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I suspect this is happening to some oil producers as well. Ex: if a large portion of an operation is a sunk cost, a producer may respond to lower prices by pro

I suspect this is happening to some oil producers as well. Ex: if a large portion of an operation is a sunk cost, a producer may respond to lower prices by producing even more oil, in an attempt to maintain revenue (particularly if the producer is leveraged and has debt to maintain). Edit: oops, busted for not RTFA

cwyers 12y ago
From the article: "(This, coincidentally, is the same dilemma that oil drillers who borrowed a lot during the boom face now during the bust)."
benjaminjackman 12y ago
Yes I think it is. Quoting http://en.wikipedia.org/wiki/Economic_bubble http://en.wikipedia.org/wiki/Economic_bubble "Net Result of a Bubble: The one true constant with all bubbles is that they create excess demand and production. Once the bubble deflates, which it always does, a contraction or consolidation has to occur to alleviate the excess. Two examples are the dot-com bubble and the current housing bubble. In both cases there were huge consolidations, bankruptcies, and deterioration of asset values." This statement sounds a bit more authoritarian on the topic than I like, but the "excess demand and production portions" are demonstrably true, in fact, I would almost take them to be a better definition of what a bubble is than "trade in high volumes at prices that are considerably at variance with intrinsic values", which is a difficult definition because what determines an intrinsic value? I don't think such a thing really exists for several products that can experience bubbles.