Hi,
I hear and read phrases like
- Collapse of prices /2.Destruction of prices bandied about.
What do these phrases really mean?
I look forward to your feedback.
davidmich
Hi,
I hear and read phrases like
What do these phrases really mean?
I look forward to your feedback.
davidmich
One assumes you understand the individual words, so it’s the “larger meaning” of the phrase you’re interested in and that larger meaning, as always, comes from context, not from the phrase by itself. It’s sort of like asking what does “oh yeah” mean. You need to provide the context to really understand.
I’m guessing that the phrases refer to deflation and risks of the same. That’s when the average prices decrease. Under such circumstances the value of debt rises and debtors tend to cut back on spending more than creditors increase spending. Spending cutbacks lead to more more unemployment which leads to lower spending - a vicious spiral.
But the terms could also refer to price drops within an industry, which would be something else.
Often it means that a stock bubble burst. A bubble – the most recent example is the housing bubble of the 00s – is when certain stocks (or the market itself, like in the 1920s) rise in price at rapid rates, supported by nothing other than the fact that people are buying the stocks. It’s sort of like a Ponzi scheme, but the stocks are legitimate; it’s the buyers who continue to pay more and more, believing that the prices will only go up over time.
At a certain point, the market realizes it’s paying far too much for the stocks (or housing) and prices slow. Those who bought expecting a faster increase start to worry and then panic, afraid they’ll lose their investment. Prices start dropping rapidly; hence the prices collapse.
Thank you all for the definitions for “price collapse”. Can anyone define “price destruction”? I think “price collapse in clear”. I suppose it can be defined a prices going into a tailspin as a result of being undercut by competition or because of a economic crash. Price destruction seems to be some sort of disintegration of pricing. What is the end effect? No production presumably or a slowing of production? Not sure. Does that hold true for a price collapse as well?
davidmich
See this:
This article appears to be from 1996 and equates “price destruction” with ongoing deflation, the continued downward trend of prices. Like inflation and continuously rising prices, the expectation of downward price trends continuing appears to have some bad effects on the market. (Why buy real estate now when it will be cheaper later? Why save when your savings won’t grow? )
Thank you for that md2000. I came across this:
Presumably something different from “price destruction”. I hope the below definition is correct and shouldn’t be confused with price destruction.
“Destruction pricing refers to setting your price so low that your competitors cannot compete and are driven out of business. Often, you are taking a loss yourself for a period of time, in which case it is called predatory pricing and is illegal in the U.S. under most circumstances. Once you have no competition, you can raise your price and act as a monopolist.”