Consumers have noticed bags of chips, chocolates, and many other products have shrunk, but prices have not come down. This episode of Economics Explored features a detailed discussion on shrinkflation with Gene Tunny and Arturo Espinoza Bocangel. They analyze various examples of shrinkflation and its impact on the cost of living. The episode also considers the potential for regulatory and other measures to address this practice. For instance, a US Senator wants to outlaw shrinkflation, and a French supermarket chain puts a sticker on shelves identifying shrunken products. Gene and Arturo also consider the high degree of market concentration in the grocery sector and what the FTC in the US and the ACCC in Australia can do about it.

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What’s covered in EP241

• Introduction to Shrinkflation (product shrinking in size while price remains the same). (0:00)
• Shrinkflation in the food industry, with examples of product size reductions and price increases. (5:04)
• Senator Casey’s proposal to stop corporations from deceiving consumers through shrinkflation. (10:05)
• Shrinkflation and its impact on consumer prices. (13:38)
• Shrinkflation as a business strategy. (19:10)
• Market power and concentration in the Australian supermarket industry. (25:25)
• Supermarket competition in Australia, with a focus on Coles and Woolworths. (30:12)
• Supermarket power and calls for regulation. (35:47)
• Coles and Woolworths' market power and supplier squeeze. (40:41)

Takeaways

1. Shrinkflation Explained: Shrinkflation occurs when manufacturers reduce the size of products while maintaining the same price, effectively increasing the unit price without consumers' direct awareness.
2. Impact on Consumers: This practice can be deceptive, as it often goes unnoticed by consumers who end up paying more for less, affecting their purchasing power and overall cost of living.
3. Supermarket Power: Large supermarkets like Coles and Woolworths have significant market power, which they can use to negotiate lower prices from suppliers. There are allegations of unfair use of this market power and there are a couple of government inquiries investigating this among other market power issues. 
4. Regulatory Responses: There are ongoing discussions and legislative efforts, such as those led by Senator Bob Casey in the US, to classify shrinkflation as a deceptive practice and regulate it more strictly.
5. Market Concentration: The high level of market concentration in the supermarket sector, particularly in Australia and to an extent in the US, means that major supermarkets can allegedly make it harder for new entrants like Aldi and Costco to compete effectively.

Links relevant to the conversation

Senator Casey's Report on Shrinkflation: https://www.casey.senate.gov/imo/media/doc/shrinkflation_report.pdf

ABS on how shrinkflation is accounted for in CPI calculation:

https://www.abs.gov.au/articles/quality-change-australian-cpi

Carrefour’s Shrinkflation Warning:

https://www.bbc.com/news/business-66809188  

Sanjoy Paul's article on eight ways Woolworths and Coles squeezed their suppliers and customers:

https://theconversation.com/8-ways-woolworths-and-coles-squeeze-their-suppliers-and-their-customers-223857

Details on the exchange between the Woolworths CEO and an Australian Senator during an inquiry - “Greens senator threatens Woolworths CEO with six months in prison for contempt of Senate”:

https://www.abc.net.au/news/2024-04-16/woolworths-ceo-threatened-with-contempt-by-senate-committee/103728244

Bloomberg report on Lina Khan and FTC:

https://www.theguardian.com/us-news/2024/mar/09/lina-khan-federal-trade-commission-antitrust-monopolies

Previous episodes discussing supermarkets and market power with Simon Cowan and Danielle Wood:

https://economicsexplored.com/2023/08/31/how-to-improve-housing-affordability-and-why-the-greedflation-thesis-is-wrong-w-simon-cowan-cis-ep203/

https://economicsexplored.com/2024/03/12/from-the-vault-antitrust-with-danielle-wood-now-australian-productivity-commission-chair/

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Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au. 

Full transcripts are available a few days after the episode is first published at www.economicsexplored.com.