General Question

VisionaryAdvait's avatar

If there is a global recession then why do all companies just not cut prices?

Asked by VisionaryAdvait (167points) January 29th, 2009

If the recession is global, and income has been reduced globally then is the obvious answer not for all companies to cut prices to equate with the reduced incomes and accept their profits are not going to be the same? Or is this just too idea?

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5 Answers

bluemukaki's avatar

The problem is that it’s the companies which are losing money, which is why employees’ income is being reduced and people are losing their jobs. If the companies cut their profits, more people are going to lose their jobs and therefore more people are going to be unemployed and those people will stop buying more expensive things which will cause other companies to lose money. It’s a downward-spiral unfortunately.

Kiev749's avatar

there is more too it than that. I mean, think about it this way, Most companies only make 5% on average of the things they sell. On groceries its more like >1%. (less than one percent) and if they cut prices to lets say they only make half as much, in turn, its not that big of a cut and they are losing out on half of the profit. Thus making the company have to cut spending some where. the biggest cost in 90% of all corperations? Labor.

mij's avatar

You have to outlay money to suppliers and all sorts of people to keep the business going and I can’t see too many of those people dropping prices.
It really would depend on margins on profits and would the business be able to sustain supporting a price drop which has to have a $ affect somewhere along the way…

laureth's avatar

That’s like asking why all employees don’t just voluntarily cut their pay. I haven’t, will you?

dynamicduo's avatar

If they cut their prices, they won’t have enough money to support the number of workers, thus some workers will need to be fired. Not to mention, there’s no guarantee that lowering prices will entice people to purchase the good. So the company may lower their prices but still be forced to close up shop, and they lose out on the extra income they would have gotten for the time. Reducing prices is not the answer to the current situation.

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