Disclosing Chicken Cost Prices: Who Is It For?

There has been much debate over how much of the price of chicken consists of cost. Cost may be essential information for those running a business, but it is not something consumers necessarily need to know, so the debate has become a wasteful one. Because this kind of cost debate encourages political solutions that increase interference in business management, it is highly likely to produce side effects such as anti-business sentiment and misguided regulation.

Whether a product is expensive or cheap is subjective. People look at the price and decide whether to buy it. If they feel it is too expensive, they look for substitutes. There is little point in discussing socially whether something is cheap or expensive. Where does the pressure to keep prices low come from? It lies at consumers’ fingertips. In the process of consumer choice, pressure is exerted for prices to rise or fall.

There is such a thing in the market as “clearance goods.” The intention is to sell more by lowering the price. The interaction between the seller’s desire to sell more and the consumer’s choice causes prices to fluctuate. In other words, the pressure that keeps product prices low comes from competition in the market.

If you want to buy something cheaply, it is rational to go where competition is fiercer. Competition is the only real solution for bringing prices down. As market competition intensifies, quality and price move closer to the levels consumers want. If people want chicken prices to fall, the best way is to enable those who sell chicken to compete more fiercely. Whether they are directly operated stores or branded franchises is not what matters. The best way to serve consumers is to allow firms that offer better quality and prices to be chosen.

If something is absurdly expensive compared with global price levels, that is because of the product’s particular characteristics or because import barriers exist. If market-specific conditions lower competitive pressure, increasing competitive pressure through imports can also be a solution. Removing import barriers is precisely a policy for consumers.

For whom should cost be calculated? Obviously, it is information needed for business operators. What enables a business operator to continue operating is profit generation. To make a profit, costs must be calculated. Chicken ingredients, rent, labor costs, delivery app brokerage commissions, rider delivery fees, and taxes all go into cost. A store owner’s profit is determined by subtracting costs from sales revenue. If profits are high, the number of chicken business operators will increase. If losses occur or accumulate, they will give up the business.

If the government pressures or regulates business operators to lower prices, consumers end up suffering even greater harm as a side effect. That is because the market becomes distorted, making goods more expensive or lowering quality. Chicken prices can also rise along with a general increase in the overall price level. That factor was significant in this debate as well. As the government expanded the money supply and pursued massive fiscal spending, the value of money fell, pushing up asset prices and the prices of ordinary goods across the board. This is a phenomenon in which the burden on the public has increased because of the government’s mistaken policies.

Politically pressuring firms through a cost debate helps no one. The government should limit its role to creating an environment in which firms can compete. Furthermore, it should review the monetary and fiscal policies that have been fueling the overall price level.

Prices contribute to consumer welfare only when they are determined through market competition. If pressure is applied to set prices according to cost, it creates the side effect of seeking political solutions unrelated to consumer welfare. Moreover, that process will heighten hostility toward businesses. Prices should be allowed to be determined in the market so that competition among suppliers and consumer choice can achieve greater social benefit.

Sung-no Choi, President, Center for Free Enterprise (CFE)

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Original title: 치킨 값 원가 공개, 누구를 위한 것인가

Author: Sung-no Choi

Date: 2022-03-29

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=24669