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Source link: http://archive.mises.org/18823/how-companies-raise-prices-in-recession/

How some companies raise prices in recession

October 26, 2011 by

An across-the-board 35% price increase from American Gypsum:

{ 7 comments }

Julien Couvreur October 26, 2011 at 2:40 pm

Isn’t that surprising given the housing situation? I’d expect housing-related products to be adjusting downwards…

Chris Rossini October 26, 2011 at 2:47 pm

Right in line with the Austrian Business Cycle Theory.

Bernanke’s printing press money heading into capital goods.

Kelly4 October 26, 2011 at 5:25 pm

Seems more complicated than the ‘referenced’ snippet indicates. They are guaranteeing the {higher} price thru all of 2012 with no further price hikes, which is apparently beneficial to their customers… who must bid on construction contracts many months ahead of contract award. Higher ain’t good, but apparently this price-guarantee helps minimize price uncertainty for customers in a volatile market (?)

Full Letter:

_

September 30, 2011
To Our Customers:

Our business has continued to endure the effects of an unprecedented housing market decline and a
challenging economy. Wallboard demand has been essentially flat and at historically low levels for the
better part of three years running. The outlook for the next 12 to 18 months might at best be described
as a slow “climb out.”
In response to these circumstances, we have downsized and streamlined our operations. We have also
critically examined our internal policies and practices to identify other ways to improve administrative
efficiencies and our financial performance. As a result, we have also determined that the present pricing
levels and practices under such circumstances are not sustainable. Therefore, after careful consideration,
we have decided to implement the following actions:
The practice of providing job quotes is broken and counterproductive to meaningful and consistent price
management needed to support profitability. Therefore, effective immediately, we will discontinue for all
product lines the policy of providing job quotes. All job commitments previously made, and for which we
have received a signed Notice of Intent from the customer, will be honored. This procedure was outlined in
our May 19, 2009 communication letter to our customers. We will strictly enforce this policy and have set
a date of October 14, 2011, by which to verify those commitments.

In addition, National Gypsum Company will implement a price increase of 35% on all wallboard products,
to be effective on January 1, 2012. It is our intention that the resultant price (up 35%) will apply for all of
2012. We are providing this notice well ahead of the effective date of the increase in order that you can be
guided accordingly in your planning for 2012.

We will offer guidance on projects that extend into 2013 in future communications.
Price increases on other product lines will be communicated at a future time.

[AREA: Entire U.S. and all Export NATIONAL GYPSUM COMPANY AND ITS SUBSIDIARY ENTITIES]
_

augusto October 29, 2011 at 10:13 am

I don’t get it. They are unable to sell their product, therefore they are increasing the price?

EconAndre October 27, 2011 at 10:38 am

This would serve as a good microecon “live” casestudy. One factor may be less competing supply of the odorous wallboard from China. Or maybe they anticipate price inflation, or maybe they instituted ABC accounting.

rick October 29, 2011 at 11:19 am

A sign of inflation, yes; but also a marketing tool.
Perhaps, increased sales today.
Quantity discounts and extended terms tomorrow.

rick October 29, 2011 at 11:22 am

A sign of inflation, yes; but also a marketing tool.
Perhaps, increased sales today.
Quantity discounts and extended terms tomorrow.

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