David Rose

Let’s say you own a company that produces eggs. You can raise chickens, collect the eggs, package and distribute them for a cost of $3 per carton. You sell the eggs for $4 per carton. $4 sales price - $3 cost of production = $1 profit 🚀 But then, your costs go up. There are logistical delays, cost of feed increases. Now it costs $4.50 per carton to product the eggs. $4 sales price - $4.50 cost of production = $0.50 loss 😖 All is good though, because you raise your price to $5.50 per carton. Now you are back in the black. $5.50 sales price - $4.50 cost of production = $1 profit 🚀 EXCEPT you sell most of your eggs in California. In fact, you’re the largest provider of eggs in all of California. California has a rule that says you have to file for and receive approval to increase the cost of eggs. You file for approval to increase the cost of a carton to $5.50 in California. You wait for months; months turn into years. Whilst you’re making $1 profit on every carton of eggs in every other state, you’re losing $0.50 on every carton of eggs you sell in California. The regulators in California refuse to approve your sales price increase to $5.50 per carton. Eventually, you are forced to stop selling eggs in California. You cannot let the consistent losses in California pull your entire company under. People in California are upset that they can no longer buy your eggs. Many of them would be happy to pay $7 per carton since there aren’t many other eggs available. But the regulators won’t allow you to even charge $5.50 because of their price controls. You focus on gaining market share in other states to sell more eggs outside of California and save your profit margin, so you can stay in business long term. This story isn’t about eggs. It summarises California’s insurance crisis.