This article was first published on 25 January 2016 and was updated with new information.
Chinese New Year (CNY) is once again approaching. Supermarkets and pastry shops are filled with CNY goods such as pineapple tarts, shrimp spring roll and our recent favourite, deep-fried crabsticks (wait till you try salted egg potato chips!). As the date approaches, more and more people will be queuing outside the Bak Kwa (dried meat, similar to jerky) shops to buy Bak Kwa despite the ridiculous hike in price.
In the past, people were less well off and may only have the ability to spend a little to buy nice festive food during CNY to celebrate with their loved ones. These days, most people have the ability to afford Bak Kwa or other festive food any time of the year, especially when these goods are way cheaper during non-peak period.
So why are we spending more during CNY on these goods?
It Has Nothing To Do With Supply & Demand
Contrary to popular belief, the increase in demand and shortage of supply is not the main culprit for the price increase in these festive goods. Retailers can simply produce more if they want to. The fact that we always see so many goods left after CNY being sold at a discount is evident of that. And with all due respect to the famous Bak Kwa brands, there are many other stalls that sell pretty good meat (and just as many stalls selling bad ones) as well. So this isn’t a matter of a monopoly or oligopoly being at work.
The Demand Of Bak Kwa Is Price Inelastic During CNY
Rather, it is the price inelasticity of demand that allow retailers to increase the price of their goods without worrying that demand will drop.
The price elasticity of demand, by economic definition, is the measure of responsiveness of the change in quantity demanded of the good, given a unit change in price, ceteris paribus (all things being equal).
To put it simply, price elasticity measures sensitiveness of people buying Bak Kwa given that there is a change in the price. If we see many people still buying Bak Kwa when the price has increased, then we know that the price is inelastic. The same concept applies vice versa.
Bak Kwa Are Perishable Goods
If prices Bak Kwa and other festive goods are so expensive during peak period, why can’t we simply stock it up during December or early January and pay less?
This is where shelf life of the goods also plays a part. Most of the items cannot be kept for long and have to be consumed within a month of purchase. That is why consumers have no choice but to buy it during peak season, even at a higher price.
Prices of goods with longer shelf life are less susceptible to price hikes. For example, the 1.5l coke bottles and Yeo’s packet drinks have prices that remain stable, despite the increase in demand during these times.
Retailers Can Pass On The Cost To You
Since the retailers know that our demand for Bak Kwa is price inelastic, they can (and will) pass on the increase in operating expenses to the consumers if they have to. For instance, according to AsiaOne, pork prices are expected to increase by 10% during the Chinese New Year period. The producers of Bak Kwa will be likely to pass on this 10% increase in cost to the consumers.
Price Hike Help Retailers Increase Total Earning For The Year
Most people only have pineapple tarts during CNY. The amount of calories it contains is simply unsustainable for our waistline if consume regularly throughout the year.
For the rest of the year, the demands for such festive goods are not high. In other words, the CNY period is the only time during the year where retailers can spike up their revenue. Thus, it is necessary for them to increase the price during the peak period and maximise their profits.
While it may seem absurd given how expensive these festive goods are, such increase in prices are logical from an economic perspective due the aforementioned reasons. If you want to save some money, you can always buy these goods after CNY, or simply do more visiting to your relatives’ home and gorge yourself with these items! They will be happy for you to do so, do they might wonder why you are particularly excited to come to their house during this year.
It is also another conversational topic besides the usual academic results, current job and relationship status that you can discuss during visitations.
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