4 ms·

Here's how "net profitable" works. Before: Merchant buys 5 units of item at $1 each and sells them at $3. Supplier makes $5 in revenue. 5 customers each get on

Here's how "net profitable" works. Before: Merchant buys 5 units of item at $1 each and sells them at $3. Supplier makes $5 in revenue. 5 customers each get one item at $3. Merchant makes a profit of $10. After: Merchant buys 20 units of item A at $1 and sells them at $2. Supplier makes $20 in revenue. 20 customers each get one item at $2. Merchant makes a profit of $20. Net profit: merchant is $10 richer, supplier is $15 richer, 20 customers are each $1 richer. People have different resources and trade between them generates wealth. More trade generates more wealth. This is not a zero-sum game.

AnthonyMouse 11y ago
All your numbers are saying is that more trade occurs when middle men charge prices closer to their costs. But that isn't the problematic scenario. It's this one: Before: Merchant buys 20 units of item A at $1 and sells them at $2. Supplier makes $20 in revenue. 20 customers each get one item at $2. Merchant makes a profit of $20. After: Merchant buys 15 units of item A at $1 and sells them at $3. Supplier makes $15 in revenue. 15 customers each get one item at $3. Merchant makes a profit of $30. Net profit: merchant is $10 richer, suppler is $5 poorer, 15 customers are each $1 poorer and five would-be customers can no longer afford the item. The trade-maximizing margin for the merchant is the lowest possible margin, which is what maximizes overall utility because it increases the number of transactions without affecting the net utility per transaction. But the merchant isn't interested in maximizing trade, the merchant is interested in maximizing his own profit. The way a merchant maximizes his own profit is to reduce margins on goods sold to price sensitive customers and raise margins on goods sold to price insensitive customers. So your theory has to be that giving merchants more information will cause them to reduce the prices of items sold to price sensitive customers more than they raise the price of items sold to price insensitive customers. But selective pressure already destroys merchants who charge high margins to highly price sensitive customers. Anyone who does that loses all their business as soon as a competitor offers to sell for less. By contrast, merchants who charge slightly profitable but not maximally profitable prices to price insensitive customers can stay in business indefinitely, to the benefit of everyone but themselves, regardless of the prices charged by competitors. Which implies that giving better pricing information to the merchants who have survived market forces will cause them to raise prices more than lower them.

AnthonyMouse 11y ago

All your numbers are saying is that more trade occurs when middle men charge prices closer to their costs. But that isn't the problematic scenario. It's this one: Before: Merchant buys 20 units of item A at $1 and sells them at $2. Supplier makes $20 in revenue. 20 customers each get one item at $2. Merchant makes a profit of $20. After: Merchant buys 15 units of item A at $1 and sells them at $3. Supplier makes $15 in revenue. 15 customers each get one item at $3. Merchant makes a profit of $30. Net profit: merchant is $10 richer, suppler is $5 poorer, 15 customers are each $1 poorer and five would-be customers can no longer afford the item. The trade-maximizing margin for the merchant is the lowest possible margin, which is what maximizes overall utility because it increases the number of transactions without affecting the net utility per transaction. But the merchant isn't interested in maximizing trade, the merchant is interested in maximizing his own profit. The way a merchant maximizes his own profit is to reduce margins on goods sold to price sensitive customers and raise margins on goods sold to price insensitive customers. So your theory has to be that giving merchants more information will cause them to reduce the prices of items sold to price sensitive customers more than they raise the price of items sold to price insensitive customers. But selective pressure already destroys merchants who charge high margins to highly price sensitive customers. Anyone who does that loses all their business as soon as a competitor offers to sell for less. By contrast, merchants who charge slightly profitable but not maximally profitable prices to price insensitive customers can stay in business indefinitely, to the benefit of everyone but themselves, regardless of the prices charged by competitors. Which implies that giving better pricing information to the merchants who have survived market forces will cause them to raise prices more than lower them.