What is ‘Value Deflation’
When companies cut their costs without increasing prices for consumers. Value deflation occurs when retailers and service providers give out smaller portions, fewer services and generally provide less for the same price.
This is also referred to as “shadow inflation.”
Explaining ‘Value Deflation’
Examples of value deflation include reductions in the amount of food in a typical package such as a juice box or bag of potato chips, reduced portion sizes at restaurants, and curtailed cleaning and concierge services at hotels. Of course, all of these businesses continue to charge the same price despite the reduction in products or services. This method is an alternative to raising prices that the consumer is less likely to notice.
Further Reading
- Deflating profitability – www.sciencedirect.com [PDF]
- Price deflation and consumption: central bank policy and Japan's economic and financial stagnation – www.sciencedirect.com [PDF]
- The value relevance of environmental performance – www.tandfonline.com [PDF]
- Measuring value relevance in a (possibly) inefficient market – onlinelibrary.wiley.com [PDF]
- Financial structure and economic development – www.journals.uchicago.edu [PDF]
- The nonlinear economics of debt deflation – books.google.com [PDF]
- Economic crises and the debt-deflation episode in Thailand – www.jstor.org [PDF]
- Pricing deflation risk with US Treasury yields – academic.oup.com [PDF]
- Lessons from the debt-deflation theory of sudden stops – pubs.aeaweb.org [PDF]
- Time-series coefficient variation in value-relevance regressions: A discussion of Core, Guay, and Van Buskirk and new evidence – www.sciencedirect.com [PDF]
