It gets worse: people buy when times are good and sell when times are bad, if they've not held enough liquidity. This tends to amplify buying prices and depress selling prices.
It's also a strong reason to maintain liquidity and keep your nut (recurring expenses) low.
The dynamic turns up in a number of other areas. Natural resources markets: extractors are often pressed to provide more supply when prices fall because they've a large fixed cost structure, often loans, and the resource is all they have to sell. Monopolisation or cartelisation, or government-regulated stockpiles, are a common response (Standard Oil, the As-Is agreement, the TRO/Dept. of Interior quota program, Naval / Strategic oil reserve -- see also Tea Pot Dome scandal, Harbord list, OPEC). Farmers will double down in drought, see Ken Burns and Tim Egan on the Dust Bowl. Migrant or refugee labour (Dust Bowl and others).
Economic agents -- persons, groups, firms -- face both short-term essential and long-term cost structures. They can operate, for a time, below long-term costs, but only at the cost of degrading their long-term capabilities. They'll do so because if they fail to meet short-term needs, they die.
It's a tremendous market distortion. Perhaps one that drives the entire modern economy.
It's also a strong reason to maintain liquidity and keep your nut (recurring expenses) low.
The dynamic turns up in a number of other areas. Natural resources markets: extractors are often pressed to provide more supply when prices fall because they've a large fixed cost structure, often loans, and the resource is all they have to sell. Monopolisation or cartelisation, or government-regulated stockpiles, are a common response (Standard Oil, the As-Is agreement, the TRO/Dept. of Interior quota program, Naval / Strategic oil reserve -- see also Tea Pot Dome scandal, Harbord list, OPEC). Farmers will double down in drought, see Ken Burns and Tim Egan on the Dust Bowl. Migrant or refugee labour (Dust Bowl and others).
Economic agents -- persons, groups, firms -- face both short-term essential and long-term cost structures. They can operate, for a time, below long-term costs, but only at the cost of degrading their long-term capabilities. They'll do so because if they fail to meet short-term needs, they die.
It's a tremendous market distortion. Perhaps one that drives the entire modern economy.