23.9.06

SUPPLY CURVES SLOPE UPWARDS. At Rip Track, evidence that for railroad contractors and suppliers, these might be the Good Old Days.

-Class One Railroads are buying things like never before! Everybody that I talk with is crazy busy! I know I am, which is one reason my posts are more infrequent. So, if you were making widgets as fast as you can, and one customer is buying almost everything you can make, but here comes another customer who requires this-that-and-the-other to be happy, you will ask yourself, why put up with the hassle here? Case in point: For some time, railroad material suppliers have filled their production schedules with work obtained by winning bids from Agencies. Suppliers put up with the associated aggrevation in order to cut overhead with full production. Now, Class One Railroads are claiming all of that once-excess production. And, I don't know any supplier who would rather deal with an Agency than a Railroad.

-Not only that, but US Suppliers are being courted by foreign concerns! And these people are more than willing to purchase a quality US-made product without anywhere near the problems that must be dealt with when working with a domestic concern. That means nothing but more pressure on production.

Here's what it boils down to: Production capacity is not increasing; production demands are increasing. The result will be, believe it or not, that suppliers can begin to select their customers!

Put another way, those customers who are prepared to fork over more of their expected consumer surplus to the vendors will be the ones who walk home with the bread, or the trackage. (Traders are price takers in equilibrium, but out of equilibrium all manner of strange things happen.) Whether the increase in demand will be of sufficient magnitude and duration to call forth additional capacity (yes, those short-run and long-run supply curves and the LeChatelier-Samuelson effects are for real) remains to be seen.

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