Reply #39: No, if your analysis were correct, then every company in an industry could [View All]

[mbperrin]

also give huge raises across the boards to all employees and then recoup them through higher prices to their customers. They don't do that, because of the relative inelastic or elastic demand for their products.

Substitutions take place when the primary desired product or service becomes too expensive. This is what happened to the whale oil industry in the 1860s, which created the petroleum industry.

As prices rise, consumers will switch to other venues for banking type services, or choose to exit banking completely. I haven't had a bank account or a loan from a bank or other financial institution from 1978, just as an example.

Price making and price taking behaviors, to which you refer, do not guarantee that consumers will swallow new higher prices at the same rate; in fact, they certainly won't, not as long as demand curves slope in a negative direction, which they do.