6 ms·

Pricing is based on what people will pay, not what a thing costs to produce. This has always been true.

bombcar 4y ago
Production costs put a floor in pricing, but no ceiling - though if you extract too much profit someone may compete. Which is why companies love regulations once they’re in - widens the moat and keeps competitors out.
routerl 4y ago
Okay, but it turns out that people will pay whatever it takes to keep food, water, and shelter. So if price analysis were as simple as you seem to think, everyone will eventually be completely emiserated by spending the entirety of their income on simply staying alive. Which is why we have laws to keep prices close to "what a thing costs to produce", and companies can't just take advantage of inflation to raise their profit margins; since, when they've historically done this, it kills a ton of people.
- sicp-enjoyer 4y ago
  > whatever it takes to keep food, water, and shelter. There are still economizing responses. When certain foods are expensive, people search for alternatives. When housing is expensive people move in with family or get roomates. With gas people carpool and drive less. I don't want to suggest those are good outcomes, just that there is a response function.
- mimikatz 4y ago
  Yes, I should have been more clear what people will pay compared to substitutions available and competition in the marketplace for that good.
- HigherPlain 4y ago
  I think everything you typed appears to be wrong? For instance there are no laws keeping prices close to producer price. That task is done by the competitive marketplace in capitalism. In socialism/communism the price is controlled by authoritarianism, which is why those regimes are marked by mass shortages and starvation.
  - routerl 4y ago
    https://wikipedia.org/wiki/United_States_antitrust_law https://wikipedia.org/wiki/United_States_antitrust_law
- t0suj4 4y ago
  > we have laws to keep prices close to "what a thing costs to produce" Which causes the farmers to till the produce into the soil. The produce becomes more valuable as fertilizer than to be sold as food. Runaway prices of necessary items can be controlled only by competition. Farmers must cover the costs of the next season or run out of business.
- travisathougies 4y ago
  This is the problem with inflation. As high inflation numbers get broadcast to the people, people become more willing to spend money now on commodities that may not be available / affordable in the future. That causes profit margins to increase as people take into account future inflation, and thus eventually cause a self-fulfilling prophecy.
colinmhayes 4y ago
Not in competitive markets. Competition forces prices to marginal cost.
- reducesuffering 4y ago
  If that were true Pepsi and Coke would compete their profit margins to 0 for almost identical products. However they both make tens of billions of profit a year.
  - colinmhayes 4y ago
    Pepsi and coke have differentiated their products. The generic brand cola does have next to 0 profit margins, big soda can charge more because they have a monopoly on their brand.

Production costs put a floor in pricing, but no ceiling - though if you extract too much profit someone may compete. Which is why companies love regulations once they’re in - widens the moat and keeps competitors out.

routerl 4y ago

Okay, but it turns out that people will pay whatever it takes to keep food, water, and shelter. So if price analysis were as simple as you seem to think, everyone will eventually be completely emiserated by spending the entirety of their income on simply staying alive. Which is why we have laws to keep prices close to "what a thing costs to produce", and companies can't just take advantage of inflation to raise their profit margins; since, when they've historically done this, it kills a ton of people.

sicp-enjoyer 4y ago
> whatever it takes to keep food, water, and shelter. There are still economizing responses. When certain foods are expensive, people search for alternatives. When housing is expensive people move in with family or get roomates. With gas people carpool and drive less. I don't want to suggest those are good outcomes, just that there is a response function.
mimikatz 4y ago
Yes, I should have been more clear what people will pay compared to substitutions available and competition in the marketplace for that good.
HigherPlain 4y ago
I think everything you typed appears to be wrong? For instance there are no laws keeping prices close to producer price. That task is done by the competitive marketplace in capitalism. In socialism/communism the price is controlled by authoritarianism, which is why those regimes are marked by mass shortages and starvation.
- routerl 4y ago
  https://wikipedia.org/wiki/United_States_antitrust_law https://wikipedia.org/wiki/United_States_antitrust_law
t0suj4 4y ago
> we have laws to keep prices close to "what a thing costs to produce" Which causes the farmers to till the produce into the soil. The produce becomes more valuable as fertilizer than to be sold as food. Runaway prices of necessary items can be controlled only by competition. Farmers must cover the costs of the next season or run out of business.
travisathougies 4y ago
This is the problem with inflation. As high inflation numbers get broadcast to the people, people become more willing to spend money now on commodities that may not be available / affordable in the future. That causes profit margins to increase as people take into account future inflation, and thus eventually cause a self-fulfilling prophecy.

colinmhayes 4y ago

Not in competitive markets. Competition forces prices to marginal cost.

reducesuffering 4y ago
If that were true Pepsi and Coke would compete their profit margins to 0 for almost identical products. However they both make tens of billions of profit a year.
- colinmhayes 4y ago
  Pepsi and coke have differentiated their products. The generic brand cola does have next to 0 profit margins, big soda can charge more because they have a monopoly on their brand.