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Businesses don't raise prices to "keep margins the same", they raise prices to maximize profit, adding a transaction fee generally has unpredictable effects on
by noqc 3y ago
Businesses don't raise prices to "keep margins the same", they raise prices to maximize profit, adding a transaction fee generally has unpredictable effects on price, including possibly lowering your optimum price. I bet this rarely happens in practice, but the theoretical situation is not particularly simple.
- tomnipotent 3y ago> Businesses don't raise prices to "keep margins the same" It's absolutely common practice. A few luxury businesses can get away with outsized margins, but everyone else in the physical goods business is working at 60-70% gross margins (so MSRP is usually ~3x cost). Grocery stores are outliers with absolutely razor thin margins. In twenty years in e-commerce, I've never not seen prices updated to keep margins in a narrow band.
- bombcar 3y agoThe only thing that will happen is if you have multiple competing companies, they affect each other's prices in ways that may make the band wider. You also have the various x.99 prices that companies want to hit (so a grocery store will sell something for $4.99 and not raise the price to $5.17 to keep their margins, but will hold out until they feel they can jump to $5.49 or $5.99 - this right here is the biggest reason for "shrinkflation" - the price wants to move to something that is not a .99 and so they resize it to make it hit one.) But no company will long run at a loss.