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The vast majority of real world businesses create prices based on cost plus systems, not on supply/demand, which are generally impossible to measure directly. A
by tsimionescu 4mo ago
The vast majority of real world businesses create prices based on cost plus systems, not on supply/demand, which are generally impossible to measure directly. Another good chunk of smaller businesses simply copy the prices of larger businesses, at least in b2c markets. Sure, if their goods are not selling, they might reduce price, but they might try other tactics as well (marketing, targeted discounts, etc).
- wrqvrwvq 4mo agothese "other tactics" are just attempts at increasing demand. Cost plus is how many business set prices but that is entirely separate from what the market decides. If cost plus is not an attractive price, it won't sell, because the demand is not there.
- tsimionescu 4mo ago> If cost plus is not an attractive price, it won't sell, because the demand is not there. Sure, but that only sets a cap. The market might bear twice the initial price, but few businesses actually take the time in practice to explore things at this level
- BobaFloutist 4mo agoI always thought of supply and demand as more defining a limit that the price approaches as the number of transactions and the size of the market approach infinity, barring structural obstacles or persistent information asymmetry to prevent it than as something that was supposed to happen immediately on any given transaction.
- bryanlarsen 4mo agoBusinesses generally follow the rule "price is set to whatever the market will bear". Which is just an indirect way of setting price by supply and demand.