Apparently changes in hamburger prices are provoking quite a controversy in Japan, they seem to be seen as a symbol of deflation.
Recent news of a top hamburger chain reinstating price discounts indicates how far the speculation about an "end to deflation" a few months ago was missing the mark. Actually, some investors had been assuming that the end of the half-price sales of hamburgers as a sign of that deflation was coming to an end. Attempts to link hamburger prices and an end to deflation, however, confuse individual prices and the general price level, or partial equilibrium and general equilibrium in the economy. In the case of the major hamburger chain, based on a simple economic model, raising prices to pass along the impact of yen depreciation and other procurement cost increases encountered a "reverse supply shock" from reduced productivity, pushing the supply curve upward and resulting in weaker sales volume over the last several months.
Source: Morgan Stanley, Takehiro Sato (Tokyo)
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As Takehiro Sato notes the challenge for an effective sales strategy under deflation is finding what he calls the diffraction point on the demand curve (the point at which it becomes vertical) attempting to use precise demand forecasts, and thus maximizing revenue within the context of a given and limited sales volume. In such a world, where the demand curve is partially vertical, corporate revenue and earnings can be negatively affected if prices for final demand goods move either up or down.
