A different way to look at ammo prices

This is a discussion on A different way to look at ammo prices within the Defensive Ammunition & Ballistics forums, part of the Defensive Carry Discussions category; It seems a fair number of folks are upset with their local retailers, due to a widespread practice of raising prices for ammunition lately. Perfectly ...

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Thread: A different way to look at ammo prices

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    VIP Member Array maxwell97's Avatar
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    A different way to look at ammo prices

    It seems a fair number of folks are upset with their local retailers, due to a widespread practice of raising prices for ammunition lately. Perfectly understandable, but I think it may not be entirely justified, and I'd like to explain why and hear what others think. (warning: long post ahead, but it's not a simple topic)

    Now, it's pretty clear that there's been speculative buying and plain panic going on to drive demand for ammunition recently. I mean, seriously, a run on .22lr?

    But, in a sense, this may mean that prices didn't go up ENOUGH, which contributed to the shortage. An analogy to illustrate: imagine a city where the populace learns of an imminent disaster, let's say a flood, that will restrict their access to the outside world for a time, meaning little food coming in. Naturally, people want to stock food in preparation. A well-meaning mayor issues an edict: all food prices are frozen for the duration of the emergency, to prevent "profiteering". What happens? The shelves will be bare in no time, because although the price remains the same, the perceived value of food has gone up. It becomes a bargain, and everyone will buy as much as they can get theirs hands on, even if they have more than they really need; while those late to the store may arrive with money in hand and actually need more food, but there's none to be had.

    Now, what if that edict didn't exist? Prices would go up, perhaps drastically, but it would more accurately reflect the perceived value of the food, which has nothing to do with how much it cost to make or what the price was before the crisis. It would cease to be a bargain, and people would buy only what they need. That person short on food and late to the store would have to pay more, but it would be there.

    This analogy applies pretty directly to the ammo scare. Instead of a flood, the crisis was anti-gun politicians retaining control of government, creating an imminent threat of restricted supply. The perceived value of ammunition went way up, while the prices at major retailers barely budged. People saw it as a bargain and bought much more than they really needed. Suddenly the first-time gun buyer who really needs ammo to practice with and load for defense with his new carry piece can't find it, because the guy with 40 boxes in his safe decided it wasn't a bad idea to get 10 more. So what does he do? Looks around until he finds a retailer that performed the service he really needed - RAISING THE PRICE. He has to pay more, but since the opportunity buyers avoided the higher prices, this retailer at least has stock to sell. Maybe he can only afford half as much ammo, but he's a lot better off than if he had none.

    In the absence of government edict, why did most major retailers avoid drastic price increases? My guess is that they were afraid of getting what some small retailers are getting now: angry customers who feel that a price jump must mean they're getting cheated.

    So, thoughts? Does this theory sound plausible? Am I way off base and completely insane?
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    Member Array redbeardsong's Avatar
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    Quote Originally Posted by maxwell97 View Post
    It seems a fair number of folks are upset with their local retailers, due to a widespread practice of raising prices for ammunition lately. Perfectly understandable, but I think it may not be entirely justified, and I'd like to explain why and hear what others think. (warning: long post ahead, but it's not a simple topic)

    Now, it's pretty clear that there's been speculative buying and plain panic going on to drive demand for ammunition recently. I mean, seriously, a run on .22lr?

    But, in a sense, this may mean that prices didn't go up ENOUGH, which contributed to the shortage. An analogy to illustrate: imagine a city where the populace learns of an imminent disaster, let's say a flood, that will restrict their access to the outside world for a time, meaning little food coming in. Naturally, people want to stock food in preparation. A well-meaning mayor issues an edict: all food prices are frozen for the duration of the emergency, to prevent "profiteering". What happens? The shelves will be bare in no time, because although the price remains the same, the perceived value of food has gone up. It becomes a bargain, and everyone will buy as much as they can get theirs hands on, even if they have more than they really need; while those late to the store may arrive with money in hand and actually need more food, but there's none to be had.

    Now, what if that edict didn't exist? Prices would go up, perhaps drastically, but it would more accurately reflect the perceived value of the food, which has nothing to do with how much it cost to make or what the price was before the crisis. It would cease to be a bargain, and people would buy only what they need. That person short on food and late to the store would have to pay more, but it would be there.

    This analogy applies pretty directly to the ammo scare. Instead of a flood, the crisis was anti-gun politicians retaining control of government, creating an imminent threat of restricted supply. The perceived value of ammunition went way up, while the prices at major retailers barely budged. People saw it as a bargain and bought much more than they really needed. Suddenly the first-time gun buyer who really needs ammo to practice with and load for defense with his new carry piece can't find it, because the guy with 40 boxes in his safe decided it wasn't a bad idea to get 10 more. So what does he do? Looks around until he finds a retailer that performed the service he really needed - RAISING THE PRICE. He has to pay more, but since the opportunity buyers avoided the higher prices, this retailer at least has stock to sell. Maybe he can only afford half as much ammo, but he's a lot better off than if he had none.

    In the absence of government edict, why did most major retailers avoid drastic price increases? My guess is that they were afraid of getting what some small retailers are getting now: angry customers who feel that a price jump must mean they're getting cheated.

    So, thoughts? Does this theory sound plausible? Am I way off base and completely insane?
    You are not off base. That's called supply and demand. Business 101.
    If you run out of inventory, you're no longer bringing in income to cover your fixed costs (rent, utilities, etc.). To prevent selling out of current stock, you can either limit quantities or raise the price. Raise it too high, and no one buys it. Too low, and you sell out immediately, because you're below market value, so people but it to resell on the secondary market. Find the equilibrium price and you'll have a steady flow of sales.

    Many of the people complaining about higher prices are the same people who were flipping guns at absurdly high prices to the uneducated panic buyers in January.

    Dealers who refused, on principle, to raise prices, can't replace their inventory for the same cost. Prices have gone up even for dealers.
    Kilowatt3 likes this.

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    VIP Member Array Kilowatt3's Avatar
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    Correct on all counts!
    Regards,
    Jim
    NRA Life Member

    He that cannot reason is a fool. He that will not is a bigot. He that dare not is a slave. - Andrew Carnegie

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    VIP Member Array tdave's Avatar
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    It's called you try to gouge me I won't buy your products. I will buy from those who don't. If you go out of business you did it to yourself. That's also capitalism.

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    Here's another view: ammo was underpriced before Newtown.

    I bought my first defensive handgun (Springfield 1911) in 1990 for $425. In 1991 I bought a case of 500 rounds of .45 acp - Winchester white box - for $125 for my first training.

    In the ensuing 2 decades, the price of that same gun roughly doubled, yet in 2011 I bought a case of the same .45 ammo for $168 - slightly more than a 30% uptick in the same time frame. I didn't track 9mm ammo closely as I don't shoot that much of it, but over just the last 10 years the price actually seemed to decline, probably in response to demand.

    Not hypothesizing any economic theory here, just offering some data points that suggest we really were enjoying relatively cheap ammo for quite a few years.
    Blue Thunder and maxwell97 like this.
    Smitty
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    According to the Bureau of Labor Statistics CPI Inflation Calculator, you are correct as $125.00 in 1991 dollars becomes $206.44 in 2011 dollars. And it becomes $213.41 in 2013 dollars.

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    Distinguished Member Array Once's Avatar
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    Good job. i agree

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    VIP Member Array maxwell97's Avatar
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    Thanks, everybody, for your thoughts. Kind of makes me feel better - I had got the impression that there was universal anger over pricing, and that some retailers would be punished when, I think, they really don't deserve it (although some certainly may). Instead, it seems like a good proportion of ammo buyers are being very reasonable.

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