Economics & Finance
Price Signal Under Supply Constraint
When supply of a good is limited, rising prices signal not just current costs but also convey an expansion incentive to producers. However, the lag between price increases and new capacity coming online (typically 6-18 months) often triggers a cobweb cycle: high prices → capacity expansion → oversupply → price collapse → capacity exit → shortage recurrence.
Read the daily articles behind this idea on the Chinese edition.
Related principles
- → LinksPrioritization Tax
- → LinksSupply Chain Constraint-Driven Spec Degradation
- → LinksSupply Constraint Illusion of Demand
- → LinksVertical Integration of Capabilities
- → LinksRecession Signal Detection in Business Cycles
- → LinksTechnology-Demand Resonance
- → LinksScale Transition of Hidden Tracks
- ↺ CountersVisibility Paradox
- → LinksSupply Chain Bottleneck as Entrepreneurial Opportunity
- ↺ CountersDemand Forecasting Failure & Supply Chain Resilience Paradox