Cost Pass-Through & Consumer Tolerance Threshold

When supply chain costs rise, businesses face three choices: (1) absorb costs and sacrifice margins, (2) raise prices and shift costs to consumers, or (3) reduce product quality. Successful price increases depend on the consumer's 'tolerance threshold'—beyond the critical point, demand collapses non-linearly. This threshold is determined by substitute availability, product necessity, and consumer switching costs.

Read the daily articles behind this idea on the Chinese edition.