Demand For Ammunition Is Up. Why Aren't Prices?
Sales of guns and ammunition rose after President Obama took office in 2008, and they went through the roof starting late last year, when a school shooting led to a push for new gun control measures. That's led to a prolonged ammunition shortage, even with manufacturers running at full capacity.
A gun owner in Florida told me he has had a hard time finding .380 ammo for a small handgun for the past six months. Customers at Bob's Little Sport Shop in southern New Jersey told me it's hard to find ammo for some rifles and for the popular 9 mm. Even .22 rounds, the small ones, have been hard to come by.
An economics textbook would say this shouldn't happen. It would say that Bob Viden, who has run the shop for almost 50 years, should respond to the increase in demand by raising prices. And some stores and online sellers have done just that. But, Viden told me, "We don't want to do that. We want to be fair."
Apparently so do some of the best-known ammo sources across the country. At the sporting goods store Cabela's and at Wal-Mart, shelves are empty but prices are mostly flat. During my conversations at Bob's Little Sport Shop, the word "fair" came up about two-dozen times. Or, as one customer put it, "There's no reason to make a profit off of our misfortune."
To a traditional economist, a shortage is evidence prices are too low. But Viden predicts if he raises his prices, his customers won't come back because they'll think he ripped them off.
"Traditional economic theory doesn't really have room for fairness perceptions," Margaret Campbell, a marketing professor at the University of Colorado, Boulder, told me. But about 30 years ago, she says, "people started noticing that there were these kind of quirks."
In a famous study, the Nobel Laureate Daniel Kahneman and two colleagues found that people's ideas of fairness are so strong that, even if it makes short-term sense to raise prices during a shortage, many retailers don't. Campbell says that's because when prices go up, consumers actually care about the reason behind the increase — the retailer's motive.
"If a consumer sees a price go up in an unexpected fashion, they want to know, 'Why? Why has it gone up?' " she says.
There are lots of reasons consumers approve of (if the price the store is paying for the goods has increased, for example). But research has consistently shown that a sudden increase in demand is not one of them. So rather than raise prices, Bob's Little Sport Shop and other stores are rationing ammo in order to keep their customers' loyalty.
There is at least one place where classical market forces seem to be in effect here: Some people have been buying ammo at low cost and selling it at a higher price online. Essentially, they're scalping bullets. Scalpers don't care about return customers. And their customers don't expect them to be fair.
Update: This story was updated to note that some stores and online vendors have raised prices, though many have not.
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Transcript
STEVE INSKEEP, HOST:
Now, ever since President Obama took office in 2008, Americans have been stocking up on guns and ammunition. Some have coined it as the Obama Effect. And in the aftermath of the Sandy Hook Elementary School shooting, as the arms control debate in Washington heated up, sales have gone through the roof. And now there's an ammo shortage. Here's Marianne McCune of WNYC and Planet Money.
MARIANNE MCCUNE, BYLINE: A classic economics textbook would tell you this shouldn't happen.
(SOUNDBITE OF GUN SHOP)
BILL FLAHERTY: I've been looking for .380 ammo, and it's very hard to get.
MCCUNE: So how long have you been looking?
FLAHERTY: Oh, about six months.
MCCUNE: Really?
FLAHERTY: Yes.
MCCUNE: Bill Flaherty and gun owners across the country say it's also hard to find ammo for some rifles, for the popular nine millimeter. Even .22 rounds, the small ones, have been hard to come by. Flaherty is here buying what he can from the owner of a bustling gun shop in Southern New Jersey.
BOB VIDEN: I'm Bob Viden, Bob's Little Sport Shop.
(SOUNDBITE OF GUNFIRE)
MCCUNE: In back, there's a pistol range. Bob Viden has had this operation for almost 50 years, and he's doing more volume than ever. Old customers are stocking up. New customers are pouring in.
VIDEN: They're afraid of their government.
MCCUNE: They think Washington is going to take away their rights.
VIDEN: They want to be protected in case something happens and they can't get it in the future.
MCCUNE: And some ammo dealers, they are doing what the invisible hand of the market would direct them to do: demand is high, supply isn't keeping up, so raise the price.
MICHAEL DEERY: Like some places, especially online, they're charging twice as much.
MCCUNE: Customer Michael Deery says Bob's Little Sport Shop could charge more, too.
Would you be mad, or would you be willing to pay a little bit more?
DEERY: I would pay a little bit more.
MCCUNE: Like how much more?
DEERY: I'd probably pay twice as much of what it's worth.
MCCUNE: So, we're in a store where they can't keep enough product on the shelves. We've got customers saying they'll pay twice the price for the product. And still, the owner says, no thanks.
Bob, Mikey says he would pay twice as much for the ammo that he wants to buy. What do you say to that?
VIDEN: We don't want to do that. We want to keep customers coming back, because we want to be fair.
MCCUNE: Apparently, so do some of the best known ammo sources across the country. At the sporting goods store Cabela's and at Wal-Mart, shelves are empty, but prices are fairly consistent. During my conversations at Bob's Little Sport Shop, the word fair came up about two dozen times. And that word is key here.
MARGARET CAMPBELL: Traditional economic theory doesn't really have room for fairness perceptions.
MCCUNE: Margaret Campbell is a professor of marketing at University of Colorado's business school. And she says about 30 years ago...
CAMPBELL: People started noticing that there were these kind of quirks, according to traditional economic theory.
MCCUNE: For example, the reason behind a price increase matters to people.
CAMPBELL: If a consumer sees a price go up in an unexpected fashion, then they want to know why. Why has that gone up?
MCCUNE: Campbell says there are lots of reasons consumers approve of - but an increase in demand? That is not one of them. Raising your prices just because, all of a sudden, more people want your stuff, customers don't like it, and a lot of retailers try to avoid it, even if it means inconveniencing their customers in other ways.
UNIDENTIFIED MAN: I'll take a box of that.
MCCUNE: Back at Bob's Little Sport Shop and at a lot of other places, they are rationing. And customer Michael Deery says that is fair.
DEERY: Let everybody get a little bit instead of someone getting all of it.
MCCUNE: Of course, the invisible hand always finds some way. Some people have been buying ammo at low cost and selling it at a higher price online - essentially, scalping bullets. Scalpers don't care about return customers, and their customers don't expect them to be fair. Marianne McCune, NPR News, New York. Transcript provided by NPR, Copyright NPR.
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