Shrinkflation is a product or service that gets more expensive with changes that reduce its quality or make it physically smaller. This can be considered a type of inflation as value for money has been reduced. This has several unique causes and variations:
Customary prices that make it difficult for producers to pass on the costs of inflation to customers. For example, in Japan drinks from vending machines commonly cost 150 yen. As the nation increased its value added taxes in 2014, beverage companies found it difficult to pass on these costs as customers perceived any price above 150 yen as overpriced.
CommoditiesProducts and services in highly price competitive commodity industries may find it easier to cut quality than to raise prices. For example, an airline that makes seats smaller as opposed to raising prices. This occurs when customers almost always choose the lowest price without regard to quality for a particular product or service.
AffordabilityOffering things that people can afford when input costs have risen. For example, a city that has experienced a property boom may see developers offering smaller and smaller houses and apartments.Design improvements and innovation tend to make things smaller with time. For example, a flashlight that is just as bright and useful as historical models that has become smaller and lighter. Such a device could potentially be more expensive than previous designs despite using less materials.
Revenue & CostsEmployees at firms commonly need to justify their salary by increasing revenue or decreasing costs. One easy way to do this is to cut the size of a product in a way that customers may not notice. For example, a shampoo with redesigned packaging that makes it difficult to see that its volume has been reduced. This has potential to both increase revenue and decrease costs.
NotesShrinkflation is an example of why inflation statistics can be quite complex to calculate. In many cases, inflation statistics try to account for quality changes. It is commonly argued that inflation is overestimated due to massive increases in the quality of technology. For example, a modern smart phone could easily be sold for millions of dollars in the 1940s as it would be the most sophisticated computer on the planet. Such large increases in quality typically apply to technology but not to essentials such as food and housing.
This is the complete list of articles we have written about economic problems.
If you enjoyed this page, please consider bookmarking Simplicable.
© 2010-2023 Simplicable. All Rights Reserved. Reproduction of materials found on this site, in any form, without explicit permission is prohibited.
View credits & copyrights or citation information for this page.