6 ms·

I’m in the Netherlands and there is a horse butcher (paardenslagerij) around the corner of my house. Has been there since the seventies. The sausage is quite g

by tnolet 4y ago

I’m in the Netherlands and there is a horse butcher (paardenslagerij) around the corner of my house. Has been there since the seventies. The sausage is quite good, but much fatter than I’d expected. It’s also quite expensive which can make sense because scarcity, but not make sense since the demand must be fairly low. Based on total anecdata, I see mostly pensioners going here. And me.

tsimionescu 4y ago
> It’s also quite expensive which can make sense because scarcity, but not make sense since the demand must be fairly low. If demand is highly inelastic - as would be expected for something like culinary preferences - then price actually has to increase when demand is low: if you can sell to 3 people at 20$ or 5 people at 10$, you're losing money by decreasing your price.
- nanis 4y ago
  > If demand is highly inelastic - as would be expected for something like culinary preferences Demand curves, regardless of elasticity, are always downward sloping: Higher prices lead to fewer units demanded. Your statement implies control over prices: Firms with market power do not operate along the inelastic portion of a demand curve. This is a logical implication of profit maximization. Before one can understand that, one must internalize the fact that as a seller, you cannot choose the price and the quantity sold independently. If you pick a price, you can sell the quantity demanded at that price. If it is too high, can't sell any. If you pick quantity, you can only sell all at a price people are willing to pay. Assume a firm has market power (can pick price) and is operating along the inelastic portion of the demand curve. If it charges a higher price, it loses some sales, but total revenue increases (that's what demand being inelastic means -- quantity sold falls, but percentagewise not as much as you increased the price, therefore, revenue, price x quantity increases). In addition, because cost is increasing in quantity (offering more for sale costs you more) and now you are producing less, costs go down. Therefore, profit, which is revenue minus cost, must increase. Therefore, if you were operating along the inelastic portion of the demand curve, you could not have been maximizing profits. Therefore, firms with market power (can pick price) can only operate along the elastic portion of the demand curve. If you are claiming demand for horse meat is a vertical straight line (which is not a thing outside of being a limiting case in econ 101), then lower demand means demand curves closer to x axis origin, i.e., price is determined simply by the supply curve. With a given supply curve (which are always positively sloped due to the fact that cost is increasing in output), lower demand means lower equilibrium price, > then price actually has to increase when demand is low. Demand falling cannot cause higher prices (keeping everything else constant).
  - wjnc 4y ago
    Those sweet economists. (I’ve got my MSc in Economics ;) First off: Giffen and Veblen goods? Second off: while I’m all for the theoretical models and would even defend that institutional evolution would lead to markets representing theoretical IO markets … a local horse butcher in a Dutch town is not a profit maximizing entity. He’s got sticky and human relations on his supply side, sticky and human relations on his demand side and a finite time horizon in which the butcher takes pride in the job and firm. Ever hear seniors complain about prices rising in small stores? Store owners take that into account. Marginal local stores bordering on bankruptcy tell you that. He picks prices because all things considering that price makes sense to him.
    - nanis 4y ago
      > Those sweet economists. (I’ve got my MSc in Economics ;) > Giffen and Veblen goods? Let me know when you find one. Grazing grounds for the perpetually counter-example starved. > I’m all for the theoretical models Nothing theoretical about what I said: Simple logic. Your claim is that Dutch butchers would prefer to leave free money on the table?
      - wjnc 4y ago
        Yes, I believe that every (small) shop or store leaves money on the table all the time. The best I can give you is somewhat optimizing some of the time with long perturbations. A function of social relationships on all sides, Excel [1], one-shot pricing, bounded rationality and myopia, endowment effects etc. If you look at the economic performance of firms within sectors you’ll see massive diversity in value added. That’s pretty much proof that business leave money on the table. Other example is the way inflation winds it’s way through pricing. It’s rocky and uneven. Anyone whose ever seen a business in operation will agree it’s satisficing not optimizing. [1] Excel explains why large companies retain lots of efficiencies. Nature of the firm debate points to all kinds of relative efficiencies, which I happily applaud.
  - tsimionescu 4y ago
    Demand for things like horse meat is limited. Even if a butcher gave it out for free, they wouldn't be able to "sell" as much horse meat as chicken meat, at least not for human consumption. So, when you realize you're already selling the maximum possible amount of your good, you're only option to increase profit is to increase your prices. If your market reduces even further (say, 10% of the people buying your horse meat die of old age), you will often have to increase price even more to try to keep the profit you were making. Especially with goods like meat, where the supply side is also inelastic (you can't produce half a horse, you butcher a whole horse or you don't butcher it at all). For niche culinary products, this type of extremely limited market can actually exist. I'd bet if you were allowed to sell mouse meat, you would quickly get to know every single person in London who wants to eat mouse meat. Of course, I'm not claiming that demand will not be reduced by price. You can't charge a million dollars per kilo of horse meat. But you also can't expect to increase sales volume for certain niche goods past a point, regardless of price. Edit: this is also often visible in the price of seasonal specialties. For example, in my country, lamb is only commonly eaten for Easter. So, demand for lamb spikes around Easter every year. But, lamb prices actually drop around Easter (at least for consumers) - the rest of the year, lamb is only sold at high prices for the few people who consider it a delicacy. But around Easter, as demand increases for cultural reasons, competing on price starts making sense and price drops just as demand rises.

by tnolet 4y ago

tsimionescu 4y ago

> It’s also quite expensive which can make sense because scarcity, but not make sense since the demand must be fairly low. If demand is highly inelastic - as would be expected for something like culinary preferences - then price actually has to increase when demand is low: if you can sell to 3 people at 20$ or 5 people at 10$, you're losing money by decreasing your price.

nanis 4y ago
> If demand is highly inelastic - as would be expected for something like culinary preferences Demand curves, regardless of elasticity, are always downward sloping: Higher prices lead to fewer units demanded. Your statement implies control over prices: Firms with market power do not operate along the inelastic portion of a demand curve. This is a logical implication of profit maximization. Before one can understand that, one must internalize the fact that as a seller, you cannot choose the price and the quantity sold independently. If you pick a price, you can sell the quantity demanded at that price. If it is too high, can't sell any. If you pick quantity, you can only sell all at a price people are willing to pay. Assume a firm has market power (can pick price) and is operating along the inelastic portion of the demand curve. If it charges a higher price, it loses some sales, but total revenue increases (that's what demand being inelastic means -- quantity sold falls, but percentagewise not as much as you increased the price, therefore, revenue, price x quantity increases). In addition, because cost is increasing in quantity (offering more for sale costs you more) and now you are producing less, costs go down. Therefore, profit, which is revenue minus cost, must increase. Therefore, if you were operating along the inelastic portion of the demand curve, you could not have been maximizing profits. Therefore, firms with market power (can pick price) can only operate along the elastic portion of the demand curve. If you are claiming demand for horse meat is a vertical straight line (which is not a thing outside of being a limiting case in econ 101), then lower demand means demand curves closer to x axis origin, i.e., price is determined simply by the supply curve. With a given supply curve (which are always positively sloped due to the fact that cost is increasing in output), lower demand means lower equilibrium price, > then price actually has to increase when demand is low. Demand falling cannot cause higher prices (keeping everything else constant).
- wjnc 4y ago
  Those sweet economists. (I’ve got my MSc in Economics ;) First off: Giffen and Veblen goods? Second off: while I’m all for the theoretical models and would even defend that institutional evolution would lead to markets representing theoretical IO markets … a local horse butcher in a Dutch town is not a profit maximizing entity. He’s got sticky and human relations on his supply side, sticky and human relations on his demand side and a finite time horizon in which the butcher takes pride in the job and firm. Ever hear seniors complain about prices rising in small stores? Store owners take that into account. Marginal local stores bordering on bankruptcy tell you that. He picks prices because all things considering that price makes sense to him.
  - nanis 4y ago
    > Those sweet economists. (I’ve got my MSc in Economics ;) > Giffen and Veblen goods? Let me know when you find one. Grazing grounds for the perpetually counter-example starved. > I’m all for the theoretical models Nothing theoretical about what I said: Simple logic. Your claim is that Dutch butchers would prefer to leave free money on the table?
    - wjnc 4y ago
      Yes, I believe that every (small) shop or store leaves money on the table all the time. The best I can give you is somewhat optimizing some of the time with long perturbations. A function of social relationships on all sides, Excel [1], one-shot pricing, bounded rationality and myopia, endowment effects etc. If you look at the economic performance of firms within sectors you’ll see massive diversity in value added. That’s pretty much proof that business leave money on the table. Other example is the way inflation winds it’s way through pricing. It’s rocky and uneven. Anyone whose ever seen a business in operation will agree it’s satisficing not optimizing. [1] Excel explains why large companies retain lots of efficiencies. Nature of the firm debate points to all kinds of relative efficiencies, which I happily applaud.
- tsimionescu 4y ago
  Demand for things like horse meat is limited. Even if a butcher gave it out for free, they wouldn't be able to "sell" as much horse meat as chicken meat, at least not for human consumption. So, when you realize you're already selling the maximum possible amount of your good, you're only option to increase profit is to increase your prices. If your market reduces even further (say, 10% of the people buying your horse meat die of old age), you will often have to increase price even more to try to keep the profit you were making. Especially with goods like meat, where the supply side is also inelastic (you can't produce half a horse, you butcher a whole horse or you don't butcher it at all). For niche culinary products, this type of extremely limited market can actually exist. I'd bet if you were allowed to sell mouse meat, you would quickly get to know every single person in London who wants to eat mouse meat. Of course, I'm not claiming that demand will not be reduced by price. You can't charge a million dollars per kilo of horse meat. But you also can't expect to increase sales volume for certain niche goods past a point, regardless of price. Edit: this is also often visible in the price of seasonal specialties. For example, in my country, lamb is only commonly eaten for Easter. So, demand for lamb spikes around Easter every year. But, lamb prices actually drop around Easter (at least for consumers) - the rest of the year, lamb is only sold at high prices for the few people who consider it a delicacy. But around Easter, as demand increases for cultural reasons, competing on price starts making sense and price drops just as demand rises.