How We Can Fight Inflation Through a Hot Dog War

Although inflation still tops seven percent, there is one place that price has plunged.

Sam’s has brought the price of its hot dog combo down to $1.38.

Hot Dog Wars

Previously at $1.50, Sam’s “cafe hotdog combo” had been the same price for more than two decades. Manwhile, Costco has been charging $1.50 for its Hot Dog Combo since 1985.

Last July, the writers at Hustle’s newsletter told us that if Costco had kept up with inflation since 1985 when it first offered the combo, it would be charging $4.13. Based on the newest BLS numbers, even that $4.13 is low since the price of hot dogs was up 15.2 percent annually as of October,

While the red combo price line is steady, it would dip for Sam’s:

Our Bottom Line: Monopolistic Competition

In an inflationary marketplace, Sam’s is trying to distinguish itself from Costco with its hot dogs and also by reducing the price of its rack of lamb and lobster tails. Yes, they are surely losing money on those items.

But, in a monopolistically competitive market, it all makes sense.

Monopolistic competition is composed of two halves. The monopoly part indicates the company is producing something unique that you associate solely with it. But the competition half says that lots of others have something that could be identical or very similar. A beauty salon is the perfect example. You can get a haircut at many hundreds of shops. But the one person who does your hair is what makes the place unique.

Because we can say the same thing for a hot dog and soda, you can see why there is a war between the two big chains. Each is trying to distinguish its version from all the others that sell hot dogs and soda. (Furthermore, the shoppers that remain for a snack tend to spend more on other items.)

Below, moving to the right, firms have more power over price. For that reason, we can place Sam’s and Costco to between oligopoly and monopolistic competition:

Both have the market power to fight the hot dog war with few casualties.

My sources and more: I first heard about the frankfurter wars through my daily WSJ daily podcast. From there, they had more detail here, as did CNN.

Our featured image is from Sam’s Club. Please note that parts of today’s bottom line were in a previous econlife post.