4 ms·
That is how literally everything in a market gets priced. When you buy an X, the price of it naturally trends to match the most expensive X that will be sold. I
by roenxi 2y ago
That is how literally everything in a market gets priced. When you buy an X, the price of it naturally trends to match the most expensive X that will be sold. In this case X is a watt of energy. But you can substitute any good or service.
- caseyy 2y agoCan you explain this? In commodities market, the strike price is between the lowest price seller and the highest buyer. In the goods market, individual buyers buy depending on their elasticity of demand unless the good has inelastic demand (rare). Neither matches what you seem to say.
- roenxi 2y ago> In commodities market, the strike price is between the lowest price seller and the highest buyer. The lowest seller price is the highest demanded price among all the sellers. All the sellers bar one would typically be willing to sell for a slightly lower price. As it is said; prices are set on the margins. Imagine that every seller has a secret price they are willing to sell for and that is some statistical distribution. The market price will be the highest price in that distribution that actually gets sold. Most sellers aren't selling for their secretly acceptable price, but for a higher price determined by the seller with the highest demands. The distribution, if it is ever discovered, becomes the supply curve.
- littlestymaar 2y agoNo product on a real market ever works like that (otherwise all goods of the same kind would cost the same everywhere in a country, priced at the marginal cost of supplying it to the most remote island community, which everyone can attest is not how markets work). Such a behavior only happens on artificial markets that have been designed for that purpose to match an ideological vision of how an “ideal market” should behave. Turns out the “ideal market” is a dystopia instead of the intended utopia.
- moooo99 2y ago> Turns out the “ideal market” is a dystopia instead of the intended utopia. Why? This market is pretty much ideal and sets the right incentives. You have little to no information asymmetry, you need to strike a price that clears the market because you must balance production and demand. Why should sellers of renewable energy be forced to sell at their marginal cost when they are selling a commodity where somebody else gets triple the price?
- chgs 2y agoThe incentive is to produce 99 Units at £1 and 1 unit at £100 and sell 100 for £10,000, rather than producing 100 Units at £1
- roenxi 2y agoThe incentive is to sell all 100 units for £infinity. The incentive for the seller to sell at a high price isn't relevant. They don't have the ability to act on it. If they did, they wouldn't stop at £10,000. I'd pick numbers like £1,000,000,000,000 at a minimum if I was a seller and could truly set my own price based on my incentives.
- chgs 2y agoThat’s the beauty. The same company owns both the cheap cost one and can limit the supply just enough to keep the profit maximised. There isn’t an ideal free market in electricity generation.
- roenxi 2y agoIf the UK has banned all companies except one from supplying electricity then they will without doubt see eye watering prices. But that has nearly nothing to do with the pricing scheme they use and a lot to do with the one company part of the picture.
- 2y ago