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To: BGR who wrote (95659)	2/7/1999 1:44:00 AM
From: Skeeter Bug	Read Replies (1) \| Respond to of 176387

>>Business lower prices because they find a long-term economic justification to do so<< justification is the wrong word. it implies that lowering prices is something they WANT to do. they don't. in fact, they want to raise prices. mu lowers prices b/c the supply/demand equation necessitates that they do so. btw, dram didn't decline due to the demand side of the supply demand equation. demand has been growing at nearly 100%. supply got out of wack and caused the disaster. one doesn't need to lower prices, of necessity, to gain more business. if the demand is there to soak up any extra supply at the current price point then all you need to do is sell more at the same price and you increase business. the only time you reduce the price is when demand won't soak up the supply that you want to sell. notice how "supply" and "demand" must be mentioned ;-) i thought this was self evident, but, after 3,4 or 10 tries, i guess it isn't. let's say i have a demand of widgets of 100 a year at $10. i produce 20 a year and my friend produces 20 a year. my friend doesn't want to produce more than 20 widgets and nobody else is interested in the market. i want increased market share. you say i, of necesity, have to do so by lowering prices. not true. i have a constant demand of 100 lined up to pay $1 for a widget. all i need to do is produce more widgets. in one year i cut my widget cost in half and produce 40 widgets. i don't lower my price. i gained market share, i reduced cost, i didn't lower my price and i made more moulah. totally rational approach. the following year, i reduce my cost 50% again an my output goes up 20 again. i decide that i don't want to bother making anymore widgets. right now, 80 out of 100 people are getting the widgets they want for $1. i decide to raise my price to $1.25 because that will price out 20 of the 100 so that only 80 widgets are in demand per year. so, in the second year, i reduced cost 50% (75% of the original), i increased output 50% (200% total) and i increased my price 25% and i still sell all my goods. where is the need to lower price due to innovation? there is none. nothing rational, anyway... the third year another competitor comes in and makes 80 widgets and prices them at $1. now we have 100 widgets available for $1. assuming perfect information transparency, everyone will go my friend and the newcomer. in addition, my cost explodes 300% due to supplier shortages. so, even though my costs exploded, i have to lower my price to $1.00 in order to compete. even so, i will only sell, on avg, 100/160, or 5 out of 8 of my widgets. the three competitors made 160 widgets and the demand is only for 100. a price of $0.75 would stimulate annual demand for 160 units. i lower my price to $0.75 (40%) even though my costs went up 300%. why was i able to raise my price when my costs dropped and why did i have to lower my price when my costs went up. supply and demand. period. you mention goodwill. there is selfless and selfish goodwill. selfless goodwill is philanthropy. selfish goodwill is important for one reason only. bad will may reduce demand and, therefore, your ability to maintain or raise prices and margins. back to basics again. regulation? that is a given. you can debate about anything in the future and the implicit assumption is that god gives us enough days for the future to play out. same here. if an entity apart from the free market can control prices then obviously supply and demand doesn't - the entity does... however, govt regulation wasn't the point being discussed. pricing in a free market was. since not all markets are free, one must put in caveats. every business has a monopoly in a very real sense. some types of monopolies, obviously, are more important than others. but all have a monopoly. do you know what that is?