Question:
I saw on a website that $100 in 1928 is worth $1,731.99 today... please feel free to use a different number if you believe that number to be inaccurate. Reese's peanut butter cups came out in 1928 with the nickname "penny cups" and they cost one cent each and I believe they were 0.9 ounces but this could be incorrect. The modern day size of 0.9 ounces was reduced to 0.8 ounces in 1981 and then reduced to 0.75 ounces in 2001. Also in recent years there are reports that they changed the chocolate/manufacturing process and ingredients as a measure for reducing costs. If a single cup was worth a penny in 1928 and if $1 is now worth $17.32 then one cup today would presumably be worth 17 cents and a two pack would be worth just under 35 cents retail. Of course this does not even consider the more than 20% reduction in size, and it does not consider the use of cheaper ingredients.My question is this:
If we factor in the size reduction and substitute ingredients, the adjusted retail price of the two pack of candy is significant less than 35 cents in 2022 dollars. How do we then explain the fact that today the price is often over $1.00 per ounce and even when purchased in bulk packages it is commonly 40-50 cents per ounce or more?
(Please feel free to use your own numbers and data if that would help)
Thanks again!
Answer:
Think of a bundle of goods bought at $1 in 1928. This bundle would consist of many goods. The average increase in bundle price would be $17.31 in 2022. The idea is to recognize that the price of some commodities in the bundle would have increased more than others. Reese's butter cups could be one of the items whose price increased more than the average. Now think of the inputs required to make the butter cups.
Simplistically one can think of technology (machines), raw materials, and human labor at multiple stages. Human labor accounts for the person working in the factory, the trucker guy carrying them to outlets, and the retailer. So, the wage rate has to be an important aspect. I do not have the data from 1928, but compared to 1960, the wage increased forty times in 2019. So obviously, when adjusted for 1928, the rise would be even higher. The wage rate can be one of the explanatories.
Moreover, the pricing power (markups are an important indicator of market power) could result from Reese's dominant position in the candy market sector.
