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> The alternative is to have shortages. This is a myth. The volume of inventory remains the same regardless of the price. When demand is higher than supply you
by burnte 2mo ago
> The alternative is to have shortages.
This is a myth. The volume of inventory remains the same regardless of the price. When demand is higher than supply you have shortages regardless of price simply because you have unmet demand. If you raise prices, that demand is still unmet, you're now filtering that demand by who is willing to pay more so you maximize your own value and profit. Not even rationing prevents shortages because, again, the demand exists. Rationing simply tries to spread the supply around so more people get some rather than none. Price hikes instead say "who wants it badly enough?"
- cortesoft 2mo agoYou aren't just filtering by who is willing to pay more, because willing to pay more is also indicative of how valuable that inventory is to the people buying it. All demand is not equal. Some companies have very valuable business they can do with the inventory while other businesses have less valuable uses for it. The more valuable uses are willing to pay more, so higher prices means the most valuable uses get filled first.
- mixedCase 2mo agoThis ignores that whenever the margins for an industry increase, this interests new investments in it, and new players to come aboard, as well as new product lines that can satisfy the demand in a new way that people either didn't consider or rejected before due to being outclassed by the formerly cheaper alternative. Rationing does not stimulate investment this way.
- burnte 2mo agoI never said rationing does anything else except spread around inventory to many customers.