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So if people buy an acer laptop, acer makes more profit? Quick math - if a laptop is retailing for 1000 and acer makes it for 500(just a random number), due to

• manojlds 2y ago
  Yeah exactly, companies just have to say the price increase is due to tariffs and increase their margins. That's exactly what Acer CEO is doing here.
• evanriley 2y ago
  You're not missing anything. This is how every company has taken advantage of rising inflation and now tariffs.
  • Macha 2y ago
    Shareholders demand it, even. If your costs increased but your profits stayed constant after your price increase, then a small business owner might be perfectly happy with that. But it's a decline in profit margin so investors would go ballistic.
• bayarearefugee 2y ago
  [flagged]
  • manojlds 2y ago
    Please don't post if you can't understand an example.
    • bayarearefugee 2y ago
      Its a patently ridiculous example that wildly misrepresents the actual situation.
      • gambiting 2y ago
        You're just being pedantic for no reason - whether the profit is 100% or 200% or 5% it doesn't change OP's point.
      • deleted 2y ago
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  • VWWHFSfQ 2y ago
    it was clearly just a random number for illustrative purposes.
    • bayarearefugee 2y ago
      It changes the entire economics when your random example number keeps things well within the realm of profit whereas the actual tariffs eliminate the entire current profit margin for almost every product in the category we are talking about.
      • mbesto 2y ago
        It still illustrates the point since the numbers are just fractions. You're just being pedantic.
      • sowbug 2y ago
        You appear to appreciate the value of direct feedback. I hope you appreciate this direct feedback. You could have made your point more effectively if you'd said something like "your math is correct, but it's important to keep in mind that the actual tariffs eliminate the entire current profit margin for almost every product in the category we are talking about." Instead you began with a personal attack. It's hard for a discussion to recover from that.
  • Chihuahua0633 2y ago
    Plenty of companies sell their product with 100% margin (look at in-house brands). Maybe not laptops, but this was just an example.
    • itishappy 2y ago
      100% margin would be $0 of production costs. Essentially impossible for physical goods. As an example, if it costs you $100 to make a product and you can sell it for $1000, you pocket $900 of the $1000 and therefore make 90% margin.
      • qzw 2y ago
        Yes, I think posters above are conflating margin and markup.
      • deleted 2y ago
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      • deleted 2y ago
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    • bagels 2y ago
      Markup is not the same as margin. Inputs would have to be free for 100% margin.
  • itishappy 2y ago
    The example described is >50% margin.
  • necessary 2y ago
    Then post a corrected example that proves your point?
• the_mitsuhiko 2y ago
  > So the company is making more profit from you now? What am I missing? You are probably missing that what people pay for their computers is still a function of the market and competition. If everybody goes up with their prices by exactly 10%, then maybe it would play out like that. Most likely though there are segments of the market where prices matter a lot to the customer and they won't be able to increase their margins. On the top of the line products it might be possible. On average I think they might slightly improve their margins, but it might also just be a wash.
• ojbyrne 2y ago
  That's the same percentage profit. And there would likely be some reduction in sales due to the increased price, so the absolute profit wouldn't increase as much as you suggest. Obviously lots of other factors involved.
• rco8786 2y ago
  They would only hike the price by $50, not just blanket 10% for no reason. The CEO called out 10% because the tariffs themselves are higher % of COGS.
• jedberg 2y ago
  Yes. Most companies target a profit percentage, not a fixed amount. So if their costs go up, their profits go up. But since everyone does it, they end up still being competitive in the market.
• s_dev 2y ago
  The demand side. Less laptops will be bought even if profit per laptop goes up overall profits will go down. Money is finite and these are durable goods. People will now look at other options like the second hand market.
• tensor 2y ago
  The value of the product when calculating tariffs isn't necessarily the manufacturing cost, it could also be the "market value". I tried to find a source for how to calculate the value on a complete laptop but a quick search failed me. But, for example, when bringing wine into Ontario Canada, the duty is calculated on what the Ontario Liquor Board would sell the bottle for, not on what I pay for it. This isn't the US of course, but it gives you an example that tariffs are not always paid on manufacturing costs.
• asdajksah2123 2y ago
  We saw this throughout the pandemic. Companies used the very real inflationary pressures to increase the cost of their products well beyond what those inflationary pressures alone would require. There are 2 reasons IMO that led to this working: 1. If every company does it, the normal competitive market pressures to reduce prices don't operate. Normally, every company will only raise prices due to collusion, which would be illegal. But when there's a broad based increase in cost, every company will also raise prices beyond just the absolute values of those costs independently, because companies are judged by their margins more than they are by absolute numbers. This is not illegal but the effect is the same. If in your example, Acer sells 1000 laptops, they originally made $1mm in revenues, with $500k in costs, leading to $500k in gross profits and a gross profit margin of 50%. If their costs increase by 50%, they need to increase their selling price by $100 to maintain those margins. $1.1mm revenue, with $550k costs, leading to $550k gross profits for a gross profit margin of 50%. If, however, they increase their Selling price only by the cost, their new selling price will be $1050, for revenues of $1.05mm, costs of $550k, gross profits of $500k, but gross profit margins declining to $500/$1050 = ~47.6%. The decline in gross profits will hurt their stock price and their valuations (if private) significantly. 2. Consumer pressure. The other reason companies do not easily increase prices with higher costs is negative publicity. Pandemic related inflation, and now tariffs, give them an easy way to explain the reason for the price increases to their consumers and avoid facing any backlash directly. What did surprise me with the pandemic, which will likely be true with the tariff increases, is that once the companies did increase their selling prices after the pandemic, even though their costs then subsequently dropped, they did not drop prices, across the board. And the result were the record breaking profits companies have been declaring.
  • phyzix5761 2y ago
    > What did surprise me with the pandemic, which will likely be true with the tariff increases, is that once the companies did increase their selling prices after the pandemic, even though their costs then subsequently dropped, they did not drop prices, across the board. Prices will only decrease when demand decreases. If your competitor offers a higher-value product and attracts more customers, you'll need to decide whether to increase the value of your product or lower your prices to remain competitive. If the market can support your current prices there's no reason to lower them.
• phyzix5761 2y ago
  They’re making more profit in absolute dollars, but the return on investment (ROI) is the same. ROI is what matters because investors trade cash for shares and seek a return on that cash. For example, if you invest $1,000 and earn $100, your ROI is 10%. But if you invest $10,000 and earn $200, your ROI is only 2%, even though the dollar return is higher. Investors focus on percentage returns because they invest different amounts and receive profits proportional to their ownership. Investors prefer higher percentage returns, even if the dollar amounts are smaller. For example, making ten separate investments that each return a smaller dollar amount but a higher percentage would be more attractive than one large investment with a lower ROI. Lower ROI also comes with an opportunity cost. Capital tied up in a low-return investment can't be used for higher-return opportunities. Investors aim to allocate their money where it can generate the best possible return relative to the risk, rather than just chasing higher dollar profits. In the example above Acer had to risk more capital and got the same percentage return on that capital.
• oa335 2y ago
  Yes, they are likely making more per unit, but less profit in aggregate, since the increase in price means they will likely sell less laptops than before. The aggregate loss in value here is known as dead-weight loss.
• shrikant 2y ago
  Why do you assume their costs are going up the same percentage? It's not clear from the linked article, but maybe their costs per your example are going up 12% from 500 to 600, and they're only raising prices by 10% to 1100 to keep the same margin. Of course I doubt this would actually be the case (because capitalism), but that's the one of the assumptions you're missing in your example.
• lesuorac 2y ago
  > So the company is making more profit from you now? What am I missing? Yes. The elasticity of Tariffs is historically >1.
• IncreasePosts 2y ago
  Not every country is subject to the tariffs. If apple assembles their MacBooks in Vietnam, they get a 10% discount relative to Acer laptops assembled in china
• DSMan195276 2y ago
  The catch is that it costs them more to acquire the laptops so (in theory) they can't acquire as many of them to sell if they start from the same amount of money. Which is ok on the surface, but makes them a worse investment because they return less money back to you for the same amount put in. Ex. If they only have $1M to spend, the tariffs mean they can only buy ~1800 laptops to sell instead of 2000, so if the profit of $500 stayed the same then the company is making less money than it did before. If they instead bump the margin for each laptop to $550 then they make the same amount of money as before even though they're selling less laptops. Of course in an actual version it's messier because the math doesn't work out that cleanly. If it costs $800 to make a laptop you sell for $1000 then it now costs 880 with a 10% tariff. To keep the 20% margin the new price would be $1056, only a 5% increase in the final price.
• csomar 2y ago
  What you are missing is that they can't import the product for $500. They have to sell it to the "USA" for 1000 and pay 100 in tariffs. They can't "pocket" the profit in the USA. Look up https://en.wikipedia.org/wiki/Transfer_pricing https://en.wikipedia.org/wiki/Transfer_pricing
• knowitnone 2y ago
  tariffs mean the company has to pay the county money sort of like an extortion fee. profit is still the same and the US gets the 10%.
• randcraw 2y ago
  The basics of pricing theory, that higher prices reduce demand.