Why a 22LR ammo shortage?


After a year or so, I just purchased 300 rounds of 22 Long Rifle (lr). Anyone who knows anything about firearms knows that there has been a massive shortage of rifle and pistol ammo, especially the 22lr, for over two years now. You will be hard-pressed to find 22lr’s at places where you should otherwise find them quite easily, namely Walmart and Dicks sporting goods. What is causing the shortage? And why hasn’t the price gone up? Hopefully my Economics background will provide insight into why I can’t plink around anymore.

I hope to provide some insight into why this is the state of affairs and will provide the ONLY solution to this problem.

Silly Conspiracy Theory

First, let me debunk one theory. Some believe that the government has purchased millions of rounds of ammo, particularly hollow-point, for the expressed purpose of ridding ammo off the shelves for the average person. While DHS really did purchase thousands of rounds of ammo, this would be a stupid way to limit ammo usage by the average gun-owner. Buying up ammo would only send up the price (as we will see), but it would not make it impossible to purchase. People would still be able to buy them, just at a higher price. If anything, if the government tried this tactic for years to come, new companies would enter the market to off-set the demand. Second, forget DHS, Bush’s stupid wars alone would be sufficient to send the demand up, but we did not see this happen until after the gun control debates. Last but not least, DHS’s acquisition of the rounds takes place over 10 years, not 6 months.

Production Won’t Increase To Meet Demand

So given the crazy demand, why don’t ammo makers produce 22lr non-stop, 24/7, until demand is met? After all, won’t they make a profit? In short, unless they are that streamlined, its bad for business. Companies eventually hit what Economists call the “law of eventually diminishing marginal returns”. This means that at first a surge in production will mean they will turn a higher profit, then a reducing profit, then the profit will fall to zero, and eventually the cost of producing ammo will exceed the market price of ammo. This is represented graphically below.

MPC001w

Marginal Product is the benefit that a company gets per each additional unit of production of, in this case, ammo. At first the company’s profits go up very quickly, but after a while they slow down, flat-line, and start to fall. No company would produce past the point where they lose money per unit they produce.

Crazy High Demand

Given that there is no tangible reason for a run on ammo, I believe the demand-craze is entirely based on the self-fulling prophecy of an ammo shortage. Many were concerned that after the wave of mass-shootings, the Obama regime would implement a ban on guns and ammo. So people went out and bought ammo today, fearing it would not be available tomorrow. When the second guy went to the market, he saw that ammo was no longer available, triggering a fear that rippled to every other buyer. After a while, if you found it on the shelf, you bought it even if you did not need it.

Lets be honest, this fear is not only irrational, its stupid. We had one of the worst mass shootings in the history of mass shootings, resulting in dead children – but even then Congress was unable or unwilling to even marginally regulate guns. If that will not result in even basic changes to our gun laws, nothing will. So fears of the government coming to take our guns and ammo are unfounded and nearly impossible.

There are two minor but aggravating factors with regards to the 22lr that does not affect other calibers. First, 22lr is rim-fire so shooters can only use their brass one time. This means the demand is not mitigated by ammo re-loaders. Second, 22lr was/is a very cheap round to fire – it is commonly seen as a beginners round. This means a lot of casual shooters, who make up a significant portion of the shooting community, prefer to fire 22lr.

WHY hasn’t the price gone up?

Its economic law that if the demand goes up but the quantity supplied (fancy term for supply) does not go up, the price should increase. But how come when we go to Walmart, its still see a low price?

Well first off, the price has gone up in primarily one of two ways. The price went up on secondary markets, particularly online. A quick search (10/6/2014) shows me that the price for 100 22lrs is about $18.04, compared to the in-store price of less than $10. If you buy in bulk you’ll get a much cheaper rate, but then factor in the shipping costs.

But there is another kind of price the consumer is facing, the price of unavailability. Consumers can’t find it, so they are forced to invest more time in searching and searching, arriving at the store at 6am, etc. This is a non-monetary cost.

I suspect that the dollar price at major chains has not gone up for one of two reasons:

First, Walmart has locked-in rates per good with their distributors. This means that if the price of the dramatically increases, they can still purchase ammo at a cheap price. However, because of their Just-in-Time business model, they have no fixed quantities of guaranteed delivery. Therefore, CCI or Winchester are not required to deliver “X” number of ammo, and might be less inclined to sell to Walmart, but sell to other buyers where they can make more money.

So why doesn’t Walmart just jack up the prices? That’s the million dollar question to me. Without any evidence, my pure speculation is that its a means to get customers in the door, after which they will buy something else.

Price Gauging?

A lot of people curse the “price gaugers” those who buy cheap, but sell for double the price. I entirely disagree, I hope people continue to raise the price.

Before I get into the graphs, the raising the price will mean that the hoarder will think twice before purchasing yet another box of 22lr to rot in his basement. A higher price means he might pass on the next purchase. As that happens, ammo will gradually return to the shelves and people will be able to buy. When people see ammo, albeit at a higher price, it will cool down the craze, eventually resulting in cheaper prices.

The following graph illustrates the way things are, and the way things should be.

shortage

Now to get technical: The Red line describes the quantity of ammo companies will supply. In English, as the price goes up, ammo companies will produce more ammo to make more profit. Conversely, the Blue line describes the quantity of ammo people will buy. As the price goes up, people buy less. As it goes lower, people buy more.

In a perfect economy, we would be at point A, where supply and demand would equal each other. Point A is called the “Fair Market Price”. Instead, we are at point B, where companies are uninterested in producing as much as they would at point A. But conversely, consumers demand at point C! So, the distance between the quantity that business produce, B, and the consumers demand, C is the shortage.

Therefore, a higher price means the end of the shortage.

So my conclusion: RAISE THE PRICE OF AMMO! People and companies should price-gauge, and continue to do so until they cannot make another dollar of profit. It is not immoral, it is a means to fix the market and get ammo back on the shelves.

End Structured Rant. Your thoughts?

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The Homeless God


I lived on-campus when I was a Sophomore, from 2003-2004. Once as I was standing outside of my dorm with some friends on a cold night, a homeless man approached us and asked us for money. He was visibly disheveled and wore old dirty clothes. I still remember that he had mucus in his beard and had a hint of desperate insanity in his voice. The man asked us for money. Not only did I not have a penny, my generation uses cards, not paper money. He repeated his request and said, “Come on, love’s not a dirty word”. But I really had nothing to give him.

He then said “Do you know who I am…? I’m God.” And then he walked away.

When I look back at that incident, I see it from his perspective. He was (probably) a decent man who fell on hard times and found himself on the street. Now he sees these kids – ignorant, privileged and materialistic, stingy with their blessings, arrogant, living a life of plenty. This, in his immediacy, while he is struggling for his next meal.

Maybe I’m over-analyzing it, maybe he really was missing some of his marbles. But I see his statement “I’m God” not in the literal sense, but an expression of his anger at the situation. It should be different than it is. He has a moral superiority to the one who created the situation, God. So he is better than God. And the next step was to fashion himself God.

That was over 10 years ago. I hope he’s found peace.