In practice, that’s not what happens generally. A widget is $100, the 5% tariff brings it up to $105 and company bumps the price to $110. People need the widget so they buy it at $110. Tariff goes away, but company knows that people will pay at least $110 for the widget, so they try bumping the price to $115. Maybe it doesn’t sell, so they “discount” it back to $110 and people will happily buy it thinking they’re getting a deal, while the company is pocketing that extra $10.
That’s certainly a possibility.
I would argue that we’re both right depending on what the widget is.
(Assuming the price is changed to be proportional and appropriate for the product) Something like a grocery item is more prone to my thought, and something that has generational differences, such as a laptop or something, will likely follow your theory more closely.
I think a lot of this will still be tied to price elasticity. If the price is very elastic then the former system would be more likely. Drop the price so you can push more units (and overall, profit goes up), where things that are far less elastic, say, an iPhone, would tend to simply continue to increase like the latter system you describe.
At the end of the day, both are horrid, terrible, and very very common. So I’ll finish by saying: no matter what happens, people are going to be getting massively fucked, and corporations will post record profits yet again.
Fuck corporations.
