Covid has done a lot of things to our society. But talk to anyone who enjoys hunting, and they'll tell you one of result is the 'Great Ammunition Shortage of 2021.' "5.56 ammunition for an AR-15 used to be about 33 cents a round," said Mark Oliva, director of public affairs for the National Shooting Sports Foundation. "Now you're looking at closer to almost a dollar a round. So it is much more expensive and it is much more difficult to find ammunition."

One of the more interesting questions in the discussion over inflation is the relationship between concentration and pricing changes. Most economists believe that supply shocks are increasing profits, but that this increase will serve as an inducement to more productive capacity. "Capitalism is on our side," said economist Alan Blinder in the Wall Street Journal. "Shortages raise prices, but high prices create opportunities for profit, which attract capitalists to alleviate the shortages." If Blinder were correct, then one would expect lots of new productive capacity and new entrants into this market.

Ammunition is a highly concentrated industry. There are many ammo brands, like CCI, Federal, Remington, Winchester, and Speer, but they are all controlled by two firms - Vista Outdoor and the Olin Corporation. As Elle Ekman wrote in the American Prospect, Vista and Olin rolled up the industry through mergers, as well as taking advantage of the privatization of government facilities making ammunition and government contracts.

During the pandemic, a lot of people decided they wanted to buy and use guns, either for hunting or personal protection. The 12 million new gun owners, plus existing activity, meant that the industry experienced the same demand shock that lots of outdoor activity segments saw. The result has been a shortage of ammunition, and higher prices.

Like a lot of industries, there are cost pressures in ammunition; the price of raw materials, like brass, have gone up. Additionally, the State Department has blocked imports from Russia, adding to the pricing pressure. But the cost story is really a sideshow; the pricing increase is going almost entirely to profit. For Vista, margins skyrocketed in 2020, and continued to increase in 2021. As the CFO of Vista, Sudhanshu Shekhar Priyadarshi, told investors in November, margins rose to a record 27% in Q2 of 2021, on top of an already extraordinary 2020.