Very good, Techie, you used the word if. Now go back and look at Dell's income statement when ASPs did decline, and look at the actuals. You will notice two things:
first, gross margins increased.
second, gross profits and net profits increased.
These two factors point to elastic demand, which is exactly what Geoff Nunn and I have been arguing for some time. In fact your predecessor, Jim Patterson, as a resident bear repeatedly made the same point, but finally came to understand the concept of elasticity.
I never argued that ASPs have been steadily declining. In fact, I argued that top line desk-top machines had historically sold for around the same price. I agree with you on this point. But so what? Let me ask you this question: suppose the price of tires and the price of steel declined. Would that be bad for GM? Suppose GM's cost of labor dropped. Another negative in your book? And before you answer by saying that those would give it a competitive disadvantage, consider what economists have said for some time: monopolies behave in much the same way because they are profit maximizers. If they are dealing with elastic goods they will adjust the price downwards so as to maximize their profits at a higher rate than prior to the decreased prices.
TTFN,
CTC |
