3 ms·

This is ok if costs are fixed, but if costs aren't fixed you should maximize profit, not revenue. Drugs, in particular, don't have fixed costs because they can

by jcnnghm 14y ago

This is ok if costs are fixed, but if costs aren't fixed you should maximize profit, not revenue. Drugs, in particular, don't have fixed costs because they can be bought in greater quantities at lower per-unit cost as demand increases; there are strong economies of scale.

alttab 14y ago
With meth, you don't really need to import it. I would think the cost of meth is more fixed than other drugs.
- maxerickson 14y ago
  It plays out at a slight remove: http://www.pbs.org/wgbh/pages/frontline/meth/etc/cron.html http://www.pbs.org/wgbh/pages/frontline/meth/etc/cron.html The part I think is pertinent here is that there is little illicit manufacture of ephedrine and pseudoephedrine (so the availability of meth varies with the availability of them).
  - kyllo 14y ago
    This is why drug stores are required to alert law enforcement if they notice anyone trying to buy a large amount of Sudafed, or trying to buy a small amount very frequently. So now there are people whose jobs are to drive around to every drugstore in the town, buying small amounts of Sudafed at each one, so as not to raise any suspicion.
- jcnnghm 14y ago
  It would depend on the cost of acquiring the chemicals necessary to produce, as well as externalities. For example, in the short run you could increase your supply of chemicals by hijacking trucks, but that increases your economic costs substantially because of the increased risk of "heat" from law enforcement. You typically can't purchase massive quantities of the necessary chemicals easily. In the long run, you may be able to purchase in sufficient quantity that you can import entire containers from overseas, with the knowledge that some will be intercepted, and you'll incur non-negligible cost for the smuggling. Also worth noting is that the economic costs associated with law enforcement attention will tend to rise (I'd bet non-linearly) as scale increases, just look at Pablo Escobar. In any case, I'd still bet that the per unit cost of production is much lower at scale. The only way that I see that cost could be fixed, is that the economic cost of law enforcement activity exactly offsets reductions in production costs from scaling up.
mistermcgruff 14y ago
Author here. You're absolutely right. The reason why I chose to do a revenue optimization rather than margin is that most industries that use this actively on their websites (hotels, cruises, airlines) treat costs as fixed and maximize revenue. For most other businesses though, this isn't the case. Doesn't change the calculus though. And sorry the shitty hostgator site went down. Cache: http://webcache.googleusercontent.com/search?q=cache:rXK-EEuT_B8J:analyticsmadeskeezy.com/2012/10/08/revenue-management-for-meth-dealers-in-flint/+&cd=1&hl=en&ct=clnk&gl=us http://webcache.googleusercontent.com/search?q=cache:rXK-EEu...
- ljd 14y ago
  I just want to add that sites like hotels, cruises and airlines have demand based models that consider time which makes finding the right price a bit more complex that standard a standard revenue curve. We[0] solved this problem for ecommerce flash sale sites and event ticket sellers by creating a limited supply strategy that allows someone to give a starting quantity, current quantity and a start and end date to maximize revenue while trying to sell out all items. [0] https://ventata.com https://ventata.com

by jcnnghm 14y ago

alttab 14y ago

With meth, you don't really need to import it. I would think the cost of meth is more fixed than other drugs.

maxerickson 14y ago
It plays out at a slight remove: http://www.pbs.org/wgbh/pages/frontline/meth/etc/cron.html http://www.pbs.org/wgbh/pages/frontline/meth/etc/cron.html The part I think is pertinent here is that there is little illicit manufacture of ephedrine and pseudoephedrine (so the availability of meth varies with the availability of them).
- kyllo 14y ago
  This is why drug stores are required to alert law enforcement if they notice anyone trying to buy a large amount of Sudafed, or trying to buy a small amount very frequently. So now there are people whose jobs are to drive around to every drugstore in the town, buying small amounts of Sudafed at each one, so as not to raise any suspicion.
jcnnghm 14y ago
It would depend on the cost of acquiring the chemicals necessary to produce, as well as externalities. For example, in the short run you could increase your supply of chemicals by hijacking trucks, but that increases your economic costs substantially because of the increased risk of "heat" from law enforcement. You typically can't purchase massive quantities of the necessary chemicals easily. In the long run, you may be able to purchase in sufficient quantity that you can import entire containers from overseas, with the knowledge that some will be intercepted, and you'll incur non-negligible cost for the smuggling. Also worth noting is that the economic costs associated with law enforcement attention will tend to rise (I'd bet non-linearly) as scale increases, just look at Pablo Escobar. In any case, I'd still bet that the per unit cost of production is much lower at scale. The only way that I see that cost could be fixed, is that the economic cost of law enforcement activity exactly offsets reductions in production costs from scaling up.

mistermcgruff 14y ago

Author here. You're absolutely right. The reason why I chose to do a revenue optimization rather than margin is that most industries that use this actively on their websites (hotels, cruises, airlines) treat costs as fixed and maximize revenue. For most other businesses though, this isn't the case. Doesn't change the calculus though. And sorry the shitty hostgator site went down. Cache: http://webcache.googleusercontent.com/search?q=cache:rXK-EEuT_B8J:analyticsmadeskeezy.com/2012/10/08/revenue-management-for-meth-dealers-in-flint/+&cd=1&hl=en&ct=clnk&gl=us http://webcache.googleusercontent.com/search?q=cache:rXK-EEu...

ljd 14y ago
I just want to add that sites like hotels, cruises and airlines have demand based models that consider time which makes finding the right price a bit more complex that standard a standard revenue curve. We[0] solved this problem for ecommerce flash sale sites and event ticket sellers by creating a limited supply strategy that allows someone to give a starting quantity, current quantity and a start and end date to maximize revenue while trying to sell out all items. [0] https://ventata.com https://ventata.com