example, to be sure.

WalMart gets 100 bricks, prices them at $20 ea. and sells them out in 20 minutes. WalMart gets 100 bricks, prices them at $50 ea. and sells them out in one week.

Either way the truck isn't coming again for a week, so all they have to show for their low-low prices is bare shelves, and $3,000 they didn't bring in that week.

And all those WalMart customers got to stare at empty shelves for the next 6.9 days and grow ever more convinced that the panic is just terrible and they'd better buy TWICE as many bricks next time!!!

If the truck comes once a month with 100 bricks no matter the retail price, due to production limits, there is no increase in the supply to consumers. If the gougers buying at $20 each are reselling 99 boxes a month at $50 each, then there is no difference in market price.

Well, actually there is. The market includes both the primary and secondary sellers. WalMart's bargain-basement bare-shelf price isn't the "market price" any more than the highest guy on GunBroker is the "market price." They're all in it together.

The only change in price will come from another shift in the demand curve. It isn't marketing or product quality that are changing the demands of consumers, so suppliers aren't doing anything different an aren't affecting things to any degree greater than what they were doing in other demand situations.

I disagree. The shift in the demand curve that is realistically most immediately on the horizon stems from a change in consumer perception. That is, when folks become convinced that the panic is over and they don't need to scarf up all the ammo they happen to see.

That change in perception happens when:
a) folks start to hit some saturation point, where their ammo shelf is getting ridiculously full and even their overheated brains realize they don't need another round for the rest of their lives.

b) And it happens when folks start to run out of discretionary income to blow on ammo they won't shoot.

c) And it happens MOST OF ALL, when they can wander through WalMart and see a few cases of .22 ammo on the shelf on any given day.

Had WalMart followed the market with their pricing, I think we'd have reached that point months ago.

They are running the same production lines to produce the same product. I suppose they are doing that because other products have been deemed more worthy of expansion and focus.

Again, you keep saying that, but some manufacturers have indeed directly contradicted this claim. However, it takes a LOT of time to increase capacity beyond adding shifts to existing lines, which happened many months ago now. Bringing new plants on line is a gargantuan undertaking. We'd be fools to expect new ammo facilities to be up and running in less than a year's time.

 

[antiquus]

He's right about the current shortage, but there's two other factors that will I'm told impact us until the end of next year.

One is there isn't a lead foundry left in the US. It all has to come from overseas now.

Two is a fire in a powder plant in Belgium, and that plant (#2 in the world) was out of action for 6 weeks. We have one powder plant in the US, world's biggest but still a single source. The demand for ammo worldwide is currently outstripping powder production.

 

[Sam1911]

One is there isn't a lead foundry left in the US. It all has to come from overseas now.

The Doe Run smelting operation which closed to much internet fanfare had no impact on bullet lead. All such lead products in the US come from reclamation/recycling anyway at this point. All of the major bullet makers came out and said that closing that plant would have no impact on them at all.

 

[hardheart]

This seems to stem from the misconception that the only thing that affects demand for 22LR is the price and presence of 22LR. Without 22LR on the shelf, people will buy something else. Other calibers to other activities. The inventory situation of 22LR will adjust itself without any changes to pricing, as consumer tastes and preferences will change from any alteration to market conditions. The gain is for the retailers in competition with the secondary market. No one else is able to shoot more in the aggregate, because the amount available is not affected.

I don't know if the manufacturing capacity of 22LR will increase or not, no one does, as even the people advocating for the same changes to price structure do not know. But without additional revenue flows, there would be no point. So either there's been a shift in demand that manufacturers feel warrants expanded capacity, or a temporary shift that does not. There is wild speculation on what is a very critical strategic decision. If they are expanding, then prices should go up to cover investment into this increase of overhead. Maintaining prices while incurring additional long term debt and higher fixed costs before increasing output isn't a solid plan.

 

[Sam1911]

Hey, check out this FAQ from CCI: http://www.cci-ammunition.com/education/faqs.aspx

We are currently experiencing high demand for our products. We appreciate your patience and support and remain committed to serving all of our customers, from hunters and sport shooters to those who protect our country and our streets.

Q: Does the recent news regarding a major U.S. lead smelter shutting down mean you'll have trouble obtaining lead for manufacturing conventional ammunition?
A: At this time we do not anticipate any additional strain on our ability to obtain lead.

Q: Why is ammunition in certain calibers so hard to find?
A: The current market and environment is causing stronger than usual demand for products in our industry.

Q: Are certain contracts taking ammunition away from civilians?
A: No. We remain committed to serving all channels of our business. The majority of our product serves the commercial market.

Q: Is DHS buying more ammunition today than ever before?
A: Department of Homeland Security ammunition purchases have been declining since 2009. It is projected that it will continue on this trend. Read the GAO report.

Q: Why can't you just make more ammunition?
A: Our facilities operate 24-hours a day. We are continually making process improvements to increase our efficiency and investing in capital and personnel where we have sustained demand. We are bringing additional capacity online again this year.

 

[Sam1911]

This seems to stem from the misconception that the only thing that affects demand for 22LR is the price and presence of 22LR.

No. A lot of things can affect the demand -- like the political climate. But there's little a retailer can do about that. They can control price and (once stock is on hand in their stores) whether there's available product on the shelves.

Without 22LR on the shelf, people will buy something else. Other calibers to other activities.

Of course. Was that in question?

The inventory situation of 22LR will adjust itself without any changes to pricing, as consumer tastes and preferences will change from any alteration to market conditions.

Of course. We're discussing the panic and what could be (or have been?) done about it.

The gain is for the retailers in competition with the secondary market. No one else is able to shoot more in the aggregate, because the amount available is not affected.

Of course. I don't think anyone suggested such a thing. Although...there is some evidence that folks buy more, but shoot less, during a panic like this. Hence one could argue that more shooting gets done during non-panic times. That's just supposition, though.

I don't know if the manufacturing capacity of 22LR will increase or not, no one does, as even the people advocating for the same changes to price structure do not know. But without additional revenue flows, there would be no point.

Additional revenue flows? What does that mean? Obviously there is a lot of demand right now. And some evidence that there are more shooters now than ever before, and at least SOME evidence that the shooters are consuming more than ever before. So the potential for more sales seems quite real.

So either there's been a shift in demand that manufacturers feel warrants expanded capacity, or a temporary shift that does not. There is wild speculation on what is a very critical strategic decision.

There's wild speculation out in gun forum land and at the nation's gun counters. I have faith that CCI, Olin, Aguilla, Wolf, etc. are applying pretty scientific prediction methods to figuring out if expansion is rational or not.

If they are expanding, then prices should go up to cover investment into this increase of overhead. Maintaining prices while incurring additional long term debt and higher fixed costs before increasing output isn't a solid plan.

Agreed.

 

[Agsalaska]

Ammunition can be found on the secondary market to capture the demand at higher prices. But raising the price at the supplier or retailer level is meant to create a deadweight loss of benefit, as everyone who posits this argument states by saying it will leave ammo on the shelves. Whatever manufacturers are willing and able to do now apparently has not increased their costs substantially, as retailers are still willing and able to compete at price levels allowing for fast inventory turnover, which they aren’t bothered with. Leave it to the resellers to hold onto inventory in their homes, don’t burden businesses with this increased cost.

To leave ‘enough’ ammo on the shelves for the outliers means the price is too high for the majority of consumers who are buying it now. Well, if ammo is priced for those "desperate", then you end up with too much inventory and lower asset utilization, as you are missing many of your consumers. This is not of benefit, as it simply forces the consumer into a situation where the price allows economic profits, and the consumer only purchases at a point of desperation. Typing NEEDS in all caps suggests this pricing. This is a reduction on consumer surplus. It depends on the elasticity of the demand for 22, since the elasticity for all ammo and outdoor activity in general is much lower. Practice with BBs, pellets, airsoft, centerfire, archery, slingshots, etc. The price for most of these alternatives does not appear to have tracked with the recent scare, other than centerfire, which is increasing in availability now. A temporary shift to the right for 22LR may lead to a long run shift to the left if it has caused people to explore other options. And that really would mean that expanding 22LR capacity would be a terrible idea.

Since manufacturers have not substantially increased their production nor their costs here, at least relative to their existing capacity, then retailers are likely paying the same costs on their contracts, and therefore earning the same margins at the same prices. In a competitive environment, they lack reasons to charge above marginal cost for the good. If an ammo manufacturer only made 22LR, or Wal-mart only put 22LR on the shelves, then the situation might be different. But machinery and labor costs and the contribution to earnings for other product lines is playing in to the situation, so there is no vacuum for 22LR pricing to exist in. There may appear to be a loss of total benefit if the price is below what consumers are willing to pay, but that loss will subside as demand from this “bubble” falls.

If manufacturers do not feel demand has actually shifted, which is why they would refuse, yes refuse, to expand capacity, then they are being responsible in the long run. To refuse to waste money is not a negative. You said they aren't refusing, and in the next two sentences say they are refusing, just with a possible explanation. They wouldn't refuse out of spite, they would refuse out of good business sense. There just is not enough asset mobility to bring in new capacity with the high cost involved. There hasn’t been a new start-up in rimfire manufacturing, so the extra revenues flowing into 22LR that higher prices could bring just will not increase rounds available for new shooters without this inducement .

Retailers could be acting in the same way, realizing that consumer sentiment in the long run is worth more than the short term economic profits, as the positive profits may turn negative with reduced inventory turnover and a loss of competitive status. It would be better for the bubble to burst on the secondary market. There is apparently no uncontrollable factor of future expectations that the manufacturers and large scale retailers expect, so they are not raising prices now, and so many did not during the height of the panic. Since the price of other ammo is coming down, and shelves are filling, the ability to shoot centerfire or other rimfire is most certainly salient. These are substitutes for the majority of the market, and if their prices do not increase substantially in the long run, then 22LR cannot increase in price and maintain the same volume pre-2012.

I don’t know what their margins are on 22LR, maybe they make enough now that they don’t care. The equipment is rumored to be old, and they change caliber production seasonally, and they produce centerfire for recreational, hunting, self-defense, law enforcement, and military. Why care too much about rimfire?

Man this is an awesome post. I am an economist by education and formerly by trade, and I only know a few people in this world that could have written such a complicated sounding answer to what is not that complicated of a problem. Kudos sir.

Although I do agree with some of it I think Sam is doing a good job pointing out my problems with the answer. But the first two sentences really bother me. Raising prices does NOT create a deadweight. Thats not the point of raising prices.

I see this has gone well beyond that post so I wil let it go and try to catch up later.

This is a good thread.

 

[hardheart]

Increases in price signal competitors to enter the market, as demand has exceeded the current supply curve. Additonal production would shift the supply curve to the right as well, leading to a new equilibrium of both a higher total quantity sold and a lower price per unit. In the long run the assets are indifferent, so there would be no sustained economic profit. In other words, if 22LR is making a whole lot more money, then other businesses would start to make 22LR to get some of it, and the more 22LR on the shelves, the lower the price will eventually be due to price competition. That's why additional revenue now would drive down the price later, through increased supply, not souring people on expensive ammo.

Perhaps that is why prices aren't going up, the manufacturers do not want to signal competitors. Looking at ATK's annual report for last year, most of their revenue comes from government sales, and sporting as a whole was about a quarter. They also indicate that orders from the sporting section are considered a risk, as they believe the quantities exceeded true demand. With environmental and safety concerns with production, this can all add up to minimal growth, as they perhaps feel they cannot reliably anticipate future demand and hidden costs associated with expansion. They also have a considerable amount of debt already, so gambling too far with commercial ammunition may not be in the cards. But reinstatement of existing productiont capacity should help a bit.

 

[hardheart]

But the first two sentences really bother me. Raising prices does NOT create a deadweight. Thats not the point of raising prices.

Yes, but there are some, not all, who believe there will not be any production growth even with a price increase. It would be monopoly pricing to charge more based on the lack of competition having stock on hand to sell.

 

[itsa pain]

Oh? Manufacturers have gone as far as they can go with their existing production lines pushed to 24/7 operation. But they can't simply create new production lines/plants for .22 rimfire out of thin air, and they can't pull resources from some other production line (say 9mm, for example) because centerfire and rimfire production are so different there's no commonality in the machinery.

So we have heard news that the various manufacturers are working toward increasing their production capacity, but that takes time -- often years. "Increasing production capacity" may mean everything from having a piece of land surveyed and purchased, planning/zoning, impact studies and stormwater management plans, and electrical distribution systems routed in, wastewater treatment, industrial engineering for the new production lines, machinery spec'd, machinery sourced (uncommon equipment, now suddenly in high demand, itself), personnel hiring, sourcing new streams of raw materials (already over-extended), etc., etc., etc., etc.

They can't just "turn it up to ELEVEN!" Even running at near 100% will end up being problematic. Actually taking steps to change their total capacity is an enormous undertaking.

So these companies have had to predict what's going to happen with the market, finally decide that this panic is long-enduring enough* to actually support whatever new capacity they decide to bring on, and then act on that decision which will probably take in excess of a year -- maybe two! -- to bring about.

* -- Not capitalizing on a boom is bad. Spending a year or more and hundreds of millions of dollars to build a new plant, and finally opening just as folks finally decide they've got enough ammo stacked away, the political situation changes, the pressure's off, and the bottom falls out of the market would be MUCH worse. Companies could go bankrupt over a badly played action like that.


...

But everyone on teh interwebz knows that these greedy slacker ammo companies aren't doing anything to meet the demand because they're making a killing and are perfectly happy to let us shooters starve for ammo just so they can jack the price up, and anyway George Soros owns them all and is tightening down the screws on the industry so we don't have any more ammo to buy, because Obama told him to... yadda yadda...

That all sounds great until you factor in for 25 years since Clinton every time a Democrat gets elected ammo and guns get scarce, so this is predictable as the sun coming up. Ammo makers had plenty of time to buy new equipment when it was a lot cheaper years ago. To pretend that they were caught off guard this time is not believable in the least

 

[Sam1911]

Remington Annouces 32 Million Ammo Plant Expansion: http://bulletin.accurateshooter.com/2013/05/remington-announces-32-million-ammo-plant-expansion/

So Remington is expanding. And CCI says they're expanding capacity.

Good to know.

 

[commygun]

"So if my assumption that the current shortage is due largely to politics the Republicans winning control of both the Senate and the House will effectively end any threat of anti-gun legislation until after the Presidential elections in 2016. Thus 22 inventories should increase the end of 2014 and beginning of 2015."

Maybe, but I wonder. For the first time since WWII we're seeing a bread-and-butter consumer good being bought so quickly that, to the casual observer, it appears to be virtually unavailable. And that's been the case for eighteen months. That's phenomenal and I'm not sure it can be explained in terms of production, pricing and partisan politics.

 

[jrdolall]

Price increases on the retail level are not the answer. It may sound right and seem right but it is a fantasy because the big companies like WM don't play the game like we think they should. The .22 LR "shortage" isn't a blip on their screen outside of the local Sportings Good department. While it sounds impossible to us it is reality. Heck If anything they are GLAD there is such a shortage. Doesn't it get people to come in the store or get people that are buying toilet paper to stop by and check ammo? It does for me. I don't quit going because they are out of 22 because I know most everyone is out of 22.

The only PRICING scenario that would work would be for the major ammo companies to raise prices significantly to every retailer, wholesaler, re-distributor and Tom, Dick and Harry. If they did that then prices at every retailer would rise accordingly and the demand would drop and the scarcity would, theoretically at least, end.

Of course if they all did that at the same time it would be collusion and the only companies that can get away with that nowadays are the big oil companies. Why is gas always within a couple of pennies in a given area and then fifteen cents cheaper at the next corner?

 

[Agsalaska]

Yes, but there are some, not all, who believe there will not be any production growth even with a price increase. It would be monopoly pricing to charge more based on the lack of competition having stock on hand to sell.

Yes. I get that. There would still be production growth with increased pricing. But its already monopoly pricing. Thats part of the problem.

I am not sure what the point is that you are trying to make. I feel like I am in a 300 level economics discussion trying to solve an arithmetic problem. Its really not that complicated. There is no balance at all in the market for 22lr because of two things-a shock to demand followed by large variances in pricing of like items(irrational). That is it in a nutshell. Thats why we have shortages. The easiest and most efficient way to address the shortages is to balance pricing.

The rest of the discussion, while valid in some areas and to me questionable in others, is going down a wormhole. Sure increased prices invites competitors and will eventually drive increased prices down. But shortages will signal competitors as well. So I doubt that is a major reason why prices are where they are.

Never mind. I just realized that last paragraph was referencing a different post. I need to catch up.

 

[Agsalaska]

Price increases on the retail level are not the answer. It may sound right and seem right but it is a fantasy because the big companies like WM don't play the game like we think they should. The .22 LR "shortage" isn't a blip on their screen outside of the local Sportings Good department. While it sounds impossible to us it is reality. Heck If anything they are GLAD there is such a shortage. Doesn't it get people to come in the store or get people that are buying toilet paper to stop by and check ammo? It does for me. I don't quit going because they are out of 22 because I know most everyone is out of 22.

The only PRICING scenario that would work would be for the major ammo companies to raise prices significantly to every retailer, wholesaler, re-distributor and Tom, Dick and Harry. If they did that then prices at every retailer would rise accordingly and the demand would drop and the scarcity would, theoretically at least, end.

Of course if they all did that at the same time it would be collusion and the only companies that can get away with that nowadays are the big oil companies. Why is gas always within a couple of pennies in a given area and then fifteen cents cheaper at the next corner?

Yes it is. Pricing increases at the retailer level are absolutely the answer. But your point is still valid, especially about how said companies handle pricing. I agree the easiest way to do it would be thru the wholesalers rather than relying on the retailers. I also agree that 22lr is currently acting, unintentionally, as a loss leader as you explain.

But the problem still, at the end of the day, is pricing.

As for the collusion comment. Thats not true. Prices of like items in markets always try to come together. That is not collusion.