False,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.
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?Ammunition can be found on the secondary market to capture the demand at higher prices.
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.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.
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.Leave it to the resellers to hold onto inventory in their homes, don’t burden businesses with this increased cost.
Ok, yes, you did miss the point.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.
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.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.
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.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.
Right. Once the demand bubble falls, the prices would come back down. Simple supply-and-demand economics. In the meantime, bank the profits.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.
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.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.
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.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 .
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.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.
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.
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.
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.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.
A rough, and POOR example, to be sure.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.
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.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.
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.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.
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.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.
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.One is there isn't a lead foundry left in the US. It all has to come from overseas now.
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.
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.This seems to stem from the misconception that the only thing that affects demand for 22LR is the price and presence of 22LR.
Of course. Was that in question?Without 22LR on the shelf, people will buy something else. Other calibers to other activities.
Of course. We're discussing the panic and what could be (or have been?) done about it.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. 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.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.
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.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.
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.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.
Agreed.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.
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.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?
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.But the first two sentences really bother me. Raising prices does NOT create a deadweight. Thats not the point of raising prices.
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 leastOh? 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.
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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...
Yes. I get that. There would still be production growth with increased pricing. But its already monopoly pricing. Thats part of the problem.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 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.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?