Demand For Ammunition Is Up, So Why Aren’t Prices?
BY Herschel Smith
11 years, 5 months ago
It isn’t common that an unbiased, informative report comes from NPR, but hey, even a blind squirrel finds a nut from time to time.
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.
You’d better believe it. As I’ve said before a number of times in my posts on ammunition, availability is more difficult, but with the right attention and time, and checking back again with the stores from which I purchase, it can be found. A few months ago I noticed a slight increase in prices for handgun ammunition when I find it, but I’ve also noticed that it’s back down now. I can usually find .38, .40 and .45 for around 45-50 cents per round or a little lower. .357 magnum is just a little higher. .30 carbine is still difficult to find, and I have to work at it.
5.56 mm ammunition was reaching a dollar per round, but that has trailed off to around 75 cents per round, and I expect it to go lower. The stores around me (and you know exactly who you are) who were selling 5.56 mm ammunition for four dollars per round now have customers who are royally pissed off (and I noticed that you have backed way off on your prices now). You reap what you sow. I’ll keep increasing my stockpile of 5.56, but not by purchasing from you.
I always see .270 ammunition everywhere I go, all of the time (perhaps showing the wisdom of .270 owners), and .308 is still a little pricey if it can be found at all. But the main point is that the store owner above knows how his bread gets buttered. He wants customers in the future, not just a small fortune now. And he also has a sense of “fairness.” Maybe that’s something gun control advocates just can’t understand.
UPDATE: David’s brief observations are on point.
On May 28, 2013 at 10:11 pm, TriggerFinger said:
Why be mad? If you didn’t have ANY 5.56 ammo, you might be willing to pay $4 a round and be happy to now have SOME 5.56 ammo. If you already have 5.56 ammo, and just wanted to stockpile more, you’ll pass because the price is too high and you don’t actually need it — thus making sure there is some available for the person who does need it. This is how the free market allocates resources when they are scarce. It’s natural, normal, and entirely appropriate.
On May 28, 2013 at 10:20 pm, Herschel Smith said:
Unless those who don’t have 5.56 mm ammunition know that the price will go back down. The losers will be the stores who charged 4 dollars per round. I already see it around here.
On May 28, 2013 at 11:17 pm, TriggerFinger said:
Those who don’t have it and are willing to wait until the price comes back down are doing the right thing for them, and making sure that the people who are willing to pay that higher price have ammunition available to buy when otherwise there would be none.
Yes, raising prices in a time of scarcity often annoys people. It shouldn’t; being annoyed at economics is irrational.
I didn’t buy guns or ammo during the recent unpleasantness, because I figured that the prices were going to be inflated due to the demand and if no significant gun control was passed they would be coming back down. Also, I had a reasonable amount of ammunition for my firearms already. I didn’t *need* more guns or ammunition, so I did not buy more at inflated prices. Several of my friends had been meaning to buy a gun, but had not gotten around to it. Not only were they willing to pay inflated prices NOW to make sure they had what they needed if a ban did occur, they were happy to pay those prices knowing they were inflated because, if they did not, they might be left with nothing in the event of a ban. (No, they did not buy from me.)
Because people like you and me did not buy at the higher prices, people like my friends were able to and happy to. Would it be a better world if you and I had a heavier gun safe and my friends had nothing because the shelves were bare?
On May 29, 2013 at 6:04 am, Roger J said:
I know a couple of guys who were making money during the shortage by buying ammo online – mainly AK calibers – and flipping it for higher prices. I don’t begrudge them this; it’s capitalism at work. However, the same guys swear they will never buy from CTD again because CTD hiked their ammo prices so high.
On May 29, 2013 at 7:14 am, Herschel Smith said:
TriggerFinger,
And yet … you’re here reading an article about the entire ammunition industry in America that has refused to escalate prices when demand went up.
The point is not what you or I think about capitalism. The point is that to some people there are more important things than making money, like having customers in the future rather than just right now.
On May 29, 2013 at 7:22 am, Inquiring Minds said:
Why do people not have the same attitude on the price of other commodities, namely gasoline?
The price/gallon has been rising consistently over the same period that news of massive fields of shale oil & fracking are widely reported. So, US oil supplies have never been greater, but price continues to rise.
In some cases, economics has nothing to do with it.
Or more accurately, a free market has nothing to do with it. Manipulation is the name of the game.
On May 29, 2013 at 7:31 am, Brad Ervin said:
So the Left waxes on and on about the unfairness of the profit motive but it’s us red-neck, knuckle dragging, conservative, neanderthals that make “fairness in commerce” the verb in the concept of free enterprise. Maybe the Left should take notes.
On May 29, 2013 at 9:02 am, Herschel Smith said:
Always remember this in case you’re a proprietor. The most powerful force in a free market isn’t what a proprietor wants to charge, or even what a customer is willing to pay. The most powerful force in a free market is the memory of the customer.
On May 29, 2013 at 9:08 am, PubliusII said:
The gun-owning community tends to be tight-knit because of the social opposition it encounters from the mainstream media. The same stigma is also directed to gun shops and dealers who sell ammo. While they are stores selling a product, and we’re customers, both of us are in this situation together.
Gun and ammo dealers also noticed the bad publicity earned by Cheaper Than Dirt, Dick’s Sporting Goods, and other retailers when they overreacted in the immediate wake of the Sandy Hook shooting. When a situation goes bad, everybody takes note of who stands with you and who doesn’t.
What’s behind the de-facto rationing is that normal supply and demand is on hold, at least temporarily. Retailers who raise prices will lose longterm customers, so rather than run that risk, they’ll ration the supply that reaches the shelves, either quietly or by putting open controls on how much you can buy at any one time.
The quiet approach has two big advantages. It doesn’t antagonize anybody who doesn’t like a posted “only three boxes at a time” policy. Second, it encourages customers to make frequent visits to the store to check on supplies, in the course of which they may well buy something else.
On May 29, 2013 at 9:22 am, TriggerFinger said:
Herschel,
The “entire ammunition industry” did not refuse to escalate prices. You yourself cited a counterexample (stores around you selling at $4 a round), as did Roger. You also noted that ammo was available, but you had to work to find it. Would you have had an easier time finding it if you bought from stores that had it at $4 per round rather than trying to find it at closer to the original price? Sure.
Shortages, or higher prices. Your choice. (With enough actors in the market, you get both, as we did here). I’ve written up an example of how it works.
So why didn’t the manufacturers raise prices, when they could have? They’re still competing with each other, the demand spike is temporary, and most of them are already running their plants as fast as they can. If they spend capital to add capacity, it increases their costs until they have paid back the capital cost. They *lose* money doing that if the demand peters out before they’ve made back the capital. Figuring out whether to expand or not is a job for the green-lampshade guys. They decided it wasn’t worth it this time. But that leaves a window for new manufacturing capacity (like Guy One the reloader and the retailer’s contact in NearbyForeignCountry in my example).
All I’m saying is, don’t get mad at economics.
On May 29, 2013 at 10:00 am, Herschel Smith said:
TriggerFinger, you are still missing the point, and in a big way. I’m not getting mad, I find it amusing that proprietors (a very few of them) escalate their prices, and I smile at the fact that in the long run, they’re killing their business.
Again, the vast majority of the proprietors DID NOT escalate prices, and they will be the ones in business in the future. The temptation of high profits now is like sleeping with a whore. It will come with a disease.
And to the point – yet again. It doesn’t deny the free market to say that those who keep prices stable will maintain their business in the future. It IS THE FREE MARKET, and those who don’t understand this may write pointy headed text books, but they don’t understand the market.
Customer memory is the most powerful force in the free market, as I’ve said. Long live the free market. And gun stores that gouged prices will die. And I will laugh at their demise. And this is all free market. Everyone is doing what they want. Some proprietors are smart, some sleep with whores and get diseases, and the customer controls it all like puppets on strings.
And don’t be fooled. The customer DOES control it, now or in the long term. The customer is king.
On May 29, 2013 at 10:35 am, Kyla said:
You must be joking if you think the cost of munition has not gone up. The price has more than doubled in some areas that is even IF you can find any.
On May 29, 2013 at 10:52 am, Herschel Smith said:
Kyla,
If I tell jokes I try to be clear about it (although sometimes I will admit that I am coy about it).
In this case the escalation in prices isn’t seen in my area. I am not joking. In fact, nothing in my article hints that I’m telling a joke. I still buy ammunition for the same prices as I did before the run (except for 5.56 which is about 25% higher and falling as we speak).
And in your area, those sellers who gouge will make a handsome profit now. Enjoy. It will go away and they will get to find new work.
On May 29, 2013 at 12:16 pm, Mark Matis said:
Reposted from my Facebook page. Don’t remember where I originally found it, but it was already posted elsewhere:
If you wanna check ammunition availability at WalMart, this:
http://www.youtube.com/watch?v=gD0rfXSyhIs&feature=player_embedded
still works for now. Note that the directions only work with Internet Explorer, but there is probably a way to get there in Firefox and other browsers as well.
On May 29, 2013 at 1:02 pm, Herschel Smith said:
TriggerFinger,
Several final points. You have been attempting to persuade others to think as you do, and thus the conversation hasn’t really been about how the market behaves so much as how you want it to behave.
You seem to want me (or others) to be “grateful” for $4 / round ammunition. You don’t want feedback, consequences, rewards and punishments. But then you are the one who is advocating against a free market, because that’s precisely how the market operates. For evidence, I go no further than the article I cited above, as well as the stores in my very area.
As for me, I will continue to persuade retailers by my own methods, i.e., consequences. I was going to purchase a Mossberg 930 SPX just prior to Christmas, and Shooter’s Express escalated their prices on the one I had my eyes on by a good 50% or more. In return, I didn’t buy from them, and I bought an M1 Carbine from Allen Arms. Hyatt Gun Shop didn’t change the pricing on the last gun they sold me in spite of the hot market. I rewarded that kind of loyalty to the customer by giving them my loyalty (within limits).
As for Shooter’s Express, I won’t buy from them. Ever. They can sell 5.56 ammunition for 4$ / round if they wish (and I encourage you to be “grateful” for this kind of think by putting your money where your mouth is – you and all two or three of you in the universe who are grateful for $4 / round ammunition). They would mail order to you, so I suggest that you become a customer.
In the mean time, most of the gun shops are betting against “grateful” customers who want $4 / round ammunition and high prices on guns. Queue that contest up any day – we’ll see who wins that one.
And thus have most gun shops bet against your own view of customers “grateful” for high prices. This is the difference between the way the market really works and the way you want it to work. Feedback, rewards and consequences is the most powerful dynamic in the market. The pointy headed textbooks don’t get this – but most successful proprietors do.
On May 29, 2013 at 1:45 pm, Robert Fowler said:
I am a small manufacturer of ammo. The only reason I had to raise my prices is because of the rise in cost of components. I’m still selling a lot of calibers for just a couple of cents per round over a year ago. The biggest increase has been in the cost of primers. They have jumped from 2.5 cent to 4.5 cents each. Lately I have found some for 3.9 cents and that is helping keep prices down. Powder has remained about the same along with bullets (when you can find them). I cast a lot of my own bullets and lead prices are pretty stable.
Now if I could find a good source of .22. I saw people at the last show selling bricks of it for 80 to 100 dollars. A friend of mine told one of the vendors that he was part of the problem.
On May 30, 2013 at 1:55 pm, JD said:
they tried to use capitalism against us and we called their bluff with soviet socialist price fixing…
On May 30, 2013 at 2:31 pm, Herschel Smith said:
So proprietors refusing to increase pricing because they want customers a year from now isn’t the free market (with business operators freely deciding what to charge for their wares), it’s “soviet socialist price fixing…”
Right. I think you should jump on that $4 / round backwagon and put your money where your mouth is. Send me a copy of the receipt. I post it.
On May 30, 2013 at 8:12 pm, Powers said:
>30 Carbine is everywhere..it’s the one cartridge everywhere I looked for what I wanted did have, and I figured I would look in a gun for it. Natchez has it almost constantly. I have been able to fins all the ammo I did not have stocked at regular prices, by just signing up for notifications, visting my local retailers regularly, and keeping an eye out. I work at home at my computer half the time, so it is definitely easier for me to get to notifications quick. Also, Walmarts in the area consistently had Winchester M-22 and the 420 cans of M855 at $189, enough for me to stock up for all my shooting this summer. Even 5.7 ammo came at regular prices from PSA and others, by the box and by the case. It just depends on your area too. I also know that some Walmart employees decided to take advantage of the situation and buy up ammo before it hit the shelves, and it ended up at the gunshows and the auction sites. It took some work, but me and friends stocked up nicely, at least for a while. Sad when the general public is scared into an ammunition and firearms buying rush. But that is what an anti-rights Administration and Congress will do.