While one strand of the literature focusses on implicit collusion across firms, Scanlon emphasizes the issue of consumer attention. His paper shows formally how, when economy-wide price shocks (e.g., oil price increases) are prevalent, consumers tend to attribute price changes to these shocks. This confers firms with more market power, amplifying upward price pressure and leading to margin expansion. The theory is more applicable to certain sectors. Less market competition reinforces the dynamic, and the mechanism is most relevant where consumers have less incentive to engage in extensive price search (e.g., groceries).
Foreshadowing another bout of greedflation, media reports today abound with news of energy and food price volatility arising from the Iran War. And looking forward, supply disruptions could play an increasingly important economic role as tariffs, sanctions, climate change, geopolitical tensions, and the fragility of supply chains all provide sources of price volatility. As a result, greedflation is likely to remain a topic of conversation.