Are rising egg prices a result of monopoly power? As of late, egg prices are taking a central role in the economic narrative with focus groups, and economists decreeing monopolistic “greed” as the prime cause of a sudden upturn in prices. Yet, this must be insufficient to establish why producers’ have—all of a sudden—become immensely greedier, or why they were less greedy in previous years. This central economic narrative—while popular among economists that would like to perpetuate the idea of “the evils of capitalism”—cannot provide us with a real explanation, based in economic theory.
Rather, the economic laws available to us dictate a very different story. When the supply of a good significantly falls, the price tends to rise, all other things being equal. This can be furthered by inflation expectations (consumers believe prices will increase and buy at the prevailing price) and if goods have inelastic demand (making prices sensitive to supply changes). Egg prices are not a result of monopolistic power, but rather they are dynamic pricing naturally responding to changing economic conditions.
A Brief Background
Among those proposing the idea that rising egg prices are the product of “monopolistic power” include the Farm Group focus group, Senator Jack Reed, Attorney General Ken Paxton of Texas, and the Department of Justice themselves, who opened an investigation into major egg producers. Many among the FTC also have urged chairman Andrew Ferguson to investigate this matter. According to this narrative, the market-share of egg producers is very concentrated, being divided up between only a few producers. Prices rose in step with each other—which led to Cal-Maine being fined $53 million in a 2023 price-fixing case—allegedly suggesting collusion. The profits of egg firms in this time, such as Cal-Maine, have skyrocketed while consumers face higher prices. The final piece of the puzzle, in this narrative, is that production of eggs converges on 12-month averages rather than collapsing.
Inventories and Rising Prices
Now that we have the narrative, we can begin to formulate an understanding of market responses. Basic economics regarding supply and demand informs us that, all things being equal, when the supply drops and demand remains the same, prices increase. Even small shifts in supply can have massive ramifications, as eggs are relatively inelastic in demand. According to Agricultural Economist Jayson Lusk, eggs are one of these goods. The commonly assumed elasticity of eggs is -0.15 percent. Eggs are a product with few close substitutes, and generally considered a household staple. Thus, as Brian Albrecht shows:
This supply shift that occurred as a result of Avian Flu was not a small contraction, with more than 130 million birds being lost since 2022. If egg prices, then, are rising as a result of market-clearing corrections, we should see year-on-year price changes coincide with this massive supply shock. This is supported by the data, as Lusk shows:
While producers can attempt to minimize losses by both breeding new egg-laying hens and stopping the disease spread as much as possible, there is a time-gap between when new hens can lay eggs and the original supply shock. This is reflected by the 2022 and 2023 specific outbreaks in Avian Flu, inventories significantly fell. It was reported that, in December of 2023, inventories were 29 percent lower than the beginning of the year. Only in June 2023 did inventories begin to recover, and prices moved accordingly. Recently, in March a 22 percent fall in prices of eggs have been observed as stocks begin to recover, at least at the wholesale level. Retail pricing has tended to lag behind wholesale prices, but ultimately, they begin to converge as Lusk again shows:
The supply-side situation clearly shows—in contrast to the monopolistic claims—a close relationship, not only between retail and wholesale prices, but also between holding inventories and pricing. Standard economic theory shows us that when demand is inelastic, markets are particularly volatile to supply shocks, and the Avian Flu has created substantial supply problems.
Rising Profits
An essential component to the monopoly narrative is that the profits of egg producers have soared while consumers struggle to keep up with rising prices. They suggest that this means, contrary to economic logic, there is a conspiracy of price-fixing. However, this isn’t sufficient evidence to support such conclusions. Higher prices often serve a critical function: they are signals wrapped in an incentive. If there is greater scarcity in egg inventories, prices naturally should rise to place the less-abundant resources to its more profitable uses, and to incentivize either new producers and/or older ones to ramp up production, resupplying the market with eggs. Larger firms benefit from economies of scale, which reduce overall costs. Furthermore, due to inflationary expectations, inelastic demand, and that the demand for eggs has not significantly decreased, this has further led to increased prices. This also comes from expansions in “brunch-based” restaurants.
There is also another point to consider: when demanded resources become scarcer, they also become more valuable. If there is a major supply shock—and bigger firms like Cal-Maine have reserve stocks of egg-laying hens still healthy—they will see a rise in profits without an increase in costs. This is not a conspiracy theory; it is based on supply and demand. These movements in prices are necessary to clear the market, rebuild supply, and lower prices once again for consumers. Suppose we entertained an alternative in the form of price ceilings. If the government fixed prices at say, $2, economics can help us understand what effects this will have. A price ceiling will disincentivize producers to expand production in that market and consumers will have relatively lower marginal costs than at the market-clearing level. If prices are lower, consumers will consume more of a product keeping it scarcer.
Empty Shelves
While, for the most part, supply chains are beginning to recover and retailers are no longer facing the same difficulties, shelves found themselves empty only last month in March as wholesale prices began to fall. In standard economic theory, artificial restrictions placed on supply or demand supply, demand, or prices lead to unintended consequences, such as shortages or waste. Artificial restrictions should be dropped. A monopolistic producer would not display the kinds of behaviors witnessed in egg markets, in that at peak price points shelves remained empty. This limitation on supply suggests not that there were artificial restrictions, but that the inventory of eggs simply was not sufficient—due to supply shocks—to meet the total volume of demand. This indicates that, generally speaking, eggs prices were lower than market-clearing levels.
Conclusion
While many high-level advocates have advanced the narrative that the FTC and the DOJ should advance investigations into the state of the egg industry for price-fixing collusion, this is a costly and wasteful enterprise as basic economic theory can sufficiently explain. A mere change in price dynamics does not indicate, on its own, that market power or predatory movements are at play. As an industry, eggs are particularly volatile to supply shocks given their inelastic demand and price movements by year coincide heavily with these supply conditions.
It has also been established that egg inventories have coincided with these price movements, elaborating on the concept that prices are reflecting underlying information. While firm profits have soared, once again, we cannot establish a basis for price-fixing. Rather, the laws of economics are more than sufficient to explain this with continued demand at higher price levels and benefits from economies of scale. Empty shelves further indicate that the diagnosis is clear: rising egg prices are a supply problem, which the market is effectively solving, and not a problem of monopoly power.
