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Good piece...putting on my econ hat here, it would definitely be more accurate to say that prices are signals that reflect the all-in cost of moving products an

Good piece...putting on my econ hat here, it would definitely be more accurate to say that prices are signals that reflect the all-in cost of moving products and their dependencies through a supply chain and to the consumer. These signals can be disrupted by many factors, including competition or lack thereof, regulation or tax policy, etc, that often can make things inefficient. But in the examples the author uses, it's not that the price is divorced from cost, it's that the price of video tapes reflects the all-in cost of production, distribution, as well as the cost of fighting piracy. High medical prices reflect the incentives and constraints of the system that has been built around the service. High drug prices reflect the cost of R&D, not the cost of pouring cheap compounds into a plastic mold. Which is not to say that prices are not truthful per se -- just that pricing signals can be easily disrupted by factors not normally in the consumer's direct field of vision, and can be exploited by "loopholes" (which are just another way to send a signal back to the firm that the price is incorrect).

deleted 5y ago
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skybrian 5y ago
From an information theory standpoint, prices are a very simple summarization of overall costs that throws a lot of information away. This is useful to do because supply chains are complicated and understanding them would impose a burden on consumers. But it also means we remain ignorant of how goods and services get to us and what the system constraints are. Also they aren't just about cost, but also about expected demand, and competition to capture that demand. This makes the information about costs a muddy approximation at best.
- 1123581321 5y ago
  Product and service information is transmitted along with price, and insufficient information drives demand for methods to price more granularity without increasing transaction costs. Or to decrease transaction costs to allow research into purchases more difficult to understand.

deleted 5y ago

[deleted]

skybrian 5y ago

From an information theory standpoint, prices are a very simple summarization of overall costs that throws a lot of information away. This is useful to do because supply chains are complicated and understanding them would impose a burden on consumers. But it also means we remain ignorant of how goods and services get to us and what the system constraints are. Also they aren't just about cost, but also about expected demand, and competition to capture that demand. This makes the information about costs a muddy approximation at best.

1123581321 5y ago
Product and service information is transmitted along with price, and insufficient information drives demand for methods to price more granularity without increasing transaction costs. Or to decrease transaction costs to allow research into purchases more difficult to understand.