    [Senate Hearing 118-646]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 118-646

       HIGHER PRICES: HOW SHRINKFLATION AND TECHNOLOGY IMPACT CONSUMERS'
                                    FINANCES

    =======================================================================

                                    HEARING

                                   before the

                                  COMMITTEE ON
                       BANKING,HOUSING,AND URBAN AFFAIRS
                              UNITED STATES SENATE

                        ONE HUNDRED EIGHTEENTH CONGRESS

                                 SECOND SESSION

                                       ON

               EXAMINING HOW SHRINKFLATION AND TECHNOLOGY IMPACT
                              CONSUMERS' FINANCES

                                   __________

                                  MAY 2, 2024
                                   __________

      Printed for the use of the Committee on Banking, Housing, and Urban
                                    Affairs

                   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                    Available at: https://www.govinfo.gov/

                                     ______

                       U.S. GOVERNMENT PUBLISHING OFFICE

    60-379 PDF                 WASHINGTON : 2026

                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                           SHERROD BROWN, Ohio, Chair

    JACK REED, Rhode Island              TIM SCOTT, South Carolina
    ROBERT MENENDEZ, New Jersey          MIKE CRAPO, Idaho
    JON TESTER, Montana                  MIKE ROUNDS, South Dakota
    MARK R. WARNER, Virginia             THOM TILLIS, North Carolina
    ELIZABETH WARREN, Massachusetts      JOHN KENNEDY, Louisiana
    CHRIS VAN HOLLEN, Maryland           BILL HAGERTY, Tennessee
    CATHERINE CORTEZ MASTO, Nevada       CYNTHIA M. LUMMIS, Wyoming
    TINA SMITH, Minnesota                J.D. VANCE, Ohio
    RAPHAEL G. WARNOCK, Georgia          KATIE BOYD BRITT, Alabama
    JOHN FETTERMAN, Pennsylvania         KEVIN CRAMER, North Dakota
    LAPHONZA R. BUTLER, California       STEVE DAINES, Montana

                         Laura Swanson, Staff Director

                           Elisha Tuku, Chief Counsel

                  Catherine Fuchs, Republican Policy Director

                          Cameron Ricker, Chief Clerk
                          Shelvin Simmons, IT Director
                           Pat Lally, Assistant Clerk

                                      (ii)

                                C O N T E N T S

                                  ----------

                             THURSDAY, MAY 2, 2024

                                                                       Page

    Opening statement of Chair Brown.................................     1
            Prepared statement.......................................    26

    Opening statements, comments, or prepared statements of:
        Senator Scott................................................     3
            Prepared statement.......................................    27

                                   WITNESSES

    Bilal Baydoun, Director of Policy and Research, Groundwork
      Collaborative..................................................     6
        Prepared statement...........................................    28
        Responses to written questions of:
            Chair Brown..............................................    35
    Allison Schrager, Senior Fellow, Manhattan Institute.............     7
        Prepared statement...........................................    30
    Ali R. Bustamante, Professor of Practice, University of New
      Orleans Department of Economics and Finance, and Director,
      Worker Power and Economic Security Program, Roosevelt Institute     9
        Prepared statement...........................................    33
        Responses to written questions of:
            Chair Brown..............................................    35
            Senator Cortez Masto.....................................    36

                  Additional Material Supplied for the Record

    FRBB document....................................................    37
    FRBKC document...................................................    46

                                     (iii)

       HIGHER PRICES: HOW SHRINKFLATION AND TECHNOLOGY IMPACT CONSUMERS'
                                    FINANCES

                                  ----------

                             THURSDAY, MAY 2, 2024

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 10 a.m., via Webex and in room 538,
    Dirksen Senate Office Building, Hon. Sherrod Brown, Chair of
    the Committee, presiding.

                OPENING STATEMENT OF CHAIR SHERROD BROWN

        Chair Brown. The Banking, Housing, and Urban Affairs
    Committee will come to order.
        Every time Ohioans go to the grocery store, they're paying
    for corporate stock buybacks and executive bonuses. Prices
    today are far too high. Families are having a hard time finding
    a fair price, seeing more of their paycheck vanish into thin
    air. I hear all the time from Ohioans justifiably angry that,
    when they buy groceries and other basic essentials, they're
    paying more than they did a few years ago.
        All of this happens, while corporate profits hit record
    highs. Let's be clear, the fact that prices and corporate
    profits are going up at the same time is no coincidence. A
    study for the Kansas City Fed found that corporate profits
    drove half the price increases in 2021, and profits are still
    high today.
        Of course, I want businesses to make money. I want American
    companies to be the most competitive and most profitable in the
    world. What I am against is corporate profiteering that funnels
    money from working people to executives in the form of massive
    bonuses and stock buybacks. I'm against markets that don't
    foster competition and low prices. I'm against market
    manipulation. A family walking into a restaurant or a store
    should not have to guess what they'll be charged. Someone
    shopping online should not be paying more for the exact same
    product because of their online search history.
        Businesses should create new goods and services that
    Americans want to buy at prices justified by the cost. And
    workers, critical for the success of businesses, of course,
    should be paid fairly for helping the businesses succeed.
        Instead, the same Wall Street business model that has kept
    wages low and executive compensations sky high for decades is
    now pushing prices up, too. Corporations use supply shocks from
    the pandemic and the war in Ukraine as an excuse to raise
    prices, and they keep raising them. Be clear, they're not
    charging more because they're paying workers more. Wages are
    not causing price hikes. Corporations are raising prices far
    beyond their input costs and funnelling those profits to
    executives, not workers, just like they always do. They've
    realized when the market isn't free or fair, they can push
    prices up higher and higher.
        And they're using tried-and-true technologies, new
    technology, to refine old ones, to charge those higher and
    higher prices, and get away with it. When they're talking to
    the Wall Street investors, they admit what they're doing. On an
    investor earnings call, one CEO of a major American company
    said, consumers are tolerating frequent price increases well.
    You hear that? Consumers are tolerating price increases.
        I'm here to tell CEOs that working families cannot tolerate
    unfair price increases. Price gouging isn't new, but it's
    getting easier and easier to conceal.
        By now, we've heard what the media dubs shrinkflation,
    where corporations shrink their products, but keep the prices
    the same, or even raise them. The rolls of toilet paper have
    fewer sheets, but they didn't lower the price. The package of
    Oreos has fewer cookies in it, but the price stays the same.
        The trick isn't new, but it's getting worse. What's next?
    Will they shrink the amount of cream in the Oreo cookies? Will
    Double Stuff become half-stuffed?
        Companies use advances in technology to find new methods of
    price gouging. They're now using new pricing strategies and
    data collection to charge more. They call these tactics dynamic
    pricing and personalized pricing algorithms. Dynamic pricing
    and personalized pricing, you know some corporate PR firm is
    really proud of those terms.
        Customers don't want their pricing personalized. They want
    it to be fair. They want it to be transparent. They want it to
    be as low as possible. Gone are the days when Americans simply
    could walk into a store having a clear idea of what they are
    about to pay. It's not just the act of walking into a brick-
    and-mortar store that's nostalgic, it's the notion of
    predictable, transparent prices.
        With online retailers, the price can change every day or
    even within the hour, sometimes dramatically. They spread the
    technique to brick-and-mortar stores, adding electronic menu
    boards to restaurants and digital price labels to shelves, so
    that corporations can raise the price at a moment's notice.
        It's frustrating and it makes it impossible for people to
    compare prices and shop around, key ingredients in any fair,
    open market. Families with fixed budgets can't afford to walk
    into the grocery store, into a pharmacy, not knowing how far
    their paycheck will get them.
        Big Tech has exported their data-mining business model to
    retailers, and that has made all of this even easier for
    companies. As more people shop online, retailers learn more
    about browsing and shopping habits all of us have by collecting
    every bit of our online data. They can charge you more based on
    your search history.
        You start shopping around to try to find the lowest price
    on a new washing machine. Online retailers realize you're in
    the market for appliances and start showing you higher and
    higher prices.
        Spying on people and charging them more for the products
    they need, it's not innovation, it's price gouging. Charging
    more for food during mealtime isn't the free market, it's
    exploitation.
        The story is always the same, whether you use old tricks or
    new technologies, corporations win; the rest of us, typically,
    lose. That's not how free markets are supposed to work. It's
    why standing up to corporate interests matters.
        And people hate Washington, people hate Washington because
    too many politicians in this town over and over and over do
    corporations' bidding.
        It took us more than a decade of fighting the drug
    companies and their lobbyists and their allies in Congress to
    finally lower drug prices and to cap the cost of insulin at $35
    a month for seniors. Almost nothing we've done elicits the kind
    of reception that I get when I talk about lowering the price,
    capping the price of a prescription of insulin at $35. Yet,
    look at how hard it was in this country because so many of my
    colleagues were doing the bidding of corporate interests, doing
    the bidding of Big Pharma, day after day, week after week,
    month after month, year after year. But consumers had a victory
    when we capped the price of insulin at $35.
        We need Members of Congress to grow spines and stand up to
    more of these corporate lobbyists. Senator Casey and I have a
    bill to crack down on companies shrinking their products and
    raising their prices by directing the FTC to label this what it
    really is, and that is a deceptive practice.
        We need our colleagues to join us in efforts like this to
    lower prices and stop these tactics that distort the market,
    and stifle competition, and make it harder for Americans to
    afford the cost of living.
        Thank you. Member Scott.

                 OPENING STATEMENT OF SENATOR TIM SCOTT

        Senator Scott. Thank you, Mr. Chairman.
        And thank you all for being here with us this morning.
        Listening to our Chairman, Democrats would have Americans
    believe that the economic pain they're feeling is caused by
    greedy corporations putting a few less chips in your chip bag.
    It couldn't be more clear where the obvious pain is coming
    from. The obvious pain is coming from a guy who lives at 1600
    Pennsylvania Avenue.
        The bottom line is that President Biden and Bidenomics has
    devastated our economy and devastated people working paycheck
    to paycheck. The highest percentage of Americans with the
    fewest dollars in their savings account for an emergency is now
    because of President Biden and Democrats' reckless spending.
        They like to name their bills in attractive ways, but the
    bottom line is a very simple thing: they all add to inflation,
    whether it's the American Rescue Plan, the Bipartisan
    Infrastructure Act, or the worst-named bill perhaps in American
    history, the Inflation Reduction Act.
        Anyone who believes that inflation has gone down because of
    the Inflation Reduction Act, all you have to do is look at the
    latest information coming out of the Federal Reserve itself.
    Inflation continues to increase.
        These bills used to be hailed positively as a part of
    Bidenomics, but now they're just economics, because no one can
    afford President Biden's approach to solving the problems that
    we see in our Nation.
        And I know this to be true because it doesn't matter
    whether I'm at home in South Carolina or any other State around
    the country, I keep hearing the same things from consumers:
        Rent is too high. I'll never be able to afford a mortgage.
        I'm living paycheck to paycheck. My grocery bills are
    staggering, and I can barely afford them.
        Or I spent my entire life working and building up enough
    savings just to retire, but now I'm worried that those savings
    won't go far enough and I'll have to go back to work.
        Or I'm really worried about my finances and our economy.
        And they always end with a simple question: What can you do
    to help me?
        The number one concern, besides the devastation that
    Americans are experiencing because of the unsafe, insecure,
    wide-open southern border, the number one concern outside of
    the border is the economy.
        And Americans across the country point their fingers at the
    devastation of inflation. Inflation today is costing the
    average American family an additional $8,508 just to buy the
    same things they were able to buy before President Biden took
    office.
        It is truly unfortunate that the Biden administration
    continues to play a game of deflection; not taking
    responsibility, not solving the problem, but looking for
    someone else to blame other than the man in the mirror.
        First, the Biden administration told us that the challenges
    that we were seeing with inflation were transitory. I cannot
    tell you the number of hearings I sat through, whether it was
    Secretary Yellen or others, who said that this is transitory
    because of COVID.
        Well, then they changed the story that it was a Putin's
    price hike because of the Russian invasion of Ukraine. And
    then, it was greedflation or shrinkflation, when the fact of
    the matter is simply Biden's inflation.
        Here's the truth; the Biden administration's spending
    policies have caused the inflation that we're seeing and the
    economic devastation it is producing. They are the key
    contributors to the price hikes we are all experiencing today.
        Let's take a step back to understand what inflation really
    feels like to the average American.
        Prices across the board have certainly increased nearly 20
    percent since Biden took office. Yes, a 20 percent increase in
    just over 3 years. For example, butter is up 27 percent;
    chicken, 26 percent; white bread, 30 percent.
        When you go to the pump, you don't have to believe what
    President Biden says about the challenges. All you have to do
    is see the price at the pump, a 40 percent increase; energy
    costs, a 25 percent increase.
        I could spend the rest of my time this morning discussing
    other examples of how much prices have increased, but the
    American people know all too well that the challenges that they
    face and where it comes. That's why they trust him so little on
    the economy.
        It is crystal clear. They know what they see with their own
    eyes. Yet, instead of looking at ways we can bring inflation
    down, this Administration continues to look for scapegoats,
    such as corporate America.
        But here's what the Federal Reserve recently studied. The
    Federal Reserve studied the Administration's claims that
    corporations are driving up inflation and came to the
    conclusion, and I'll just read it, unprecedented large and
    direct Government intervention and accommodative monetary
    policy. Profits were back to their prepandemic levels by the
    end of 2022.
        With respect to shrinkflation, the Biden administration's
    own BLS, Bureau of Labor Statistics, reported that its effects
    have resulted in a 0.01 percent average annual increase to
    prices and has a very small impact on the overall inflation
    picture.
        I know this is really uncomfortable for some of you to
    listen to it. That's just called the facts.
        What we should be talking about today is the direct harm
    this Administration's policies are causing as they continue to
    lead to more inflation.
        We should be talking about the inflation spike we are
    likely to see after billions and billions of dollars in student
    loans are illegally forgiven by this Administration.
        We should be talking about a Federal debt that is growing
    by trillions of dollars every single year.
        The American people are smart. They see through this
    blatant attempt by this Administration to blame others for the
    inevitable results of their policies.
        It's time for the Biden administration and their friends on
    the other side of the aisle to wake up and smell the coffee
    that now costs 30 percent more.
        Out-of-control, reckless spending led to runaway inflation
    that has remained elevated for years now. We must all accept
    the fact and return to sound economic policies that make
    affording the basics just a bit easier for the American family.
        With that, I yield back and look forward to asking some
    questions.
        Chair Brown. Thank you, Senator Scott.
        We welcome the three witnesses to the Committee.
        Mr. Bilal Baydoun is the Director of Policy and Research at
    Groundwork Collaborative. Mr. Baydoun has served as a senior
    advisor in several Government organizations, including the city
    of Dearborn, Michigan. He holds a master's in public policy
    from the University of Michigan.
        Dr. Allison Schrager is a Senior Fellow at the Manhattan
    Institute. She's an economist and contributing editor at City
    Journal; cofounder of LifeCycle Finance Partners. Dr. Schrager
    earned her graduate degree from the University of Edinburgh and
    a Ph.D. in economics from Columbia University.
        Dr. Schrager, welcome.
        Dr. Ali Bustamante is the Director of the Worker Power and
    Economic Security Program with the Roosevelt Institute. Dr.
    Bustamante is an expert in labor, economics, and public policy.
    Prior to joining Roosevelt, he served as Chief Economist at the
    Louisiana Workforce Commission. He received his BA and Ph.D.
    from the University of Miami.
        Dr. Bustamante, welcome.
        Mr. Baydoun, please begin.

     STATEMENT OF BILAL BAYDOUN, DIRECTOR OF POLICY AND RESEARCH,
                        GROUNDWORK COLLABORATIVE

        Mr. Baydoun. Thank you, Senator. Chairman Brown, Ranking
    Member Scott, Members of the Committee, thank you for the
    opportunity to testify today.
        My name is Bilal Baydoun. I'm the Director of Policy and
    Research at the Groundwork Collaborative, an economic think
    tank based here in Washington.
        The modern price tag was invented by John Wanamaker of
    Philadelphia, a devout Presbyterian who believed that, if we
    were equal before God, we ought to be equal before price. And
    so, from the very beginning, the price tag was infused with a
    sense of fairness and equality.
        Yet, in America today, a fair price, let alone a sweet
    deal, is harder and harder to come by. In the age of corporate
    concentration and high-powered algorithms, pricing is in the
    midst of a troubling transformation, and the price tag as we
    know it may become a relic of the past.
        Ride-share apps like Uber have reportedly charged users
    higher prices if their phone battery was lower. Insurance
    companies fly drones above our property in search of signs of
    clutter, and car companies install software that reports our
    driving behavior to insurance companies, who use the data to
    hike our rates.
        Amazon, reportedly, changes prices millions of times per
    day, while running secret price-hiking experiments like Project
    Nessie that reaped $1 billion in revenue.
        Frustratingly, food delivery apps like Uber Eats show us
    one menu price upfront, only to tack on mysterious junk fees
    right at checkout.
        In a practice known as shrinkflation, companies discretely
    reduce the size or volume of common household items, everything
    from jars of peanut butter to bars of soap, to charge consumers
    more for less.
        All of these tactics converge on a single goal: find out
    the maximum price that individual consumers are willing to pay.
        In competitive markets, companies often have to innovate,
    outwork the competition, and improve products and services in
    order to keep customers happy. But a perfect storm in our
    economy made it much easier for companies to simply price their
    way to record profits.
        First, companies have gotten bigger. About three-quarters
    of domestic industries have become more concentrated and are
    dominated by fewer players than they were 20 years ago. This
    grants the remaining large firms the freedom to hike prices
    without fear of being undercut by the competition.
        Second, pricing has gone high-tech. Technological advances,
    such as cloud computing, AI, and surveillance targeting have
    enabled companies to collect reams of personal information on
    consumers and change prices in under a nanosecond.
        These technologies help companies build profiles of
    individual customers that include things like our age, marital
    status, estimated salary, ethnicity, the magazines we read, and
    even the type of topics we discuss online.
        Finally, market power and technological advances came
    together in the shadow of inflation, giving companies the cover
    to roll out pricing strategies once thought to be too risky,
    precisely because consumers dislike them.
        But with prices rising everywhere, customers couldn't
    distinguish which hikes were due to rising costs and which were
    truly excessive. As a Barclay's executive told Bloomberg in
    2022, quote, the longer inflation lasts and the more widespread
    it is, the more air cover it gives companies to raise prices.
    Unquote.
        The complex algorithms entrusted with setting prices to
    maximize revenues have neither a conscience nor legal training,
    which is why algorithmic pricing can be both discriminatory and
    collusive. But we don't have to accept the end of a fair price
    as inevitable. We must continue to enforce current laws that
    outlaw collusion and unfair and deceptive practices, while also
    recognizing that algorithms can fix prices just as well as
    human agents can.
        But new laws are also necessary. The Price Gouging
    Prevention Act, introduced in this chamber, would enable the
    Federal Trade Commission to enforce a Federal anti-price-
    gouging statute. Likewise, the Shrinkflation Prevention Act
    would classify shrinkflation as a deceptive practice and
    empower the FTC to take civil action on behalf of consumers.
        We must also continue to eliminate junk fees and regulate
    complex pricing structures that push hidden fees on consumers.
    The Consumer Financial Protection Bureau's late fees rule
    demonstrates that policymakers can and must protect consumers
    from predatory fees. By capping late fees at $8, the CFPB will
    save American families more than $10 billion annually.
        Finally, we can't allow companies to harvest our data and
    use it to price discriminate against us. Protecting data
    privacy, including transactions data, is essential to
    confronting this new pricing regime and ensuring companies
    cannot surveil consumers, while pushing arbitrary price hikes.
        There's no doubt we have the tools to restore a fair price
    in America. We just have to use them.
        Thank you, and I look forward to your questions.
        Chair Brown. Thank you, Mr. Baydoun. Dr. Schrager.

        STATEMENT OF ALLISON SCHRAGER, SENIOR FELLOW, MANHATTAN
                               INSTITUTE

        Ms. Schrager. Chairman Brown, Ranking Member Scott, Members
    of the Committee, thank you for the invitation today.
        I'm a Senior Fellow at the Manhattan Institute, where I
    research fiscal and monetary policy and financial markets. I am
    also a columnist at Bloomberg Opinion.
        And the high-inflation environment we're in is a terrible
    economic burden for American households, especially those
    living paycheck to paycheck or struggling to afford groceries,
    let alone enjoy the occasional meal out with their family.
        And it's tempting to blame whoever raised the price we see,
    the firms we buy goods and services from, who appear to be
    getting rich off of our bills. But they are not at fault; they
    are merely reacting to the realities of the high uncertain
    inflation environment we are all facing.
        In order to bring inflation down, we need to understand it,
    how it started, and why it persists. History has shown that
    misdiagnosing the problem, and then, implementing misguided
    policies will only create more harm for American households.
        And my testimony explains how we got here and why inflation
    remains high. The main reason it's remaining high is we're
    still in an elevated, high-demand environment, and that is made
    worse by a stimulative fiscal policy. Inflation, though, cannot
    be blamed on greedy corporations.
        First, there's no reason to think that corporations have
    just suddenly become greedy. It is natural to increase prices
    when you're facing a period of high demand.
        Take the example of an umbrella salesman in the rain. It
    does feel really unfair that he raises his price when it rains,
    but if he didn't increase prices when it starts to sprinkle,
    there would be no umbrellas left when there was a downpour. Or
    if he can't make more money in the rain, why would he bother
    sitting in the rain himself and sell umbrellas?
        We see a similar story playing out in markets today. Prices
    are increasing because demand is still high. We see consumer
    spending is still up. We see a rather very tight and vigorous
    labor market, and GDP, particularly around demand focusing, is
    still growing. And prices do rise when demand is high, and this
    price adjustment is how markets ration goods.
        It is true that there was an increase in profits in 2021,
    when inflation first spiked, but profits peaked in 2021 and
    have since fallen and leveled off.
        One way to understand what happened is that, initially,
    firms raised prices in response to increased demands and the
    limited supply coming out of the pandemic. But just like that
    umbrella salesman, they increased prices and reduced that
    higher demand.
        Now, at first, the cost of their inputs did not go up as
    much, in part, because firms had existing contracts. But as
    time went on, they had to renegotiate those contracts and gave
    many of their employees raises, and then, profit margins
    declined.
        So, in addition to just re-increasing prices, firms might,
    instead, just shrink the volume of the product they sell, but
    keep prices the same. Shrinkflation is like fewer potato chips
    in a bag. But this is just another way for firms to increase
    prices.
        And again, I see why this is extremely frustrating to
    customers. They are getting less and paying more. But it is
    really just another way to pass along the high price increase
    of the sort of overall high-demand environment we have and
    rising input costs.
        You know, whether or not increasing prices or increasing
    the volume of the goods is better, it really is sort of hard to
    say. But it's important to understand that sometimes just
    charging more reduces sort of more people from buying the good
    altogether.
        Now, dynamic pricing is another way that you can increase
    prices. And this is just increasing prices for some consumers
    and not others, and particularly, consumers who are more
    willing and able to pay more. Wendy's recently attempted this
    when they floated the idea of charging more during peak times.
        But an example of dynamic pricing that predates Wendy's is
    airlines. We've been living with their dynamic pricing for
    years. They charge more during peak times or they are now
    charging more for goods that used to be included in the price,
    like a checked bag or picking your seat.
        Now, this is, again, consumers hate this because it feels
    unfair. But it's important to understand this actually is how
    airlines also deal with the pricing pressure from technology
    that enables consumers to look at goods, to use the internet to
    sort of price-comparison shop, which puts pricing pressure on
    airlines. And the result is that the cost of flying has gone
    down.
        In the 1980s, only 30 percent of Americans had flown in the
    last year. Now, it is more like 50 percent, in large part
    because lower-income Americans do have a cheaper option, even
    if it means worse service.
        And the same is true for Wendy's. If they would just
    increase prices across the board, then fewer people would be
    able to go to Wendy's. And we can expect more of this. And in
    fact, research shows that a lot of the same technology that
    enables price discrimination has also created a more inclusive
    market and had some deflationary pressure on prices before the
    pandemic.
        So, I understand why this high-pricing environment is
    causing frustration for consumers. It causes frustration for
    me, too. But this is, again, the result of the high-demand
    environment we're in, and that is largely made worse by sort of
    stimulative fiscal policies that are still piling on, adding
    fuel to the fire to this high-demand environment.
        Past attempts from companies raising prices--if we choose
    the wrong solutions, such as price controls, those have proven
    counterproductive in the past. They create shortages. They
    reduce incentives to sell and produce, and they can worsen
    inflation.
        The best way to fix this is not to undermine the Fed's
    attempts to control inflation; pull back on spending; stop
    handouts, especially to high-earners who don't need them, and
    try to reduce the debt.
        Chair Brown. Thank you, Dr. Schrager. Dr. Bustamante,
    welcome.

         STATEMENT OF ALI R. BUSTAMANTE PROFESSOR OF PRACTICE,
    UNIVERSITY OF NEW ORLEANS DEPARTMENT OF ECONOMICS AND FINANCE,
       AND DIRECTOR, WORKER POWER AND ECONOMIC SECURITY PROGRAM,
                          ROOSEVELT INSTITUTE

        Mr. Bustamante. Chairman Brown, Ranking Member Scott, and
    honourable Members of the Committee, thank you for inviting me
    to speak on the pressing issues surrounding how corporate
    pricing strategies are impacting prices and their implications
    for consumer finances.
        In my testimony I will make three points.
        One, inflation is being driven, in part, by corporate
    profiteering related to firms' price-setting power.
        Second, corporate profiteering is harming consumers,
    workers, and small businesses.
        And three, Government has tools that can restrict corporate
    profiteering and protect consumers and small businesses.
        First, there is evidence that large corporations are
    engaging in pricing strategies that are contributing to
    elevated prices. Research conducted by my colleagues and I at
    the Roosevelt Institute has found that a recent sharp rise in
    markups by large corporations is contributing to inflation.
    Markups are the difference between the prices consumers pay for
    goods or services and how much it costs to make or provide
    them. Markups are low in competitive markets. But, as
    corporations have accumulated significant market power over the
    years, they have been able to increase prices without
    sacrificing profit. Our research finds average markups grew
    from 48 percent above cost in 2014 to 69 percent above cost in
    2023, and that is growth that is being driven by a few large
    corporations.
        For consumers, markups can take several forms through
    various pricing strategies employed by corporations.
        Standard retail markup. This is the most straightforward
    markup where sellers add a percentage to the cost of goods and
    services to generate profit.
        Shrinkflation. Reducing the quantity or size of a product
    while maintaining or increasing its price.
        Dynamic pricing. A method of price discrimination whereby
    prices adjust in real time using pricing algorithms and
    sophisticated consumer data, often with new artificial
    intelligence methods.
        Decoy pricing. Pricing structures where firms introduce a
    third, less attractive option to lead consumers to choose a
    more expensive option than they originally might have.
        Bundling. Bundling products together to sell them at a
    price that seems to offer a savings compared to buying each
    item individually, but that often includes a markup.
        Markups, and the sophisticated pricing strategies that are
    driving them, are on the rise because of large corporations'
    outsized market power. Research finds that smaller firms in
    less consolidated industries have not driven explicit markup
    growth.
        Take the fast-food industry, for example. My recent
    research of markups finds that the average markup in the fast-
    food industry grew by 14.7 percent during the past decade. When
    analyzing markups at the 10 largest fast-food firms in 2023, we
    found that they were the highest at Wendy's, McDonald's, and
    Restaurant Brands International, the parent company of Burger
    King and Popeyes. At these firms, prices were between 80 and 91
    percent above companies' marginal costs. These large companies
    are charging consumers above and beyond what is necessary for
    typical profit margins.
        Second, there is ample evidence that markups and corporate
    profiteering in general by large corporations are harming
    consumers, workers, and small businesses.
        Consumer surplus, how economists measure the social/
    economic benefits of consumption, would have been 14 percent
    higher in 2019 if markups had remained stable at 2006 levels
    and 50 percent higher if firms passed along the reductions in
    their costs over that period to consumers. This hits low-income
    consumers the hardest, as their disposable income is stretched
    even thinner, forcing them to make difficult decisions about
    the basic necessities and bills they need to cover.
        Workers are also being squeezed. Research shows that
    increases in markups lead to a decline in wages of
    approximately 12 percent, because markups lead to a reduction
    in the aggregate demand for labor. The harmful effect of
    markups on workers is also visible in the declining share of
    income going to workers. Rather than rewarding workers who
    drive productivity in the first place, these large corporations
    driving growth in markups are the same ones returning higher
    profits from markups to wealthy shareholders via stock buybacks
    and dividends.
        Furthermore, markups reflect a winner-take-most economic
    environment where large corporations with price-setting power
    also have the capability to reduce competition by creating
    barriers to new firms to enter the market, crowd out smaller
    firms, and squeeze supplier margins in order to protect and
    expand their market share.
        Lastly, I'd like to discuss the myriad of available
    Government tools that can restrict corporate profiteering and
    protect consumers, workers, and small businesses.
        We need to enforce and strengthen antitrust laws to prevent
    monopolistic practices and ensure competitive markets,
    particularly in industries where a few companies control
    significant market share, leading to higher markups.
        Policymakers can move to create guidelines and restrictions
    around the use of dynamic and personalized pricing to prevent
    unfair or deceptive practices by requiring businesses to fully
    disclose the pricing structure of their products and services.
    This would disincentivize corporations from enjoying these
    predatory pricing practices.
        To improve fairness and transparency in pricing,
    administrative agencies like the Consumer Financial Protection
    Bureau can mandate clearer disclosure of pricing components and
    service fees and enforce rules against deceptive pricing
    practices or hidden fees. This is particularly impactful in
    sectors prone to higher markups, such as financial services and
    health care.
        There are great economic benefits to be gained by reining
    in markups and unfair corporate pricing strategies, including
    lower prices in the short term and more competitive economic
    environment for business and workers in the medium and long
    term. Yet, inaction from both regulators and legislators will
    enable corporate profiteering that continues to elevate prices,
    harm consumers, and squeeze small businesses.
        Thank you.
        Chair Brown. Thank you, Dr. Bustamante. And the question
    will go to Senator Tester of Montana.
        Senator Tester. Thank you, Mr. Chairman, for the courtesy.
        And I want to thank you and the Ranking Member for holding
    this very important hearing.
        And I appreciate the folks who gave their testimony.
        I want to start with you, Dr. Bustamante.
        I believe in capitalism. I think you've got to have
    competition in the marketplace. It keeps everybody honest--
    everybody honest.
        I think what we've seen in many, many different sectors of
    our economy is way too much consolidation. I want to bring
    agriculture up as one. You know the statistics. Three-quarters
    of the global grain market is controlled by four traders.
    Eighty-two percent of the U.S. beef market is controlled by
    four packers.
        I'm going to tell you, and I'm a farmer in my real life--
    that concentration prevents folks that are in production
    agriculture, family farmers, from being able to survive. And by
    the way, the statistics on the other end point that out.
    Eighty-five percent of farm income is going to 7 percent of the
    farms. Ninety-three percent of the farms in Montana, for
    example, share just 15 percent of the farm income. That's a
    system that, quite frankly, needs some attention. We're talking
    about consumers getting taken advantage of. We talk about
    producers of the food in this case getting taken advantage of.
        Can you tell me if, and excuse me if I'm stepping out, but
    can you tell me if things like the Packers and Stockyards Act
    that was passed over 100 years ago, because the industry of
    meat packing was so consolidated, and today's it's even more
    consolidated than it was 100 years ago, is something that we
    should really focus on? Or is it a different issue than just
    making sure that people are following the antitrust laws that
    are out there?
        Mr. Bustamante. Consolidation has been a huge issue driving
    markups and higher market concentration in so many industries.
    As you mentioned, when we think of meat and meat processing,
    the fact that cattle ranchers used to get about 67 percent of
    every dollar that consumers were paying, was actually going to
    them, now it's closer to 33 percent. And this is a huge red
    flag that meat packers are, basically, driving consumer prices,
    but actually not passing on those gains to cattle ranchers or
    to workers to begin with.
        Senator Tester. Yes.
        Mr. Bustamante. And so, it's really being able to push back
    against consolidation, being able to push back against these
    large corporations that, ultimately, have so much market share
    that they're able to squeezer suppliers, consumers, and workers
    at the same time.
        Senator Tester. Well, thank you for that. Because you're
    spot on.
        And I will tell you food security is really, really
    important in this country. And because there's just not
    enforcement of laws that have been on the books for 100 years,
    we're forcing more consolidation at the ground level. And I've
    said this and I mean this, if we lose family farm agriculture
    in this country, this country becomes far, far, far less
    secure. And so, I think Congress needs to pay attention to
    that.
        And in that vein, I would tell you that Chairwoman Stabenow
    put out her farm bill yesterday, and in that she included a
    bill that I've been pushing for and that I've sponsored; the
    Meat and Poultry Special Investigator Act.
        This is for you, Mr. Baydoun. You mentioned the negative
    impacts of consolidation, of reduced competition, however you
    want to put it, in your testimony. Could you flesh out a little
    more what increased competition and accountability, how that
    could help farmers, ranchers, consumers, and what Congress
    needs to do from your perspective to try to make this happen?
        Mr. Baydoun. Absolutely, Senator. Thanks for the question.
        In competitive markets, we know that prices come down, in
    part, because firms have to compete against one another to win
    over consumer loyalty. And the consolidation that we've seen
    over the last 20 years especially has created such a situation
    where pricing has been divorced from competition.
        And so, whereas, once pricing was a fairly straightforward
    process that took into account factors such as the cost of
    materials, labor, the lack of competition, and also, the advent
    of algorithms, in which, you know, all sorts of industries,
    including beef processing, for example, use algorithms; all
    share the same algorithm, and that, effectively, allows these
    companies to collude in higher prices. Now, those higher prices
    are all across the supply chain and, ultimately, consumers feel
    that at the checkout line.
        Senator Tester. Well, I just appreciate this hearing
    because I firmly believe, if you're worried about how many
    ounces are in a potato chip bag, or Fritos, or an Oreo cookie
    bag, competition can fix that problem, but Congress has to do
    their job.
        Thank you guys very much.
        Chair Brown. Senator Scott of South Carolina is recognized.
        Senator Scott. Thank you, Mr. Chairman.
        Thank you all for being here this morning.
        Since taking office, the Biden administration has been on a
    regulatory blitz. And what I mean by that is, if you compare it
    to the Obama administration, where you saw about $300 billion
    of increased cost resulting from more regulations, under the
    Biden administration, we've seen about a $1.3, almost a $1.4,
    trillion increase in the regulatory burden put on businesses.
    Having been in business, started a few businesses myself, that
    could only increase the cost of being in business.
        Now, you compare that with the total cost of the Trump
    administration, that was a little bit over $30 billion. So, $30
    billion with the Trump administration; $300 billion with the
    Obama administration, and over $1.3, nearly $1.4, trillion of
    added regulatory cost.
        Dr. Schrager, do you agree that the breakneck speed of new
    regulations finalized by this Administration has contributed to
    inflation?
        Ms. Schrager. Yes, it certainly has contributed. So,
    there's a lot of factors going on. But, certainly, when you
    make it more expensive for businesses to produce, spend more
    time on paperwork, especially a huge part of inflation that
    consumers are having problems with is the cost of housing. And
    certainly, a lot of regulation and especially a lot of
    environmental regulations that make it more expensive to build
    housing is making that more expensive. And I think we're seeing
    in a lot of surveys that, as I said, the cost of housing is
    really number one for a lot of consumers. So, I think
    deregulation would certainly--it wouldn't solve all of the
    inflation problems, but it would certainly help.
        Senator Scott. Let me just stay on that subject because I
    hadn't thought about what you just said as it relates to
    housing. I've certainly seen the housing costs go up without
    question.
        I served some time on the local government, where we
    improved and increased the building requirements in Charleston
    County. If you think about the regulatory burden that comes
    from a municipality or a county, and then, you add that on top
    of the State, and on top of that is the Federal Government, you
    see this regulatory burden that is in many ways for small
    businesses, frankly, oppressive.
        I also think that an oppressive regulatory environment
    actually reduces competition and only benefits the players who
    are already in that space, and is more likely to create a
    monopoly in that space. That is not good for consumers.
        Thoughts?
        Ms. Schrager. Yes. That's absolutely true. And, in fact, we
    see this a lot in Europe, who have a lot more regulatory
    burden, particularly around technology, which we're talking
    about here, and how firms use data.
        And this was intended, as I said, to increase competition,
    but it actually had the opposite effect, because complying with
    all these regulations has actually made technological
    entrepreneurship much harder there.
        Senator Scott. There's no doubt when you see our largest
    technological firms saying, ``Please regulate me. Please
    regulate me,'' because it closes the door of competition. It
    kind of answers the question itself.
        A different question for you: I won't say this very well,
    but I'll do my best. From my perspective watching the
    legislation leave Washington and impact the country, whether
    it's the first bill signed into law, the $1.9 trillion
    legislation, that artificial stimulation where you're pouring
    new resources or cash into our economy--actually, artificial
    stimulation called money from the Government--increases the
    demand without increasing the supply. And so, if you increase
    the demand without increasing the supply, and you add on top of
    that the snarl from a transportation perspective that we saw in
    2021 and 2022, it's harder to get your supplies. So, it only
    increases the demand because you have fewer supplies, and you
    have more money in the market, which also increases the supply.
        The ultimate outcome of that is less supply, larger demand,
    and no real ability to see when your products are going to get
    there. That is very hard for businesses to manage, and it only
    leads to a more challenging environment.
        Ms. Schrager. Yes, exactly. I think even economists who
    associate themselves as Democrats have been saying that at
    least 3 to 4 percentage points of the initial inflation was due
    to stimulative fiscal policy, which has definitely sort of
    added to demand. And, you know, it's important to argue we
    still have very stimulative fiscal policy, despite the fact
    we're in a high inflation environment, which makes the Fed's
    job a lot harder.
        Senator Scott. Right. I only have about 20 seconds left.
        You said, I think, during your opening comments that the
    corporate profits peaked in 2021?
        Ms. Schrager. 2022.
        Senator Scott. 2022. I think that's actually relevant as
    well. As we think about the greed of our corporations--and
    frankly, I'm not going to sit here and defend any of them; they
    have the ability and responsibility of defending themselves--
    but, as a kid who grew up in poverty, the one thing that I can
    tell you is that the price that we're seeing at the pump, and
    the lack of the ability for a single mother to navigate gas
    prices, energy prices, and food prices, when we see a glut of
    resources coming into the marketplace, and for 52 consecutive
    paychecks, inflation outpaces her wage increases, that's a
    devastation. That's not a problem, but a crisis.
        Chair Brown. Thank you, Senator Scott.
        This question is to both of you, to Mr. Baydoun and to Dr.
    Bustamante. Ohioans are angry, as we all know, as they are all
    over the country, about the rising cost of everything. Every
    time they go to the grocery store, families pay for corporate
    stock buybacks, pay for executive bonuses. As prices increase,
    so do profits. Corporate profits climbed to record highs at the
    end of 2023, are projected to keep climbing through 2024.
        Dr. Bustamante, how much are corporate profits, in their
    quest to drive them higher and higher, how much does that
    contribute to rising prices today?
        Mr. Bustamante. Thank you for that question, Senator.
        When we look at data from the San Francisco Federal
    Reserve, we actually find that more than two-thirds of
    inflation is actually being driven by supply factors and other
    factors that are not demand-related. And, in fact, when we look
    at corporate profiteering and we're looking at markups, that's
    largely accounting for about 16 percent of inflation that we're
    actually seeing over the past 6 months.
        Chair Brown. Mr. Baydoun, what do you think about that?
        Mr. Baydoun. Our own analysis, Senator, at Groundwork has
    found that, in the second and third quarters of 2023, corporate
    profits drove over half of inflation, about 53 percent of
    inflation.
        Just a point of comparison, over the last 40 years before
    the pandemic, profits drove just 11 percent of inflation. And I
    think what's interesting over this year is that, although
    consumer prices have risen, the price of inputs has gone down,
    and also, the labor share of income has gone down. And so,
    there's still plenty more of savings to pass on to consumers,
    but there's also plenty more to share with workers.
        Chair Brown. And what you said tracks with a report that I
    cited earlier on the Kansas City Fed.
        Mr. Baydoun, you spoke about higher profits are
    contributing to higher prices. We've seen companies now raise
    prices, as you know, and shrink their products, while charging
    people the same price or even raising the price. This means
    people are either buying less of the things they need or paying
    more, or both.
        A study found that so-called ``shrinkflation'' accounts for
    about 10 percent of the price increases consumers experienced.
    Consumers really don't know how much their money is getting
    them.
        Could you provide other examples of how corporations use
    so-called ``shrinkflation'' to make it harder for consumers to
    find the lowest price?
        Mr. Baydoun. Absolutely, Senator.
        I think Americans would really be stunned to see the
    breadth of how many different strategies there are. It really
    runs the gamut from lowering the number of paper towels that
    come in a roll, the number of Kleenex that are in a box. It
    could be increasing the indentation of a drink, so that, you
    know, less liquid could go inside. It could be discretely
    reducing the amount of dish soap in the bottle. And so, really,
    there's all sorts of creative ways.
        I would also add that, in addition to shrinkflation,
    there's also a practice known as ``skimpflation,'' which
    involves degrading the quality of those products, while keeping
    the price the same.
        And so, we're now seeing a new frontier of ways to deceive
    consumers into paying higher prices.
        Chair Brown. So, talk about, if you would, talk about
    technology, what kind of ways it's easier for corporations to
    charge higher prices and keep consumers in the dark. And can we
    have free market competition of customers who cannot compare
    prices and can't really shop around for lower prices?
        Mr. Baydoun. Absolutely, Senator.
        You know, pricing, as I said, was a fairly simple formula.
    It took into account the cost of materials, the cost of labor,
    and some rudimentary analysis about what your competition was
    up to. And companies would simply stick that final price of
    that calculation on a price tag and they would let it be.
        But today, we are in a totally different era. Technology
    really enables companies to, number one, surveil consumers and
    collect data about consumers that, frankly, only our families
    and God should know about--things like marital status,
    ethnicity. And so, all of those things are really fed into
    algorithms that are able to test each one of our sensitivities
    to price hikes. And the goal is always the same. It's, let's
    find out the maximum price that each individual consumer is
    willing to pay.
        Chair Brown. Dr. Bustamante, your thoughts on that?
        Mr. Bustamante. Yes, thank you, Senator.
        What we ultimately know is that, when we look at these
    pricing strategies, they're very much black boxes that
    corporations are ultimately employing. And that really opens
    the door for potential discriminatory practices, for practices
    that ultimately harm families who are already on the brink of
    having so much financial stress in their lives.
        Chair Brown. Thank you.
        I wanted to mention, next week, in the next hearing, we're
    going to talk about junk fees. And we know that the
    complexities of technology, and the comments you each made
    about the employment of these technologies by companies that
    produce these products, make fees even harder to ascertain and
    understand. CFPB just released a report that found that
    consumers pay more with complex pricing structures. The
    Committee next week will hold a hearing examining how junk fees
    hurt consumers and how we can ensure consumers can keep more of
    their own money. Senator Tillis of North Carolina.
        Senator Tillis. Thank you, Mr. Chairman.
        Mr. Baydoun, so if someone making a business decision to
    charge a price that they believe is over a general market
    value, that reduces the number of people that can purchase it,
    do you think that's a bad practice?
        Mr. Baydoun. Senator, I think if companies engage in
    practices that are unfair, deceptive--
        Senator Tillis. Well, no, I'm back to that specific use
    case.
        Mr. Baydoun. Mm-hmm.
        Senator Tillis. I have a business person knowingly making a
    decision to price above, to reduce the number of people that
    could afford a product that I've decided to sell. Do you think
    that that's fundamentally a bad decision?
        Mr. Baydoun. Not necessarily, Senator, but we do have--the
    concept of price gouging still applies. And if companies are
    raising prices to protect their profit margins from rising
    costs, that's one consideration. But if they're hiking their
    prices to reap super-normal profits, that's a problem.
        Senator Tillis. In your opening statement, I think you may
    have mentioned that you believe corporate profit margins are
    abnormally high. Do you agree with that, that they are
    abnormally high? Because that seems to be in conflict with the
    Fed report of September 2023, where they said, when you adjust
    for COVID, some of the COVID policies implemented, that they
    were, more or less, back to prepandemic levels. So, do you
    disagree with the Fed's assessment?
        Mr. Baydoun. Senator, over the last 3 years, corporate
    profit margins have hovered around 70-year highs.
        Senator Tillis. So, you disagree with the Fed's assessment
    in their September 2023 report?
        Mr. Baydoun. I'm not familiar with that specific--
        Senator Tillis. I'm asking for the record, in that context,
    if you disagree because it seems to be in conflict. I'm just
    curious.
        Mr. Baydoun. Mm-hmm.
        Senator Tillis. And thank you, Mr. Baydoun, for the
    skimpflation. That's a new one I can add to my lexicon.
        Let's use Frito-Lay as an example. Look, they're making--I
    was using that example. You answered the question differently.
        But a homeowner who decides to price a house above the
    market is making that decision at an atomic level. I'm glad you
    actually did not say that that was a bad thing. Because we
    can't separate, we can't create a free market sort of concept
    for small businesses and not a free market concept for big
    businesses, because those big businesses were once small.
        And I think it's very dangerous when we decide that perhaps
    we should have some oversight to determine what an adequate
    profit margin is for, let's say, a Frito-Lay. I don't know,
    you're probably too young to remember it, but Frito-Lay had a
    catastrophic failure with fat-free potato chips. Do you
    remember those, Mr. Chair, olestra, that ended up not doing
    very well?
        Businesses don't always succeed. Sometimes businesses lose
    money. And so, we only seem to talk about this when businesses
    are succeeding, when businesses aren't going into bankruptcy.
    I, for one, think that the internet is doing a pretty good job
    of identifying when potato chip bags are getting smaller.
        I, for one, am very cheap. So, I'll go find a brand that I
    like that hasn't skimped on me or hasn't shrunk on me. I don't
    know why the free market is not going to take care of this.
        But you did bring up something that's critically important
    that I happen to agree with. It's actually the only thing I
    agree with, to be honest with you, based on your opening
    testimony. And that is the use of consumer data. This is where
    we're failing.
        We just had a hearing, Mr. Chair, in Finance yesterday. A
    couple of years ago, when Europe implemented GDPR, Congress was
    hot to say, ``We've got to get controls over data. People
    should have to explicitly opt into having their data shared,
    knowingly marketing it,'' et cetera. Everybody was hot on it,
    and then, all of a sudden, we found out there were two or three
    committees involved. We wasted 2 or 3 years, and we haven't
    done a damn thing.
        As a matter of fact, we've implemented a patchwork, States
    have, that are actually making it more costly. So now, to some
    people here, bad corporations are actually incurring more costs
    because they're having to adhere to a patchwork of data privacy
    rules at the State level, because Congress has failed to act.
        I actually believe, if we want to reduce prices, then we
    have to go back to what Ranking Member Scott referred to. We
    can't just say it's just corporate greed. We have to look at
    the last 3 or 4 years of added regulatory burdens, of a lack of
    really trying to work on trade agreements--all these things
    that actually affect global competition and, ultimately, price
    points.
        But, on that issue, because it was brought up in Finance,
    on data privacy, data ownership, data breach, boy, I hope we
    can get that under control, because if we do, it will fix some
    of this stuff that you're talking about.
        Thank you, Mr. Chair.
        Chair Brown. Thank you, Senator Tillis. Senator Warren of
    Massachusetts is recognized.
        Senator Warren. Thank you very much, Mr. Chairman.
        If we're going to talk about markets, and how perfect
    markets are, maybe the one thing we should talk about is how
    concentrated markets have become. And when we have concentrated
    markets, we have a whole lot less competition.
        So, just a handful of companies have taken over the food
    industry, thanks to literally hundreds of mergers over the last
    50 years. Just four grocery chains control an average of 72
    percent of sales in American cities. And in most grocery
    categories, like bread, pasta, beef, cereal, just four
    companies control more than 60 percent of the market.
        Now, less competition means food brands don't have to
    compete on either price or product quality. For families'
    pocketbooks, that means higher prices. Grocery prices have
    climbed faster than inflation over the past few years. Now,
    families are paying 25 percent more than they did before the
    pandemic.
        So, I want to talk today about the tricks and traps that
    families face when they head to the grocery store. Dr.
    Bustamante, you have researched corporate pricing practices. I
    understand that when inflation increases, food producers and
    grocery stores may need to pass on some of those higher costs
    to customers. But the question is: have groceries gotten more
    expensive just because of inflation--that is, passing along
    higher prices--or is there more going on here?
        Mr. Bustamante. Thank you, Senator.
        What we actually see is that, if you look at the long-term
    price, the actual marginal cost of production for many
    groceries has actually gone down. And part of the big reason
    for this is actually with just the nature of the supply chains
    that have actually been developed over time.
        That being said, those lower marginal costs were not passed
    on to consumers. Instead, what we see is that, for the past 40
    years, this just growing and fastening trajectory of markups,
    basically, again, firms pricing their products and services at
    a much higher rate than the actual increase in cost. And what
    we see, during the past few years, that's just been accelerated
    due to the pandemic.
        Senator Warren. Right. And something they can do because
    there's a lot of concentration in the industry, so there's not
    much competition.
        In fact, corporate profits rose five times faster than
    inflation between 2020 and 2022. Kraft Heinz, which sells
    everything from Oreos to pasta sauce to coffee, increased
    profits by 448 percent over 2022. Cal-Maine, the largest egg
    producer in the U.S., increased profits by 718 percent. In
    fact, for most of 2023, corporate profits drove over half of
    inflation.
        Now, that hasn't stopped Big Food from pulling out another
    trick. Jacking up prices was not enough. So, food companies
    have decided to quietly shrink the size of products--lobbing
    off a few inches here, a few chips there, or a few cookies
    somewhere else.
        This shrinkflation is all about deceiving customers, so
    that corporations can have their profits. The CEO of the snack
    company Utz admitted calling shrinkflation ``the path to higher
    margins.'' So, it seems like we lost the basic principle of
    knowing how much something costs before we pay for it.
        Mr. Baydoun, you have been studying corporate behavior for
    years. Have you seen, in your research, have you seen a shift
    in behavior here?
        Mr. Baydoun. I have, Senator. Companies deploy a vast array
    of tactics that really threaten to make the price tag as we
    know it totally obsolete. I'll just name a few.
        In addition to shrinkflation, there's also skimpflation.
    This is the idea of degrading the quality of a product by using
    inferior ingredients, while keeping the price the same or
    higher.
        There's also dynamic pricing. This involves changing the
    price of a product hundreds, thousands, even millions of times
    in a day or week--making it difficult to predict costs.
        And finally, there's a practice known as drip pricing. This
    involves adding on mysterious, confusing fees, as consumers are
    making a purchase, as opposed to building all of those fees
    into the upfront cost.
        Senator Warren. OK. So, you've got a lot of tricks and
    traps you identify. I understand it not only happens when you
    pull something off the shelf, it also happens when families get
    to the cash register, when they get ready to check out.
        Mr. Baydoun, let's say you've picked out all of your
    groceries. The cashier rings them up or you ring them up
    yourself. And you use your credit card to pay. And you talk to
    us a little bit about the opportunities that big credit card
    companies have to squeeze consumers on their groceries?
        Mr. Baydoun. Absolutely, Senator.
        In many ways, customers get gouged once at the checkout
    line, and in many ways they get gouged again if they carry that
    balance on a credit card--not only through exorbitant APRs, but
    also through junk fees, like late fees. You know, up until
    recently, credit card issuers could charge as high as $41 for
    missing a payment, but, thankfully, the Consumer Financial
    Protection Bureau actually capped those fees at eight dollars,
    and that's something that will save 45 million Americans an
    average of $220 a year, $15 billion annually in total. And so,
    those are the sorts of interventions we need.
        Senator Warren. And special thanks to the Biden
    administration that has really started attacking these junk
    fees.
        Congress also needs to step up. We need to pass Senator
    Casey's Shrinkflation Prevention Act to end shrinkflation and
    my Price Gouging Prevention Act to give the FTC the tools it
    needs.
        Thank you, Mr. Chairman.
        Chair Brown. Thanks.
        Senator Hagerty of Tennessee is recognized.
        Senator Hagerty. Mr. Chairman, I'm wondering why we're
    having this meeting today. I have been, you know, very
    surprised by the fact that we're going through some type of
    blame-shifting exercise, where we know what the real cause of
    inflation is here in America. And the cause of inflation in
    America right now over the past 3\1/2\ years has to do with
    policies that have been implemented by the Biden administration
    and by Democrat legislation that was passed without a single
    Republican vote--the American Rescue Plan, as it was called;
    the Inflation Reduction Act, as it was called--dumping
    trillions of dollars into the economy, stimulating demand way
    beyond what the economy could encounter.
        You jack up demand and at the same time imposing massive
    regulatory constraints that suppress supply. It's obvious
    what's going to happen: prices go up.
        The American family, the American consumer can't withstand
    this. Prices are up 19 percent since Joe Biden took office.
    Young families can't afford a new home right now. The American
    public is suffering dramatically. Yet, here we are in a blame-
    shifting exercise trying to argue about how many potato chips
    are in a bag of potato chips.
        Look, the American public can see right through this.
    Whether we pay the same price for fewer potato chips or pay
    more for the equivalent number of potato chips, inflation is
    real. And inflation is the product of policies that have been
    implemented that are damaging the American economy.
        You think about the blatant vote-buying that the Biden
    administration has undertaken with student loan forgiveness.
    Again, billions of dollars more into the economy--putting it on
    the backs of hardworking Americans to pay off doctors and
    lawyers and people with graduate degrees.
        The American can see through this. The American public is
    suffering. We've got bank failures. We've got serious issues
    that this Committee should be addressing. Yet, here we are
    today talking about some sloganeering exercise called
    ``shrinkflation.'' This is not what we should be considering,
    Mr. Chairman.
        Chair Brown. Thank you, Senator Hagerty. I guess you
    weren't here when we talked about that same bill when we
    limited the cost of insulin to $35 a month.
        Senator Smith of Minnesota is recognized.
        Senator Smith. Thank you, Mr. Chair.
        I have a question I'm going to bring to you, Mr.
    Bustamante, in a minute, but I want to just follow up on what
    Senator Hagerty was asking about. He seems to be suggesting
    that Government spending is what is contributing to rising
    prices that consumers are experiencing at the grocery store or
    when they buy auto insurance.
        So, do you think the Child Tax Credit was contributing to
    inflation?
        Mr. Bustamante. Thank you for your question, Senator.
        When we actually look at, whether it's at 2022, whether
    it's looking at 2023, or even during the past 6 months, about
    two-thirds of inflation is actually due to supply factors, as
    well as other factors unrelated to demand.
        Senator Smith. Right, right. So, our investment in the
    Child Tax Credit and housing assistance, and student loan
    forgiveness, is not what's causing prices to go up for
    consumers.
        And I actually think what I hear from my constituents in
    Minnesota is they're trying to figure out, like, why is it that
    I'm paying so much more at the same time that corporate profits
    are going up so much? I just had this question today, Mr.
    Chair, when I had my coffee with Tina, with Minnesota
    constituents. And one of my constituents was trying to
    understand why his insurance, his home insurance rates are
    going up so much.
        Now, let me ask you about this: I want to actually hone in
    on auto insurance, which has been emerging as a huge driver in
    rising prices. In Minnesota, car insurance rates have gone up
    35 percent, more than 35 percent, between 2022 and 2023. Now,
    some of that, of course, can be attributed to rising costs of
    car parts and other market forces, but there's also been a real
    reduction in coverage options and fewer choices for consumers.
    And consumers are getting squeezed here.
        So, can you talk about this a little bit? What are you
    seeing when it comes to rising car insurance rates? And to what
    do you attribute these increased costs? And let's be honest,
    another sector where there's a fair amount of concentration, as
    Senator Warren was discussing.
        Mr. Bustamante. Thank you, Senator.
        You're actually pointing at two main factors that are
    driving inflation and higher prices in the insurance industry,
    which is a key driver to inflation today.
        One is consolidation. There are just fewer insurance
    providers out there, and that has enabled them to collude and,
    ultimately, pass price hikes much greater than the actual cost
    to replace parts or replace cars.
        And then, the second factor, which has been this black box
    of pricing strategies that insurance companies ultimately
    employ, which enabled them to both engage in economic
    discrimination, where they're able to offer very similar
    customers vastly different prices just based on their personal
    characteristics--oftentimes, in ways that are not transparent,
    in ways that are ultimately driving prices much higher than
    they ought to be.
        Senator Smith. Competition and the free market works when
    there is good balance, when there is a shared power. So that
    consumers have power; businesses have power, and it allows
    consumers choice. And therefore, they are able to make the best
    choice and not be sort of constrained by only having one or two
    places where they can purchase something.
        And speaking of black boxes, Mr. Baydoun, I want to come to
    you next. We're seeing this huge affordability crisis in
    housing and in rents. I see this in my home State of Minnesota.
        And one of the things that I'm particularly concerned about
    is how algorithmic pricing is being used to allow ways for
    landlords to be able to use their market power to raise rents
    in ways that are just patently unfair. Could you talk about
    this? I'm particularly concerned about RealPage, a company that
    has reportedly used confidential data and algorithms to help
    landlords indirectly collude to set prices and even withhold
    supply in the market.
        Mr. Baydoun. That's right, Senator. And, you know, if a
    group of landlords controls most of the units in a
    neighborhood, and they all use the same algorithm to suggest
    prices, that algorithm can, effectively, drive up prices and
    facilitate collusion in the same way that a human could. And
    so, if these landlords were getting together at a barbeque and
    deciding to raise prices, they could come to the same sort of
    level of price hikes; the algorithm could come to the same
    level of price hikes that humans can.
        Senator Smith. That's right. And, I mean, that kind of
    collusion to raise prices across an industry sector, I mean, we
    don't allow that, right?
        Mr. Baydoun. No, it's illegal.
        Senator Smith. Right.
        Mr. Baydoun. And that's why I certainly applaud the Federal
    Trade Commission for applying antitrust law to these more
    modern scenarios and very effectively making the point that
    algorithms can facilitate collusion.
        Senator Smith. Yes, I agree with that. RealPage is now the
    subject of multiple investigations and lawsuits. And I wonder
    how long it will take before the next iteration of this
    strategy comes about and where we go from here.
        Do you have any advice for us? I appreciate you calling out
    the FTC, which I think has been doing an excellent job. But
    other advice for us, as we look at ways to put some guardrails
    around how this technology can lead to collusion?
        Mr. Baydoun. Absolutely.
        I would also call out junk fees in rental. I think that's
    something that's a new frontier and, increasingly, the cost of
    rent, the upfront cost that renters are seeing, is not the
    final cost they pay. And I think this body and other regulatory
    agencies really need to protect the basic guarantee that the
    price we see is the price we'll pay.
        Senator Smith. Thank you very much. Thank you, Mr. Chair.
        Chair Brown. Thanks, Senator Smith. Senator Britt from
    Alabama is recognized.
        Senator Britt. Thank you, Mr. Chairman.
        I appreciate all of you being here with us today. I would
    be the first one to say that I think we can all agree that any
    practices of deceptive price gouging or intentionally
    misleading of consumers, or elsewhere, are completely and
    totally unacceptable. But we already have laws in place to
    prevent and enforce against that.
        What we're here to discuss today is a separate matter. The
    fact is that businesses, just like families in Alabama and in
    Ohio, Mr. Chairman, all across our country, are having to
    rethink and adjust their spending patterns to adapt to the
    current economic circumstances--circumstances that are driven
    by persistent high inflation that we've experienced over the
    last 3 years. Those circumstances have wreaked havoc on
    businesses, especially the local Main Street establishments
    that make up the economic heartbeat of their communities and
    our Nation.
        Core material costs have risen since 2021 and overhead
    costs in things like utilities and, as you just mentioned, rent
    and interest have also gone up significantly. Plus, packaging
    costs for products are up 40 percent and domestic shipping
    costs are up over 20 percent since 2021. Businesses of all
    sizes are having to make changes in response to those increased
    costs just to stay afloat and serve their customers.
        However, rather than focusing on the root of the problem, I
    am, again, discouraged by the apparent lack of responsibility
    taken by the White House for the consequences of their own
    actions. Instead of changing policies, this Administration has
    chosen to change its messaging. It's engaged in an absurd
    attempt to blame-shift rather than to reverse course or to
    admit any fault.
        Across the board, Americans' finances are being decimated
    from this Administration's policies. Seventy-eight percent of
    Americans reported having to live paycheck to paycheck in
    2023--up 6 percent from the previous year. We've seen
    Americans' credit card debt surpass $1 trillion--the highest
    amount in history.
        We've seen families that have witnessed mortgage rates
    double--putting American dream of home ownership, which we know
    is something that so many people strive for, out of reach.
        Let me just read you a few data points upon the recent
    March 2024 Consumer Price Index Report that came out. Compared
    to January 2021, the average Alabama household is paying $918
    more per month to purchase the same basket of food and
    services. Spending is up $133 more per month when it comes to
    actually going to get something to eat. Spending is up $162
    more on shelter, and spending is up $249 more a month on
    transportation.
        I want to emphasize this: cumulatively, the average Alabama
    household has spent $20,297 more due to inflation since January
    of 2021. The biggest issue impacting consumers today is not
    that they have less Fritos in the bag; it's that they have less
    money in their pocket.
        You mentioned, Mrs. Schrager, in your testimony, you said,
    quote, ``History has shown that misguided diagnosis of a
    problem and then implementing this misguided policy will
    actually create more harm for American households.'' I fully
    agree with you.
        During the pandemic, we saw the Federal Reserve purchase
    trillions of dollars in Treasury securities, which initially
    contributed to inflation. But by the pandemic, you know, while
    it's long over, as you mentioned, monetary policy has become
    more restrictive.
        White House officials, then, routinely mischaracterized the
    high inflationary environment as ``transitory''--spurring the
    Administration to pass unprecedented levels of spending, when
    the economy simply wasn't ready.
        Ms. Schrager, in your testimony you also refer to a, quote,
    ``loose fiscal policy,'' and with continued spending and
    Government subsidies toward things like clean energy programs
    and so-called ``loan forgiveness.'' Can you please discuss how
    this type of ``loose policy'' only worsens inflation?
        Ms. Schrager. Yes. So, it does in a couple of different
    ways.
        First of all, you know, we're just adding to demand. I
    mean, as you can see as well, we also have a very tight labor
    market, and a lot of these policies are supposed to be job-
    creating. So, we're just adding more, even more competition to
    the labor market, which raises wages, which is also going to
    raise prices. And as I said, it's just putting more money in
    the economy, more money in people's pockets.
        But I think, also, there's more economic research and sort
    of a burgeoning consensus that just increasing the debt also
    increases inflation. Because people anticipate that, you know,
    eventually, this debt will have to be paid off, higher interest
    rates, and that also will increase inflation.
        Senator Britt. Absolutely. We have about 72 percent of our
    spending is mandatory spending and that continues to grow, and
    the debt at $34.5 trillion is just simply unacceptable.
        Ms. Schrager. Mm-hmm.
        Senator Britt. It's not only fiscally irresponsible; in my
    opinion, it is morally irresponsible.
        So, thank you so much.
        Chair Brown. Thank you, Senator Britt.
        Apparently, there's a couple of people who were going to
    come back, but I'm not sure they are.
        So, prior to closing, I thank you all, first of all. I
    always learn something at these hearings.
        In addition to the substance that each of you offered in
    the questions, the way you answered questions, I learned
    another thing, and that is, the different kinds of Fed studies
    there can be. Senator Scott mentioned what's called a FEDS
    Note. It's not a report like the report I mentioned from the
    Kansas City Fed. It's one economist putting something out as a
    FEDS Note, but really written by one economist. So, you don't
    have to plumb very deeply to find a lot of different
    conflicting voices and almost a cacophony--I have trouble
    saying that word--cacophony of voices and ideas.
        So, it's pretty clear that what the Fed said or the Boston
    Fed said about market consolidation, what the Kansas City Fed
    said about the contribution to inflation from corporate profits
    stands or are important. And I will just ask unanimous consent
    to put the Kansas City Fed study in the record.
        Thanks to the witnesses today for your testimony. Senators
    who wish to submit questions for the hearing record, those
    questions are due 1 week from today, my colleagues, May 9th.
        To the witnesses, each of the three of you, please submit
    your responses to questions for the record no more than 45 days
    from the day you receive them.
        Thanks for being here.
        The Committee is adjourned.
        [Whereupon, at 11:16 a.m., the hearing was adjourned.]
        [Prepared statements, responses to written questions, and
    additional material supplied for the record follow:]

                   PREPARED STATEMENT OF CHAIR SHERROD BROWN
        Every time Ohioans go to the grocery store, they're paying for
    corporate stock buybacks and executive bonuses.
        Prices today are far too high, and families are having a harder
    time finding a fair price, seeing more of their paycheck vanish into
    thin air.
        I hear all the time from Ohioans who are justifiably angry that
    when they buy groceries and other basic essentials, they are paying
    more than they did a few years ago.
        All of this is happening while corporate profits hit record highs.
        Let's be clear: the fact that prices and corporate profits are
    going up at the same time is no coincidence.
        A study by the Kansas City Fed found that corporate profits drove
    half of the price increases in 2021. And profits are still high today.
        Now, of course I want businesses making money. I want American
    companies to be the most competitive and most profitable in the world.
        What I am against is corporate profiteering that funnels money from
    working people to executives in the form of massive bonuses and stock
    buybacks.
        I am against markets that don't foster competition and low prices.
        I am against market manipulation.
        A family walking into a restaurant or a store should not have to
    guess what they will be charged. Someone shopping online should not be
    paying more for the exact same product because of their online search
    history.
        Businesses should create new goods and services that Americans want
    to buy, at prices justified by the cost.
        And workers--who are critical for the success of any businesses--
    should be paid fairly for helping the business succeed.
        Instead, the same Wall Street business model that has kept wages
    low and executive compensation high for decades is now pushing prices
    up too.
        Corporations used supply shocks from the pandemic and war in
    Ukraine as an excuse to raise prices, and they keep raising them.
        And let's be clear: they are not charging more because they're
    paying workers more. Wages are not causing prices hikes. Corporations
    are raising prices far beyond their input costs, and funneling the
    profits to executives, not workers--just like they always do.
        They've realized that when the market isn't free or fair, they can
    keep pushing prices up and up.
        And they are using tried and true techniques--and new technology to
    refine old ones--to charge these higher and higher prices and get away
    with it.
        When they're talking to their Wall Street investors, they admit
    what they're doing.
        On an investor earnings call, one CEO said, ``Consumers are
    tolerating [frequent price increases] well.''
        You hear that? Consumers are ``tolerating'' price increases.
        I'm here to tell CEOs that working families cannot tolerate unfair
    price increases.
        Price gouging isn't new, but it is getting easier to conceal.
        By now, we've all heard about what the media dubbed
    ``shrinkflation,'' where corporations shrink their products but keep
    prices the same, or even raise them.
        The rolls of paper towels have fewer sheets, but they don't lower
    the price. The package of Oreos has fewer cookies in it, but the price
    stays the same.
        That trick isn't new--but it's getting worse. What's next--will
    they shrink the amount of cream in the cookies? Will double-stuffed
    become half-stuffed?
        Companies are also using advances in technology to find new methods
    of price gouging.
        They're now using new pricing strategies and data collection to
    charge people more.
        They call these tactics ``dynamic pricing'' and ``personalized
    pricing algorithms.''
        ``Dynamic pricing'' and ``personalized pricing.'' You know some
    corporate PR firm is really proud of those.
        Customers don't want their pricing personalized. They want it to be
    fair, transparent, and as low as possible.
        Gone are the days when Americans could simply expect to walk into a
    store having a clear idea of what they'd pay.
        It's not just the act of walking into a brick-and-mortar store
    that's nostalgic--it's the notion of predictable, transparent prices.
        With online retailers, the price can change every day or even
    within the hour, sometimes dramatically.
        And they're spreading the technique to brick-and-mortar stores,
    adding electronic menu boards to restaurants and digital price labels
    to shelves so that corporations can raise the price at a moment's
    notice.
        It's frustrating, and it makes impossible for people to compare
    prices and shop around--key ingredients in any fair, open market.
        Families with fixed budgets cannot afford to walk into the grocery
    store or pharmacy not knowing how far their paycheck will get them.
        Big Tech has exported their data-mining business model to
    retailers, and that has made all of this even easier for companies.
        As more people shop online, retailers learn more about our browsing
    and shopping habits by collecting every bit of our online data. They
    can charge you more based on your search history.
        You start shopping around to try to find the lowest price on a new
    washing machine. Now online retailers realize that you're in the market
    for appliances, and start showing you higher and higher prices.
        Spying on people and charging them more for the products they need
    isn't innovation--it's price gouging.
        Charging more for food during mealtime isn't the free market--it's
    exploitation.
        The story is always the same: Whether using old tricks or new
    technologies, corporations win, the rest of us lose.
        That's not how free markets are supposed to work.
        It's why standing up to corporate interests matters.
        And people hate Washington because too many politicians do
    corporations' bidding.
        It took us more than a decade of fighting the drug companies and
    their lobbyists and their allies in Congress to finally lower drug
    prices and to cap the cost of insulin at $35 a month for seniors.
        We need Members of Congress to grow spines and stand up to more of
    these corporate lobbyists. Senator Casey and I have a bill to crack
    down on companies shrinking their products and raising their prices, by
    directing the FTC to label this what it is--a deceptive practice.
        We need our colleagues to join us in efforts like this, to lower
    prices and stop these tactics that distort the market, stifle
    competition and make it harder for Americans to afford the cost of
    living.
                                     ______

                    PREPARED STATEMENT OF SENATOR TIM SCOTT
        Thank you, Mr. Chairman, and thank you all for being here with us
    this morning.
        Listening to our Chairman, Democrats would have Americans believe
    that the economic pain they're feeling is caused by greedy corporations
    putting a few less chips in your chip bag.
        It couldn't be more clear where the obvious pain is coming from.
        The obvious pain is coming from a guy who lives at 1600
    Pennsylvania Avenue.
        The bottom line is that President Biden and Bidenomics has
    devastated our economy and devastated people working paycheck to
    paycheck. The highest percentage of Americans with the fewest dollars
    in their savings account for an emergency is now because of President
    Biden and Democrats' reckless spending.
        They like to name their bills in attractive ways but the bottom
    line is a really simple thing: they all add to inflation.
        Whether it's the ``American Rescue Plan'', the ``Bipartisan
    Infrastructure Act'', or the worst-named bill perhaps in American
    history, the ``Inflation Reduction Act''.
        Anyone who believes that inflation has gone down because of the
    Inflation Reduction Act--all you have to do is look at the latest
    information coming out of the Federal Reserve itself. Inflation
    continues to increase.
        These bills used to be hailed positively as a part of
    ``Bidenomics,'' but now they're just economics because no one can
    afford President Biden's approach to solving the problems that we see
    in our Nation.
        And I know this to be true, because it doesn't matter whether I'm
    at home in South Carolina or any other State around the country, I keep
    hearing the same things from consumers:
        ``Rent is too high. I'll never be able to afford a mortgage.''
        ``I'm living paycheck to paycheck. My grocery bills are staggering,
    and I can barely afford them.''
        Or ``I spent my entire life working and building up enough savings
    to retire, but now I'm worried those savings won't go far enough and
    I'll have to go back to work.''
        Or ``I'm really worried about my finances and our economy.''
        And they always end with a simple question, ``What can you do to
    help me?''
        The number one concern besides the devastation that Americans are
    experiencing because of the unsafe, insecure, wide-open southern
    border, the number one concern outside of the border is the economy.
        Americans across the country point their fingers at the devastation
    of inflation.
        Inflation today is costing the average American family an
    additional $8,508, just to buy the same things they were able to buy
    before President Biden took office.
        It is truly unfortunate that the Biden administration continues to
    play a game of deflection--not taking responsibility, not solving the
    problem--but looking for someone else to blame other than the man in
    the mirror.
        First, the Biden administration told us that the challenges that we
    were seeing with inflation were ``transitory.'' I cannot tell you the
    number of hearings I sat through--whether it was Secretary Yellen or
    others--who said that this is transitory because of COVID.
        Well, then they changed the story that it was ``Putin's price
    hike'' because of the Russian invasion of Ukraine.
        And then it was ``greedflation'' or ``shrinkflation'' when the fact
    of the matter is simply, Biden's inflation.
        Here's the truth: the Biden administration's spending policies has
    caused the inflation that we're seeing and the economic devastation it
    is producing. They are the key contributors to the price hikes we are
    all experiencing today.
        Let's take a step back to understand what inflation really feels
    like to the average American.
        Prices across the board have certainly increased nearly 20 percent
    since Biden took office. Yes, 20 percent increase in just over 3 years.
        For example, butter is up 27 percent, chicken 26 percent, white
    bread 30 percent.
        When you go to the pump, you don't have to believe what President
    Biden says about the challenges, all you have to do is see the price at
    the pump--40 percent increase. Energy costs, 25 percent increase.
        I could spend the rest of my time this morning discussing other
    examples of how much prices have increased, but the American people
    know all to well the challenges that they face and where it comes.
    That's why they trust him so little on the economy.
        It is crystal clear, they know what they see with their own eyes,
    yet instead of looking at ways we can bring inflation down, this
    Administration continues to look for scapegoats such as corporate
    America.
        Here's what The Federal Reserve recently studied that the
    Administration's--and that's the Federal Reserve--studied the
    Administration's claims that corporations are driving up inflation and
    came to the conclusion, and I'll just read it, ``unprecedented large
    and direct Government intervention,'' and ``accommodative monetary
    policy,'' profits were back to their prepandemic levels by the end of
    2022.
        With respect to ``shrinkflation,'' the Biden administration's own
    Bureau of Labor Statistics (BLS) reported that its effects have
    resulted in a 0.01 percent average annual increase to prices, and ``has
    a very small impact on the overall inflation picture.''
        I know this is really uncomfortable for some of you to listen to
    it, that's just called the facts.
        What we should be talking about today is the direct harm this
    Administration's policies are causing as they continue to lead to more
    inflation.
        We should be talking about the inflation spike we are likely to see
    after billions and billions of dollars in student loans are illegally
    forgiven by this Administration.
        We should be talking about a Federal debt that is growing by
    trillions of dollars every single year.
        The American people are smart. They see through this blatant
    attempt by the Administration to blame others for the inevitable
    results of their policies.
        It's time for the Biden administration and their friends on the
    other side of the aisle to wake up and smell the coffee that now costs
    30 percent more.
        Out-of-control, reckless spending led to runaway inflation that has
    remained elevated for years now. We must all accept that fact and
    return to sound economic policies that make affording the basics just a
    bit easier for the American family.
                                     ______

                      PREPARED STATEMENT OF BILAL BAYDOUN
           Director of Policy and Research, Groundwork Collaborative
                                  May 2, 2024
        Chairman Brown, Ranking Member Scott, Members of the Committee,
    thank you for the opportunity to testify today. My name is Bilal
    Baydoun, and I'm the Director of Policy and Research at the Groundwork
    Collaborative, an economic think tank based here in Washington.
        The price tag is a simple communications device we all take for
    granted. It's also an American innovation. John Wanamaker of
    Philadelphia, who invented the modern price tag, was a devout
    Presbyterian who believed that price discrimination--the idea that
    different people could pay different prices for the same product--was
    immoral. If everyone was equal before God, he believed, everyone ought
    to be equal before price. From the very beginning, the price tag was
    infused with a sense of fairness and equality.
        Yet in America today, a fair price, let alone a sweet deal, is
    harder and harder to come by. In the age of corporate concentration and
    high-powered algorithms, pricing is in the midst of a troubling
    transformation, and the price tag as we know it may become a relic of
    the past.
        Rideshare apps like Uber reportedly charge users higher prices if
    their phone battery is lower. Insurance companies fly drones above our
    property in search of signs of clutter, and car companies install
    software that reports our driving behavior to insurance companies, who
    use the data to hike our rates. Amazon reportedly changes prices
    millions of times per day, running secret pricing experiments like
    ``Project Nessie'' that reaped $1 billion in revenue. Frustratingly,
    food delivery apps like UberEats show us one menu price up front, only
    to tack on a series of mysterious junk fees right as we're about to
    pay, and these last-second markups can be as high as 95 percent. Even a
    family outing to the bowling alley means encountering ``surge
    pricing,'' in which we're charged more for the sin of seeking out
    family fun on a Saturday night, the only available time for such
    outings for many families.
        At every turn, companies are cutting corners on the path to record
    profits, and American consumers are paying the price. In a practice
    known as ``shrinkflation,'' companies discreetly reduce the size or
    volume of common household items--everything from jars of peanut butter
    to bars of soaps--to charge consumers more for less. For some essential
    goods like household paper towels, shrinkflation accounted for roughly
    10 percent of the price increase consumers experienced over the last 4
    years. Indeed, big profits increasingly come in smaller packages.
        While price hikes aren't new, today's companies have reinvented
    them, relying on surveillance, deception, and even high-tech forms of
    collusion to wring as much as possible out of American consumers. All
    of these tactics converge on a single goal: find out the maximum price
    each individual consumer can be charged at any given time.
        It might seem counterintuitive that companies are reaping record
    profits by simply hiking prices. After all, in competitive markets,
    firms have to innovate, improve their products and services, and take
    calculated risks to win over consumers. But a perfect storm in our
    economy made it much easier for companies to simply price their way to
    profitability.
        First, companies got bigger, and competition in many industries has
    dwindled. Over the last few decades, we've seen runaway corporate
    consolidation across our economy. About three-quarters of domestic
    industries have become more concentrated and are dominated by fewer
    players than they were 20 years ago. This grants the remaining
    corporate giants the freedom to hike prices without fear of being
    undercut by the competition. In many markets, there simply is none.
        Second, pricing went high tech. Technological advances such as
    cloud computing, artificial intelligence, and surveillance targeting
    have enabled companies to collect reams of personal information on
    consumers and change prices in under a nanosecond. These technologies
    help companies build profiles of individual consumers that include
    things like our age, marital status, estimated salary, ethnicity, the
    magazines we read, and even the kinds of topics we talk about online.
    All of these private aspects of our lives can be used to determine how
    much price hiking each of us can tolerate.
        Finally, market power and technological advances came together in
    the shadow of inflation, giving companies the cover they needed to
    begin rolling out pricing strategies they'd previously thought of as
    risky precisely because consumers dislike them. But with prices rising
    everywhere, consumers couldn't discern which hikes were justified by
    companies' own rising costs, and which were truly excessive. As the
    head of research for Barclay's bank told Bloomberg in 2022, ``The
    longer inflation lasts and the more widespread it is, the more air
    cover it gives companies to raise prices.'' Visa's CEO was still more
    direct, saying, ``historically, inflation has been positive for us.''
        The complex algorithms often entrusted with maximizing profits
    through rapid changes in pricing have neither a conscience nor legal
    training. That is why algorithmic pricing can be both discriminatory
    and collusive. If you are charged a higher price for shopping at a
    chain store in your zip code, for example, that can function as a proxy
    for racial price discrimination. And when different firms in the same
    industry rely on a shared algorithm to set prices, that algorithm can
    fix prices just as a human agent can. We saw this play out in the
    rental market. In one neighborhood in Seattle, 70 percent of apartments
    were overseen by just 10 property managers, and all of them relied on
    the same pricing software sold by RealPage.
        But we don't have to accept the end of a fair price as inevitable.
    To start, we must continue to enforce existing laws outlawing
    collusion, price fixing, and unfair and deceptive practices. The
    Federal Trade Commission and State attorneys general have doubled down
    on the idea that algorithmic collusion is no more acceptable than
    collusion conducted by human agents in a smoke-filled back room.
        But new laws are also necessary to ensure regulations keep pace
    with these rapidly changing tactics. The Price Gouging Prevention Act
    introduced in this chamber would enable the FTC to implement and
    enforce a Federal anti-price gouging statute, saving consumers money in
    the 13 States that don't have price-gouging protections on the books.
    Likewise, the Shrinkflation Prevention Act would classify shrinkflation
    as a deceptive practice and empower the FTC and attorneys general to
    take civil action to protect consumers' pocketbooks.
        We must also continue to make progress on eliminating junk fees and
    regulating complex pricing structures that push hidden fees on
    consumers. The CFPB's late fees rule demonstrates that policymakers
    can--and must--take on predatory, deceptive behavior and act as a
    strong check on corporate power. By capping late fees at $8, the CFPB
    will save American families more than $10 billion annually. The
    interagency approach taken by the President's Strike Force on Unfair
    and Illegal Pricing with the Department of Justice and FTC represents a
    key step in tackling predatory pricing by deploying every available
    tool.
        Finally, we can't allow companies to harvest our data and use it to
    price discriminate against us. CFPB Director Chopra noted recently that
    payments data (e.g., Venmo) is the ``holy grail'' of personal pricing.
    Allowing companies access to transaction data will open up a new
    frontier for exerting power over consumers. Protecting data privacy,
    including transactions data, is essential to confronting this new
    pricing regime and ensuring companies cannot surveil consumers as a
    means of pushing arbitrary price hikes based on unfair calculations of
    consumers' ``willingness to pay.''
        Through these actions and others, we have the tools to restore a
    fair price in America--we just have to use them. Thank you, and I look
    forward to your questions.
                                     ______

                     PREPARED STATEMENT OF ALLISON SCHRAGER
                       Senior Fellow, Manhattan Institute
                                  May 2, 2024
        Chairman Brown, Ranking Member Scott, Members of the Committee:
    thank you for the invitation to discuss with you today how price
    increases, shrinkflation, and technology may be harming consumers. I am
    a senior fellow at the Manhattan Institute, where I research fiscal and
    monetary policy and financial markets. I am also a columnist at
    Bloomberg Opinion.
    ---------------------------------------------------------------------------
         The Manhattan Institute for Policy Research does not take
    institutional positions on Federal, State, or local legislation, rules,
    or regulations. Although my comments draw upon my research and writing
    about the economy as an Institute fellow, my statement is solely my
    own, and should not be construed as my employer's.
    ---------------------------------------------------------------------------
        The high inflation environment we are in is a terrible economic
    burden for American households--especially those living paycheck to
    paycheck, who are struggling to afford groceries, let alone enjoy the
    occasional meal out with their family. It has also proven more
    persistent than policymakers hoped. It is tempting to blame whoever
    raised the prices we see, the firms we buy goods and services from, who
    appear to be getting rich from our rising bills. But they are not at
    fault; they are merely reacting to the realities of the high and
    uncertain environment we are all facing.
        Firms can increase prices several ways: they can simply increase
    the prices we all see--the sticker price, they can reduce volume of
    what we buy but still charge the same price-shrinkflation, or they can
    practice dynamic pricing--charging only some customers a higher price.
    All of these feel unfair to many consumers. But it is the high
    inflation environment that's harming consumers, not how firms respond
    to it.
        In order to bring inflation down, we need to understand it, how it
    started, and why it persists. History has shown that misdiagnosing the
    problem and then implementing misguided policies will create more harm
    for American households.
        Inflation accelerated coming out of the pandemic, when the economy
    faced constrained supply, from pandemic related shortages, and high
    demand, the result of people emerging back into the economy after being
    at home with nowhere to spend money, and extremely accommodative fiscal
    and monetary policy. Some of that policy could be justified at the
    height of the pandemic, and it was a lifeline for many Americans who
    were unable to work. But the expansionary policy was too large and went
    on for far too long and ultimately contributed to inflation. Economists
    estimate expansionary fiscal policy contributed as much as 4 percentage
    points of our excess inflation. Today inflation is lower, down to about
    3 to 3.5 percent from the high of 8.6 percent.
        The fact that inflation is still high in the service sector--and
    wage growth is more than 4 percent--suggests that it may stick around
    for the foreseeable future. In short, the supply constraints have
    largely been resolved, but demand remains elevated, and the higher
    inflation has permeated into our economy. Our current fiscal policy
    stance is not helping. While monetary policy has become more
    restrictive, fiscal policy remains very loose, with continued
    infrastructure spending, subsidies to industries such as chip
    manufacturing, clean energy, and student loan forgiveness. This loose
    policy worsens inflation by adding more demand to the economy and
    adding further to the debt.
    Greedflation
        Inflation cannot be blamed on greedy corporations. First, there is
    no reason to think corporations have suddenly become greedy. It is
    natural to increase prices when facing a period of high demand. This
    can feel unfair sometimes, but it is an important part of market
    functioning.
        Take the example of an umbrella salesman in the rain. It may feel
    unfair that he increases his price when it rains, but if he didn't
    increase prices when it started to sprinkle, there would be no
    umbrellas left when there is a downpour. Or, if he can't make more
    money in the rain--why would he bother selling umbrellas and sitting in
    the rain himself?
        We see a similar story playing out in other markets today. Prices
    are increasing because demand is still high: consumer spending is still
    up, there is a vigorous labor market, and GDP is growing. And prices
    tend to rise more when demand is high. This price adjustment is how the
    market rations goods.
        It is true that there was an increase in corporate profits in 2021
    when inflation first spiked. But profits peaked in 2022 and have
    decreased and leveled off since then.
        One way to understand what happened is that, initially, firms
    raised prices in response to increased demand and limited supply, just
    like the umbrella salesman. They did so because:

      1.  The high demand environment pushed prices up, and consumers were
            willing to pay more because there was more money in their
            pockets coming out of the pandemic.

      2.  Firms rightly anticipated a higher inflation environment that
            would also increase the costs of their inputs, including labor,
            and they needed to increase prices to stay in business.

        This is why profits initially increased. At first their costs of
    inputs did not go up as much as prices because many firms had
    previously locked in wage and input costs. But as inflation continued,
    firms renegotiated those contracts and gave their workers wage
    increases, which eroded profit margins.
    Shrinkflation
        In addition to higher prices, many consumers are getting less for
    their money--for example: fewer potato chips in a bag. This so-called
    shrinkflation is just another way for firms to increase prices. This
    isn't a driver of inflation--it a manifestation of it.
        Rather than increase the price consumers pay, they might shrink the
    size of their product instead. Again, this can be extremely frustrating
    for consumers because they are getting less and paying more. But it is
    another way for firms to deal with price pressures from increased
    demand. The alternative is to simply increase prices, but whether one
    approach is better than the other is hard to say. Charging more may
    price consumers out of the market entirely.
    Dynamic Pricing
        Another way that firms can respond is not increasing prices for
    everyone, but only for consumers who use goods or services in high
    demand times or are willing to pay more. This is known as dynamic
    pricing--and it is another frustration for many consumers.
        Wendy's recently attempted this when they floated the idea of
    charging more during peak times. Technology is aiding this effort
    because firms can collect data on potential customers and gain insight
    into their willingness and ability to pay.
        An example of dynamic pricing that predates our current inflation
    era is airlines. They charge more for peak time flights or by charging
    for services that were once included in the quoted airfare, such as
    checking a bag or picking your seat. This is another way of passing on
    higher costs to some customers. This is especially attractive for
    airlines who face pricing pressure to keep fares low because of
    technology that enables consumers to comparison shop.
        Believe it or not, dynamic pricing can be better from a consumer
    welfare point of view than increasing prices for everyone. For example,
    airlines may price discriminate, but the cost of flying has fallen and
    it has become more accessible. In the 1980s, about 30 percent of
    Americans had flown in the last year; now it is more like 50 percent--
    in large part because lower income Americans have a cheaper option,
    even if it means worse service.
        The same is true for Wendy's, who can either increase prices for
    everyone in response to higher input costs or can increase them only
    for customers who value convenience more and thus put a higher premium
    on eating at peak times. The result is more people can go to Wendy's,
    because a price increase for everyone excludes more people from the
    market. It may feel unfair, but economists generally agree that
    including more people in a market is beneficial for consumers.
        We can probably expect more firms to dynamically price in the
    future. Technology empowers firms to target individuals, to show them
    ads for the goods they want and charge them more than other consumers.
    Artificial Intelligence has the potential to turbo charge this
    practice, in the not-too-distant future we may all see different goods
    and prices when we shop online.
        But while technology can make dynamic pricing easier for firms, it
    also can empower consumers. Algorithms can help customers find products
    they most want and best suit their needs. Technology also facilitates
    comparison shopping and allows consumers to post reviews, a very
    valuable resource for future shoppers. Online marketplaces may mean
    more complex pricing, but they also enable more price comparison for
    consumers, compared to visiting a brick-and-mortar store. Research
    suggests that this technology contributed to the low inflation
    environment before the pandemic.
        It feels unfair, because it is different to what consumers have
    become used to--though everyone paid different prices when people
    haggled for goods. But a more personalized shopping experience may end
    up creating a more inclusive marketplace where more people can afford
    to participate and it is easier to find the goods and services that
    best suit their needs.
    Conclusion
        We remain in a high inflation environment; this is what is harming
    consumers--not greedy corporations who also face pricing pressures.
    This is largely the result of a still growing economy, and it is made
    worse by Government policies that continue to stoke demand. We are
    still increasing the debt and giving households handouts. One benefit
    of this environment has been rising nominal wages (something many of us
    wanted), especially for lower earning Americans. But it also means
    inflation is still high--and it means rising costs for goods and
    services for these same people and the rest of the population.
        There is no way around the fact that this elevated demand will
    increase prices. Firms can increase prices in in a number of ways:
    increasing the sticker price, providing less for the same price, or
    dynamic pricing. All provide understandable frustration for consumers,
    but these are the results of a high and uncertain inflation
    environment--not the cause.
        Past attempts to keep companies from raising prices, such as price
    controls, have proved counterproductive. They create shortages, reduce
    the incentives to sell or produce, and worsen inflation. The best way
    to fix this is to not undermine the Fed's attempts to control inflation
    and pull back on spending, stop handouts, especially to higher earners
    who don't need them, and to reduce the debt.
                                     ______

                    PREPARED STATEMENT OF ALI R. BUSTAMANTE
        Professor of Practice, University of New Orleans Department of
    Economics and Finance, and Director, Worker Power and Economic Security
                          Program, Roosevelt Institute
                                  May 2, 2024
        Chairman Brown, Ranking Member Scott, and Honorable Members of the
    Committee, thank you for inviting me to speak on the pressing issues
    surrounding how corporate pricing strategies are impacting prices, and
    their implications for consumer finances.
        In my testimony I will make three points:

      1.  Inflation is being driven, in part, by corporate profiteering
            related to firms' price-setting power.

      2.  Corporate profiteering is harming consumers, workers, and other
            businesses.

      3.  Government has tools that can restrict corporate profiteering and
            protect consumers and small businesses.

        First, there is evidence that large corporations are engaging in
    pricing strategies that are contributing to elevated prices. Research
    conducted by my colleagues and I at the Roosevelt Institute has found
    that a recent sharp rise in markups by large corporations is
    contributing to inflation. \1\ Markups are the difference between the
    prices consumers pay for goods or services and how much it costs to
    make or provide them. Markups are low in competitive markets but as
    corporations have accumulated significant market power over the years,
    they have been able to increase prices without sacrificing profit. Our
    research finds average markups grew from 48 percent above cost in 2014
    to 69 percent above cost in 2023 and that this growth is being driven
    by a few large corporations. \2\
    ---------------------------------------------------------------------------
         \1\ Konczal, Mike, and Niko Lusiani. 2022. ``Prices, Profits, and
    Power: An Analysis of 2021 Firm-Level Markups''. Roosevelt Institute,
    June 21, 2022. https://rooseveltinstitute.org/publications/prices-
    profits-and-power/
         \2\ Bustamante, Ali R., and Ira Regmi. 2024. ``Fast-Food Industry
    Profiteering: Why California Businesses Can Absorb a Higher Minimum
    Wage''. Roosevelt Institute, March 28, 2024. https://
    rooseveltinstitute.org/publications/fast-food-industry-profiteering/
    ---------------------------------------------------------------------------
        For consumers, markups can take several forms through various
    pricing strategies employed by corporations:

        Standard Retail Markup: This is the most straightforward
            markup, where sellers add a percentage to the cost of goods and
            services to generate profit.

        Shrinkflation: Reducing the quantity or size of a product
            while maintaining or increasing the price.

        Dynamic Pricing: A method of price discrimination whereby
            prices adjust in real-time using pricing algorithms and
            sophisticated consumer data, often with new artificial
            intelligence (AI) methods.

        Decoy Pricing: Pricing structures where firms introduce a
            third, less attractive option to lead consumers to choose a
            more expensive option than they originally might have.

        Bundling: Bundling products together to sell them at a
            price that seems to offer a savings compared to buying each
            item individually but that often includes a markup.

        Markups, and the sophisticated pricing strategies that are driving
    them, are on the rise because of large corporations' outsized pricing
    power. Research finds that smaller firms in less consolidated
    industries have not driven explosive markup growth. \3\
    ---------------------------------------------------------------------------
         \3\ De Loecker, Jan, Jan Eeckhout, and Gabriel Unger. 2020. ``The
    Rise of Market Power and the Macroeconomic Implications''. The
    Quarterly Journal of Economics 135 (2):561-644.
    ---------------------------------------------------------------------------
        Take the fast-food industry for example: my recent research of
    markups finds that the average markup in the fast-food industry grew by
    14.7 percent during the past decade. \4\ When analyzing markups at the
    10 largest fast-food firms in 2023 we found that they were the highest
    at Wendy's, McDonald's, and Restaurant Brands International (the parent
    company of Burger King and Popeyes). At these firms, prices were
    between 80 and 91 percent above companies' marginal costs. These large
    companies are charging consumers above and beyond what is necessary for
    typical profit margins.
    ---------------------------------------------------------------------------
         \4\ Bustamante, Ali R., and Ira Regmi. 2024. ``Fast-Food Industry
    Profiteering: Why California Businesses Can Absorb a Higher Minimum
    Wage''. Roosevelt Institute, March 28, 2024. https://
    rooseveltinstitute.org/publications/fast-food-industry-profiteering/
    ---------------------------------------------------------------------------
        Second, there is ample evidence that markups--and corporate
    profiteering in general--by large corporations are harming consumers,
    workers, and small businesses.
        Consumer surplus, how economists measure the social economic
    benefits of consumption, would have been 14 percent higher in 2019 if
    markups had remained stable at 2006 levels, and 50 percent higher if
    firms passed along the reductions in their costs over that period to
    consumers. \5\ This hits low-income consumers the hardest, as their
    disposable income is stretched even thinner, forcing them to make
    difficult decisions about the basic necessities and bills they need to
    cover.
    ---------------------------------------------------------------------------
         \5\ Dopper, Hendrik, Alexander MacKay, Nathan Miller, and Joel
    Stiebale. 2022. ``Rising Markups and the Role of Consumer
    Preferences''. 3939126. Rochester, NY: Social Science Research Network.
    ---------------------------------------------------------------------------
        Workers are also being squeezed: research shows that increases in
    markups lead to a decline in wages of approximately 12 percent, because
    markups lead to a reduction in the aggregate demand for labor. \6\ The
    harmful effect of markups on workers is also visible in the declining
    share of income going to workers. \7\ Rather than rewarding workers who
    drive productivity in the first place, these large corporations driving
    growth in markups are the same ones returning higher profits from
    markups to wealthy shareholders via stock buybacks and dividends. \8\
    ---------------------------------------------------------------------------
         \6\ Deb, Shubhdeep, Jan Eeckhout, Aseem Patel, and Lawrence
    Warren. 2022. ``Market Power and Wage Inequality''. Institute for
    Fiscal Studies, Working paper 22/40. https://ifs.org.uk/publications/
    market-power-and-wage-inequality
         \7\ Autor, David, David Dorn, Lawrence F. Katz, Christina
    Patterson, and John Van Reenen. 2020. ``The Fall of the Labor Share and
    the Rise of Superstar Firms''. The Quarterly Journal of Economics 135
    (2):645-709.
         \8\ Palladino, Lenore, and William Lazonick. 2021. ``Regulating
    Stock Buybacks: The $6.3 Trillion Question''. Roosevelt Institute,
    Working paper, May 10, 2021. https://rooseveltinstitute.org/
    publications/regulating-stock-buybacks-the-6-3-trillion-question/
    ---------------------------------------------------------------------------
        Furthermore, markups reflect a ``winner takes most'' economic
    environment where large corporations with price-setting power also have
    the capability to reduce competition by creating barriers for new firms
    to enter the market, crowd out smaller firms, and squeeze supplier
    margins in order to protect and expand their market share. \9\
    ---------------------------------------------------------------------------
         \9\ Autor, David, David Dorn, Lawrence F. Katz, Christina
    Patterson, and John Van Reenen. 2020. ``The Fall of the Labor Share and
    the Rise of Superstar Firms''. The Quarterly Journal of Economics 135
    (2):645-709.
    ---------------------------------------------------------------------------
        Lastly, I'd like to discuss the myriad of available Government
    tools that can restrict corporate profiteering and protect consumers,
    workers, and small businesses:

        We need to enforce and strengthen antitrust laws to prevent
            monopolistic practices and ensure competitive markets,
            particularly in industries where a few companies control
            significant market share, leading to higher markups.

        Policymakers can move to create guidelines and restrictions
            around the use of dynamic and personalized pricing to prevent
            unfair and deceptive practices by requiring businesses to fully
            disclose the pricing structure of their products and services.
            This would disincentivize corporations from employing these
            predatory pricing practices.

        To improve fairness and transparency in pricing,
            administrative agencies like the Consumer Financial Protection
            Bureau can mandate clearer disclosure of pricing components and
            service fees and enforce rules against deceptive pricing
            practices or hidden fees. This is particularly impactful in
            sectors prone to high markups, such as financial services and
            health care.

        There are great economic benefits to be gained by reining in
    markups and unfair corporate pricing strategies, including lower prices
    in the short term and a more competitive economic environment for
    businesses and workers in the medium and long term. Yet, inaction from
    both regulators and legislators will enable corporate profiteering that
    continues to elevate prices, harm consumers, and squeeze small
    businesses.

             RESPONSES TO WRITTEN QUESTIONS OF CHAIR BROWN
                           FROM BILAL BAYDOUN

    Q.1. One thing shrinkflation and pricing technologies have in
    common is that it's difficult or impossible for consumers to
    know how these pricing mechanisms are being used to adjust the
    prices of the goods and services they're buying.
        What sorts of disclosures are needed to let consumers and
    researchers understand how prices are changing?

    A.1. Regarding shrinkflation, one approach may involve product
    labels that notify consumers of a change in a product's per-
    unit price. In France, for example, products that have been
    reduced in size without a commensurate decrease in price will
    require product labels to disclose the change. \1\ Stores must
    comply with this change by July 1st of this year. France also
    empowers consumers to report such product changes to
    authorities via a consumer protection phone application.
    ---------------------------------------------------------------------------
         \1\ https://www.nytimes.com/2024/04/19/business/france-economy-
    food-prices-shrinkflation.html
    ---------------------------------------------------------------------------
        As discussed in this hearing, companies have also deployed
    personalized pricing practices, which involves tying price to
    individual consumers' characteristics. There could be three
    general approaches to disclosures related to this practice. \2\
    The first is to require disclosure that the price is
    personalized. The second is to require disclosure of how the
    price is personalized, i.e., according to which consumer
    characteristics or behaviors. Third, regulators can require
    disclosure of how the personalized price compares to the
    ``regular'' price.
    ---------------------------------------------------------------------------
         \2\ https://www.europarl.europa.eu/RegData/etudes/STUD/2022/
    734008/IPOL-STU(2022)734008-EN.pdf
    ---------------------------------------------------------------------------
        Technologies have also been used to stagger certain fees
    throughout the process of making a purchase, a practice known
    as ``drip pricing.'' The classic case-in-point here is for-
    profit tax-filing services, which have in the past advertised
    free or discounted services, only to add additional fees as the
    consumer is filling out the required forms. The most effective
    solution on this front would be the establishment of a national
    standard for price display that requires disclosure of the
    total cost up front, inclusive of all fees. Lawmakers have
    pushed for this approach to improve hotel cost transparency,
    \3\ as the short-term lodging industry is notorious for the
    practice of drip pricing and junk fees.
    ---------------------------------------------------------------------------
         \3\ https://castor.house.gov/news/
    documentsingle.aspx?DocumentID=404398
    ---------------------------------------------------------------------------

                                    ------

             RESPONSES TO WRITTEN QUESTIONS OF CHAIR BROWN
                         FROM ALI R. BUSTAMANTE

    Q.1. Since the onset of rising inflation, corporate profits
    have reached record highs, surpassing levels last seen in 1947.
    \1\ As noted in your testimony--``average profit markups grew
    from 48 percent above cost in 2014 to 69 percent above cost in
    2023.'' \2\ Your analysis also finds that ``increases in
    markups lead to a decline in wages of approximately 12 percent,
    because markups lead to a reduction in the aggregate demand for
    labor.'' \3\
    ---------------------------------------------------------------------------
         \1\ Sellers' Inflation, Profits and Conflict: Why Can Large Firms
    Hike Prices in an Emergency? Isabella M. Weber and Evan Wasner
    (February 2023). Economics Department Working Paper Vol. 343. https://
    scholarworks.umass.edu/econ-workingpaper/343/
         \2\ United States Senate Committee on Banking, Housing, and Urban
    Affairs Hearing on ``Higher Prices: How Shrinkflation and Technology
    are Hurting Consumers' Finances''. May 2, 2024. Testimony of Dr. Ali R.
    Bustamante
         \3\ Ibid.
    ---------------------------------------------------------------------------
        Can you further elaborate on how workers have been faring
    in the current macroeconomic condition? Additionally, can you
    contrast to how CEOs have been faring?

    A.1. Response not received in time for publication.

    Q.2. One thing shrinkflation and pricing technologies have in
    common is that it's difficult or impossible for consumers to
    know how these pricing mechanisms are being used to adjust the
    prices of the goods and services they're buying.
        What sorts of disclosures are needed to let consumers and
    researchers understand how prices are changing?

    A.2. Response not received in time for publication.

                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
              SENATOR CORTEZ MASTO FROM ALI R. BUSTAMANTE

    Q.1. I introduced the Fair and Transparent Gas Prices Act of
    2023 (S. 67) to investigate unfair practices, provide market
    transparency, and prevent price gouging in the oil and gas
    industry. Specifically, the bill requires the Federal Trade
    Commission (FTC) to investigate anticompetitive, collusive, or
    other conduct related to oil and gas companies and markets.
        How would an investigation into the anticompetitive,
    collusive, or other conduct related to oil and gas companies
    provide more insight into rising gas prices?
        Can higher gas prices partially be attributed to
    anticompetitive practices in the oil and gas industry?

    A.1. Response not received in time for publication.

    Q.2. In S. 67, the bill directs the FTC to work with State
    attorneys general to carry out this investigation into the oil
    and gas industry.
        Why is it important to coordinate and empower state
    attorneys general offices to combat unfair and deceptive
    pricing practices?

    A.2. Response not received in time for publication.

                  Additional Material Supplied for the Record

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