When production prices rise it’s entirely possible that consumer prices do as well. Equally, it’s entirely possible when production prices rise that consumer prices don’t rise. It being fairly important to understand when each happens so as to be able to decide whether the prices being charged in producing need to be monitored or controlled.
The trick is that something that’s being sold in a competitive market has the price that’s being charged limited by that competitive market. Further, if it’s easy to substitute away from the production process that’s become more expensive then prices to the consumer are most unlikely to rise when the cost of that part of the production process does.
Thus Amex charging retailers a lot for the use of that card doesn’t have this impact:
In recent years, the consumer welfare standard has been used to thwart many attempted interventions. It enabled the Supreme Court in 2018 to overturn a decision against American Express for contractually preventing merchants from steering customers away from using its credit cards, under the rationale that cardholder benefits (a measure of consumer welfare) outweighed harms to merchants from inflated fees. (Never mind that the inflated merchant fees caused by the anti-steering provisions would be passed right back to consumers in the form of higher prices.)
The retailer cannot raise prices in order to cover those Amex costs. Partly because there are too many substitutes – cash, Visa, Mastercard, debit cards, for some items SNAP cards etc – for that method of payment. But also because the retailer is, by definition, already charging the most they think they can get away with.
The claim betrays a much deeper misunderstanding of prices. They are not set by the producer adding up costs and adding their desired profit. Instead, it’s we consumers who decide what prices are going to be. If we think that the price is too high we simply don’t buy it. The list of things we all – all – think are too high in price is that list of all the things that could be produced but are not because there’s no market for them. No market at the price the producer would have to charge to make a profit that is.
Prices, in a market system, are things that consumers set by being willing to pay them. There’s a follow-on point to this as well. The profit made by those producers lucky enough to make one – by having production processes cheaper than the value we ascribe to the finished goods – are not ripping us off by making said profit. Because we’ve already agreed that the final consumer price is fair and reasonable by being willing to pay it.
But then the example comes from The American Prospect which isn’t where we’re likely to find an understanding of economics in the first place.