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Except you assume consumers will pay more. A price increase of X does not necessarily yield an equilibrium of demand reduction. Even a 10% price increase might
by themartorana 10y ago
Except you assume consumers will pay more. A price increase of X does not necessarily yield an equilibrium of demand reduction. Even a 10% price increase might yield a 90% demand reduction. You want to sell out your stock, even at the cost of higher demand. Being left with stock is an expense of its own, and can cut into extra revenue.
- moron4hire 10y agoGenerally speaking, it's better to be left with just a little stock than to sell out every week. You can't know if you've hit the price equilibrium unless you do. Especially on a product like honey that doesn't spoil, a higher than average price during high seasons means you are protecting stock for future low seasons. I don't know of anything that has an actually demand curve like that. In some cases, increasing price increases demand, as it opens you up to a new market of conspicuous spenders. It does no good to talk such hypotheticals. On the other hand, I have worked a lot in the food service and vending businesses. Missed revenue today is a war chest you won't have to ride out the seasonal fluctuations. How many customers are you going to make happy when you're out of business?
- autokad 10y agoits also very unlikely that their low prices will keep competitors out of the market, unless they can produce so much honey to flood it.