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If no one is priced out and you are operating in the free market then you need to raise your prices. Repeat until you maximize profits.
by pfisch 8y ago
If no one is priced out and you are operating in the free market then you need to raise your prices. Repeat until you maximize profits.
- bumby 8y agoDoes it have an end goal of maximizing profits, though? Couldn't the goal of price discovery be to find the point where supply = demand, without necessarily maximizing profit? Granted, this ignores the human trait to increase consumption when removed from directly paying all associated costs (e.g., my behavior at Golden Corral)
- vec 8y agoIf maximizing profits (or, more precisely, maximizing expected value) isn't a terminal goal for all involved parties then it isn't a free market.
- bumby 8y agoI see your point if the term profit is defined in a general sense, but with the exception of "corporations as people" caveat there's plenty of everyday examples where people are trying to maximize outcomes other than capital (sometimes at the expense of capital). I'm not sure that makes it any less of a free market
- vec 8y agoIt does. There's no free market for soup kitchens for the homeless, for example. There exist entities who are willing to provide soup kitchen services below operating costs in perpetuity (i.e. charitably, for free). The price for services is kept artificially low ($0) by constant infusions of capital from outside the market (charitable donations), which prevents for-profit vendors who don't receive constant cash infusions from being able to compete on a level playing field. The resulting market is thereby warped by the distorting influence from non-market forces, preventing it from operating efficiently. It's not "free", in the technical sense. This isn't necessarily a bad thing, to be clear. The charitable funding system may well provide better aggregate social outcomes than a free market would for any number of reasons, not the least of which being that one of the freedoms that "free market" implies is the freedom for vendors to decide that some of their potential customers are more trouble than they're worth to serve.
- bumby 8y agoYou illustrate the point well and maybe I'm just not well versed enough in the topic. You imply that a charity warps the free market by undercutting profit-motivated competitors but in the last statement you give the vendors the freedom of choice in regards to their customers. Is there any reason why this same freedom of choice can't be extended to people who choose a specific social outcome at the cost of less (or nil) profit? For example, are B-Corps fundamentally less "free market"? Or does the very nature of free market imply a profit maximizing function? As an example that comes to mind, I'm curious how not-for-profit and for-profit hospitals interact in a "free market" of healthcare in the United States.
- pfisch 8y agoNo, this doesn't really work because other people will ultimately run you out of business with their compounding profit and reinvestment advantage.
- bumby 8y agoDoesn't that imply they compound profits by either 1) raising prices and thus reducing demand for their product in the presence of non-profit maximizing suppliers or 2) creating efficiencies to increase profit margin at an equal-or-lower price? In situation one wouldn't the advantage go to the non-profit motivated supplier and in situation 2) doesn't it ultimately benefit the customer with lower prices?
- taysic 8y agoI think the point is if one company is making outrageous profits it’s trivial for a competitor to undercut them. The food industry for example rarely makes more than 2% in profit because it is so competitive.
- bumby 8y agoI would agree, but only with industries with a low barrier of entry of commodity businesses. There are also other moats that prevent trivial competition. Examples may be intellectual property, branding, switching costs etc.
- WalterBright 8y agoI've never heard your theory of economics before from any faction.