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To: BGR who wrote (95343)	2/6/1999 1:56:00 PM
From: Skeeter Bug	Respond to of 176387

off topic - supply and demand... >>Apparently, you think that even if better technology reduces production cost the manufacturers will invariably pocket the difference and never pass on the benefits to the consumer, unless there are falling demand concerns.<< nope. that isn't it. it is a supply and demand relationship - not just demand. lowering costs tend to increase supply relative to demand which, therefore, tends to cause lower prices. but not always. you are confusing the relationships involved. if i can cut my product's production cost in half and double my output, but can only make 100k per year when their is a demand for 5 million, i don't have to lower my price b/c i became more efficient. in fact, i can increase my price to level that will exclude 4.9 million of those potential customers. even though my costs went down! i might be stupid and lower my price. there would be a bunch of empty shelves. but that is b/c i'm dumb. of course, i'm considering a test tube environment (doesn't exist). some reasons i might lower price are 1. to gain market share. if demand was way above supply then i wouldn't have to lower price to gain market share. i would just produce more and the strong demand would soak it up at current prices. 2. the threat of attracting competition. what is another way of stating this? the threat that other players might decide to come play my game and increase the supply of my product relative to demand (micron tech is a great example. their margins were so high that everyone built fabs to get their margins. well, they all came online about the same the same time and pricing went from $10 per 16 mb chip to $1.50. why? costs were reduced? yes, but not nearly that much. supply and demand. why do we keep coming back to this relationship. 3. i want to corner a market so, at some point in the future, i'm a monopoly. what does this mean? i control supply (boy, we keep getting back to supply and/or demand for some reason. imagine that? ;-0 4. basic economics is way over the head of a person who is on a suicide mission and the person isn't interested in maximizing profits. aka, the dope effect. however, i suspect that there are often fundamental reasons why people lower prices - the person that does it often realizes them subconsciously and just reacts. 5. i'm a dope and want some losses to offset some gains. micron lowered the cost of their dram and raised the prices for one reason and one reason alone. b/c they could. this was due to excess demand over supply. in that industry it takes a while to get supply online from scratch so mu could play that game for a while and they minted money at an astounding rate. why did they lose half a billion last year? supply relative to demand was too high. it is also a painful decision to take supply offline after spending a couple billion to get it fired up. especially when your competition doesn't follow suit. you see, if you don't lower your prices then you won't sell anything b/c demand doesn't require the goods (duh, there we go again... demand... ;-) it really is that simple. the factors that impact supply can be complex. same with demand. but, pricing is based on supply and demand excluding the dope factor (which is rare). it has nothing to do with the cost of goods produced. that is on reason why margins are different for different companies. i might produce something at $5 and sell it for $10 and somebody else may have something that costs the same and sells it for $500. why is a patent valuable? it allows you to control demand? why control demand? duh, to control pricing... i have spent much of my life reducing costs. every time i have done so the company has pocketed the money. however, our current product has had many price cuts at the retail level. that isn't b/c i reduced costs - or anybody else reduced costs. the price was reduced b/c supply in the open market is higher relative to the demand. prices are lowered in order to stimulate demand. once demand = supply then pricing is stable. two completely separate issue and decisions. it is that simple. think about before arguing. econ 101 isn't dangerous. maybe the student is dangerous. not the material.