4 ms·

> Price controls never work. Why do price controls never work? The paragraph behind the sentence doesn't talk about it or i'm struggling to understand the rela

> Price controls never work. Why do price controls never work? The paragraph behind the sentence doesn't talk about it or i'm struggling to understand the relationship.

churchill 3y ago
They have a long history of creating shortages or long queues wherever they've been tried. The only way to bring down prices is to remove barriers to supply, such as excessive regulation, and to encourage investment. Forty Centuries of Wage and Price Controls: How Not to Fight Inflation [0] tracks the history of wage & price controls from Hammurabi's Babylon, Diocletian's Rome, Ancient Egypt, and down to modern-day examples. The book has dozens (if I remember correctly) of examples of price controls never working, explained carefully in detail. It's an extremely interesting and carefully argued book with a lot of objective evidence. My comment isn't directly related to the Apple situation but to the failed history of price controls. [0]: https://cdn.mises.org/Forty%20Centuries%20of%20Wage%20and%20Price%20Controls%20How%20Not%20to%20Fight%20Inflation_2.pdf https://cdn.mises.org/Forty%20Centuries%20of%20Wage%20and%20... (PDF)
AnthonyMouse 3y ago
The problem with price controls is that you're fixing one variable in an arbitrarily complicated transaction, and the people fixing the price are fallible. So then one of two things happens. If you can transact around the price control, that happens. So Apple signs a contract with Foxconn to pay them a billion dollars and give them a pile of industrial waste in exchange for a pile of new parts. The industrial waste has negative value and Apple wants to get rid of it, but they claim it was worth another billion dollars, so now their "cost" for parts is three times as high because they're de facto including the cost of paying Foxconn to dispose of some industrial waste and then claiming the benefit as a cost. If you try to prohibit that, first of all it hardly ever works because transfer pricing is a pickle, but to the extent that it does, you now have perverse incentives and inefficiencies. Apple used to get away with charging $100 even though their cost is $10, but now that means they can only charge $12 and make $2 since that's 20% of their cost. Unless they can raise their cost by overpaying vendors for equipment or hiring a bunch of people to dig holes and fill them back in. If they pay $10 for that then their cost is $20 and they can charge $24 and make $4. Making $4 is better than $2. But the customer will pay up to $100 if they have to, and if Apple raises their cost to $80+ then they can still charge $100 and make almost $20. "Cost plus" is a massive incentive to be inefficient. So now you want to pick an amount instead of a percentage. But now if you guess to low you get shortages, and even if the price you set is alright today, it might not be tomorrow.
lotsofpulp 3y ago
Prices are a representation of supply relative to demand, or demand relative to supply, or prices are a function of supply and demand, or prices are where supply and demand curves intersect. Limiting price movements almost never places it such that the price is where the supply and demand curves meet, especially since supply and demand are constantly changing. It is simply statistically impossible to guess where they will be in the future. Therefore, limiting prices will always result in undersupply/oversupply or excess demand / lack of demand. The robust way to influence prices is to change supply and demand itself, and use the price movements as a signal of what you need to do (increase/decrease supply, and/or increase/decrease demand). https://en.wikipedia.org/wiki/Supply_and_demand https://en.wikipedia.org/wiki/Supply_and_demand
- qwytw 3y ago
  > or prices are a function of supply and demand, or prices are where supply and demand curves intersect. You're assuming that the market is perfectly competitive which is almost never even close to being the case outside of some commodities. There might be enough surplus so that the effect of price controls on supply would be minimal
  - lotsofpulp 3y ago
    Perfectly competitive markets are required for the lowest sustainable prices, but prices being a function of supply and demand is always the case regardless of how many buyers and sellers there are. >There might be enough surplus so that the effect of price controls on supply would be minimal "Might" being the operative word. Other things that might happen is sustainable businesses get driven out of business, misallocation of resources due to erroneous price signals hampering future investment in that field, etc. The error free solution to achieving lower prices is to increase supply and decrease demand, which are many times politically unachievable due to them requiring sacrifices (higher taxes, lower consumption, etc).
    - AnthonyMouse 3y ago
      > The error free solution to achieving lower prices is to increase supply and decrease demand, which are many times politically unachievable due to them requiring sacrifices (higher taxes, lower consumption, etc). But in this case the lack of supply is due to a lack of competition, as a result of vertical integration. Suppose you want a logic board for your PC. Well, it's not a secret what goes in it. It's got a circuit board, a processor socket, some memory slots, a network port, etc. If you have an Asus board and it goes bad or you need one with more memory slots, you can go buy another one from Asus, or you can get one from Gigabyte or ASRock or Supermicro that can be mounted in the same chassis and use the same processor, memory and storage devices. Phones don't have to be any different. Some may argue that they can't be modular because of size and weight considerations. That's not true, companies have made modular phones. The Fairphone weighs about the same as the iPhone Pro Max, and in fact the Fairphone is marginally lighter. Shiftphone weighs 19g less than the iPhone 11. But no one can make a logic board for an iPhone, because it uses a CPU that Apple won't license to anyone else. Even if you could make a board that fits in an iPhone chassis and could source memory chips and a baseband modem and so on, you can't get the CPU. And then iOS is tied to that CPU. That's why you can't get a replacement iPhone logic board from Gigabyte or run iOS on a Fairphone. It's not because Gigabyte doesn't know how to solder chips to a logic board or make one in the right shape to fit in the chassis, and it's definitely not because they don't want to take your money.

> Price controls never work. Why do price controls never work? The paragraph behind the sentence doesn't talk about it or i'm struggling to understand the relationship.

churchill 3y ago

They have a long history of creating shortages or long queues wherever they've been tried. The only way to bring down prices is to remove barriers to supply, such as excessive regulation, and to encourage investment. Forty Centuries of Wage and Price Controls: How Not to Fight Inflation [0] tracks the history of wage & price controls from Hammurabi's Babylon, Diocletian's Rome, Ancient Egypt, and down to modern-day examples. The book has dozens (if I remember correctly) of examples of price controls never working, explained carefully in detail. It's an extremely interesting and carefully argued book with a lot of objective evidence. My comment isn't directly related to the Apple situation but to the failed history of price controls. [0]: https://cdn.mises.org/Forty%20Centuries%20of%20Wage%20and%20Price%20Controls%20How%20Not%20to%20Fight%20Inflation_2.pdf https://cdn.mises.org/Forty%20Centuries%20of%20Wage%20and%20... (PDF)

AnthonyMouse 3y ago

The problem with price controls is that you're fixing one variable in an arbitrarily complicated transaction, and the people fixing the price are fallible. So then one of two things happens. If you can transact around the price control, that happens. So Apple signs a contract with Foxconn to pay them a billion dollars and give them a pile of industrial waste in exchange for a pile of new parts. The industrial waste has negative value and Apple wants to get rid of it, but they claim it was worth another billion dollars, so now their "cost" for parts is three times as high because they're de facto including the cost of paying Foxconn to dispose of some industrial waste and then claiming the benefit as a cost. If you try to prohibit that, first of all it hardly ever works because transfer pricing is a pickle, but to the extent that it does, you now have perverse incentives and inefficiencies. Apple used to get away with charging $100 even though their cost is $10, but now that means they can only charge $12 and make $2 since that's 20% of their cost. Unless they can raise their cost by overpaying vendors for equipment or hiring a bunch of people to dig holes and fill them back in. If they pay $10 for that then their cost is $20 and they can charge $24 and make $4. Making $4 is better than $2. But the customer will pay up to $100 if they have to, and if Apple raises their cost to $80+ then they can still charge $100 and make almost $20. "Cost plus" is a massive incentive to be inefficient. So now you want to pick an amount instead of a percentage. But now if you guess to low you get shortages, and even if the price you set is alright today, it might not be tomorrow.

lotsofpulp 3y ago

Prices are a representation of supply relative to demand, or demand relative to supply, or prices are a function of supply and demand, or prices are where supply and demand curves intersect. Limiting price movements almost never places it such that the price is where the supply and demand curves meet, especially since supply and demand are constantly changing. It is simply statistically impossible to guess where they will be in the future. Therefore, limiting prices will always result in undersupply/oversupply or excess demand / lack of demand. The robust way to influence prices is to change supply and demand itself, and use the price movements as a signal of what you need to do (increase/decrease supply, and/or increase/decrease demand). https://en.wikipedia.org/wiki/Supply_and_demand https://en.wikipedia.org/wiki/Supply_and_demand

qwytw 3y ago
> or prices are a function of supply and demand, or prices are where supply and demand curves intersect. You're assuming that the market is perfectly competitive which is almost never even close to being the case outside of some commodities. There might be enough surplus so that the effect of price controls on supply would be minimal
- lotsofpulp 3y ago
  Perfectly competitive markets are required for the lowest sustainable prices, but prices being a function of supply and demand is always the case regardless of how many buyers and sellers there are. >There might be enough surplus so that the effect of price controls on supply would be minimal "Might" being the operative word. Other things that might happen is sustainable businesses get driven out of business, misallocation of resources due to erroneous price signals hampering future investment in that field, etc. The error free solution to achieving lower prices is to increase supply and decrease demand, which are many times politically unachievable due to them requiring sacrifices (higher taxes, lower consumption, etc).
  - AnthonyMouse 3y ago
    > The error free solution to achieving lower prices is to increase supply and decrease demand, which are many times politically unachievable due to them requiring sacrifices (higher taxes, lower consumption, etc). But in this case the lack of supply is due to a lack of competition, as a result of vertical integration. Suppose you want a logic board for your PC. Well, it's not a secret what goes in it. It's got a circuit board, a processor socket, some memory slots, a network port, etc. If you have an Asus board and it goes bad or you need one with more memory slots, you can go buy another one from Asus, or you can get one from Gigabyte or ASRock or Supermicro that can be mounted in the same chassis and use the same processor, memory and storage devices. Phones don't have to be any different. Some may argue that they can't be modular because of size and weight considerations. That's not true, companies have made modular phones. The Fairphone weighs about the same as the iPhone Pro Max, and in fact the Fairphone is marginally lighter. Shiftphone weighs 19g less than the iPhone 11. But no one can make a logic board for an iPhone, because it uses a CPU that Apple won't license to anyone else. Even if you could make a board that fits in an iPhone chassis and could source memory chips and a baseband modem and so on, you can't get the CPU. And then iOS is tied to that CPU. That's why you can't get a replacement iPhone logic board from Gigabyte or run iOS on a Fairphone. It's not because Gigabyte doesn't know how to solder chips to a logic board or make one in the right shape to fit in the chassis, and it's definitely not because they don't want to take your money.