If corporations could simply raise their prices anytime they want without consequences, they would already have done it.
Impressive ignorance of basic economics. Prices are set by supply and demand. Corporations always charge as much as they possibly can for their products. What, you think right now they’re saying “Well, we COULD raise prices and increase our profits…but it just wouldn’t be nice, and we’re making enough money already”?
Yeah, it’s not economic ignorance to think that across the board tax or wage increases are passed to the consumer. The reason that corporations don’t raise prices without limit is that there is competition. When they and the competition each have 10%, for sake of argument, more expenses then they can each raise prices without losing a competitive advantage.
And there is always competition, from other countries’ producers, and from everything else that goes into opportunity cost.
Suppose every restaurant in the US raised its prices 10%. Obviously you can’t cross the border to eat at a restaurant, usually. But you can choose to eat out less.
Regards,
Shodan
Prices are ALSO set by the cost of materials and labor needed to produce the end product.
Otherwise, companies would undercut each other until they mutually drove each other into bankruptcy. If faced with a choice of raising prices or going out of business, any major company is going to raise prices.
And yet – contrary to your simplistic view of economics – raising prices is exactly what restaurants are doing.
I don’t see how this, in particular -
is contrary to my view of economics. It appears to be saying what I did - that restaurants have to compete with their alternatives, one of which is not eating in restaurants.
Regards,
Shodan
Generally speaking, cost of goods sold isn’t really a big input into pricing decisions, except as a floor below which things can’t be priced and break even. Most of the time though, the price is WAY above that amount.
And companies do engage in exactly what you talk about, when they’re trying to compete on price. They continually undercut each other, until their prices are a hair’s breadth above their costs. At which point, stuff like supply chain efficiencies, economies of scale, etc… really start to show, as they affect those costs a lot.
But most companies DON’T compete on price, because the problem is that if your value proposition is that you’re the lowest-cost vendor, then you HAVE to be the lowest cost vendor if you hope to sell to people whose primary goal is to get the lowest price. That’s how those races to the bottom start.
So most companies compete by trying to differentiate themselves from their competition- features, service, location, etc… This both allows them to hopefully set their own price point and/or market their products/services to different market segments who presumably might be willing to pay more. At it’s core, it’s a fundamental recognition that one guy may be willing to buy a Kia because it’s an inexpensive car, but others are willing to spend a LOT of money to buy a Rolls Royce.
And Shodan’s right- price-sensitivity among consumers is affected not only by price, but also by subsititutes, which are alternatives not necessarily within the exact category that’s being viewed by price.
They’d probably just do less stock buy-backs at this point. But more importantly, the legislation wouldn’t pass. The point is the optics. Everyone in this thread is talking about how the Republicans will spin something. “Spin” is essential marketing. It’s time we do some of our own.