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So I take it you're a socialist or communist of some sort?
What do you think it is that stops McDonald's from charging $10 for a bottle of water?
They can’t charge an amount that is so noticeably higher that you remember it and buy a pack of water for 1/20th of the price at a store. But they can (and do) overcharge on water, understanding that they can get away with it because it’s an inconvenience for you to get it elsewhere. That’s extremely economically inefficient, because McDonald’s surplus profit goes disproportionately to already-wealthy individuals. (It’s better for a nation to have more people with more money, versus some with extraneous wealth that doesn’t provide any benefit in terms of happiness or entrepreneurship or invention or culture.)
It would be more efficient if, for super-sized corporations, an agency stepped in and “auctioned” off the corporate positions and ownership according to who will do the job for the least amount of money, then pass the saved money to consumers. If that’s too much government interference, then allow the employees to form powerful unions, because the employees are more likely to identify with the interests of the consumer and stand to gain less as individuals from purposeful economic inefficiency.
There are a lot of problems with communism. People should be paid up to 10x more than median wages for performance, because humans have an instinct to be rewarded according to performance, that’s deeply evolutionary. Humans also have an instinct to care for things they own, and you see this in small businesses and entrepreneurship. The answer is a balance that accepts the importance of human instinct while also realizing that primitive capitalism can get harmful, antisocial and inefficient. For large corporations, no one should feel like they “own” it, and these trend toward pseudo-monopolies due to institutional knowledge accumulation and established supply chains. For a problem like used car dealerships, we should have some kind of Honesty Regulation akin to Cicero’s grain merchant at Rhodes thought experiments. The policy should make it so that even a very dumb person can immediately tell that something isn’t in his economic best interest.
How would private investment into companies work in your system?
Why wouldn't the store just raise their price to $5, colluding with McDonald's in a similar manner to how the Wendy's does?
Edit: P.S I think for the most part free markets are very effective and there are only a few areas where the government needs to intervene, such as carbon emissions. I am asking questions because I think you're very wrong, but I'm not yet entirely sure what the root causes of your mistaken beliefs are.
New businesses typically lower prices so that consumers try out their business, as consumer behavior is based around habits and attachment to routine — lower prices break this cycle. If you’ve noticed this is why newly opened stores have sales / deals. McDonald’s also may be over-pricing an item and at the same time a new competitor can’t compete due to economy of scale
Thy will have to invest based upon the idea that the business they invest in is actually valuable to society. If it is valuable then it will grow and profit for a period, and if the profits are too extravagant than the Government steps in — and this is a good threat because it makes investors vote for boards that lower prices themselves, lest the government step in.
Okay, but how's that relevant to why McDonald's wouldn't set their price to $10, get the Wendy's to set the price to $10, and also get every other competitor in a large radius to set their price to $10?
Also, how does that square with how most of the McDonald's I've been to having the exact same prices, even if they're geographically in very different areas? I don't think I've ever once seen one lower its prices in response to a new restaurant opening up across the street.
Even if the private company earns so much profit by simply making an amazing product everyone wants to buy and can't produce enough supply to meet demand even when they try, e.g Ozempic or Nvidia?
Edit: Reading your responses and your replies to other commenters, I strongly recommend you go through the Khan Academy economics courses or another standard economics class. I think you'd learn a lot.
I appreciate your advice to look at Khan Academy. I will look for a cost-efficient reading comprehension program to suggest you.
That wasn’t in the reply I replied to. You are asking me why my explanation for X does not reply to the non-existent question Y. In fact, you asked Y three posts up, and to that I replied
Now clearly this answers your question as to why all fast food locations can’t arbitrarily raise their prices to infinity. They compete with grocery stores, which have more competition over prices due to the variety of bulk retail outlets, online grocery orders, and so on, and which the consumer plans trips to in advance. This is different from having a limited number of expedient food options near your work.
I have no idea, you could have googled it
https://www.huffpost.com/entry/why-mcdonalds-prices-are-wildly-different-from-one-location-to-another_l_65665af4e4b03ac1cd17b7d9
From the article:
Back to you:
We have to ask, (1) should the developer of Ozempic make as much money as possible, or (2) should the developer of Ozempic make approximately the amount of money that a reasonable developer would consider justifies his research. My position is the second one. (If this is too many words of commas let me know and I can rephrase). Imagine how evil it would be if the scientist who discovered penicillin tried to maximize profit.
You never properly answered it so I asked again.
This is a proper answer. However, it contradicts with what you said earlier,
I don't see why McDonald's needs to lower prices to compete with grocery stores and bulk retail outlets, but not to compete with Wendy's.
I'll grant you that apparently I'm wrong and haven't travelled enough, or at least haven't documented enough McDonald's prices. But there's still nothing showing McDonald's locations lower their prices to shut down competitors then raise them again.
I think cases where IP is involved is complex. I agree that stumbling onto the right formula shouldn't be a license to print massive amounts of money for all eternity. I think people should get a few years to be very wealthy, then it should be simple for anyone else to use the same formula to join the open market. Probably shorter than what we currently have and definitely it should be simpler to get permission from the FDA to compete. But in the meantime before IP expires, the developers should get to make as much money as they want. That's how you properly incentivize people to search for amazing drugs instead of just good drugs, since if either way they'd just get enough money to incentivize looking, no one would look for harder but better drugs.
I'd like you to address nvidia too, since while they have a lot of IP I'm sure, a big part of why they make so much money is that no other company can make chips as good as them, even if they didn't have IP. If you limit their profit, they'd have no incentive to open another factory or research team, since they'd already have maxed out on money they can make.
Replying to a comment you make further down:
They aren't simply "psychologically manipulating" the public. The public can think for themselves. The public likes being expensive things to show off how hip(and wealthy) they are, they do it all the time. Diamond rings, luxury cars and watches and clothes, meals at pricey restaurants, art, wine. All those things might be better in some small ways than their budget competitors, but the vast majority of the price differential comes from people wanting to show off their wealth and taste. And if they want to show off their wealth and taste, someone will inevitably sell them the opportunity to do so.
I answered it but I understand you need clarification and don’t mind.
Grocery stores will always need to have lower prices than an expedient restaurant like McDonald’s, otherwise few would eat at home. Consumers are more likely venture far away for groceries, because it can be cost-saving to do so. This is different from having only a few fast food places to go to on your lunch break. There may be dozens of grocers, some of which will not know their competitors’ pricings. And because the food is already purchased in bulk and perishable, grocers need to sell some food at a discount otherwise they lose more money in the whole. This is all very different than a fast food place with very efficient supply chains.
But if you’re wondering, “according to your argument, we should still see grocery stores pricefix with other grocers!” Indeed, we do:
https://en.wikipedia.org/wiki/Bread_price-fixing_in_Canada
the scheme inflated the price of bread by at least $1.50
I promise you, if grocers can negotiate price increases amongst themselves over a period of 15 years in secrecy, they can surely decide not to lower prices unless their competitor does so (guaranteeing rarely-lowering prices). So you need a place like CostCo whose entire shtick is an ugly experience for lower prices. Even then, CostCo makes 30 billion in profit.
https://archive.is/eZbUv
I’ll edit and reply to other points in a bit
Going to any mall food court, I have a dozen different fast food restaurants to choose from. Even more if I'm willing to walk 15 minutes to places outside the mall. Your argument here seems to boil down to, "Once there is sufficient competition and lack of knowledge of pricing between businesses, then competition will bring prices down". But I don't see any plausible explanation why that emerges for grocery stores and not a mall food court. Especially since not all fast food items are equivalent. A Wendy's hamburger might be basically the same as a McDonald's Hamburger, but how does a local business sushi place and a McDonald's arrive on equivalent pricing?
Sure, that explains some food discounts. It doesn't explain why they don't come up with an agreement in your model where all the grocers sell 1 litre pepsi drinks for $5 and the fast food restaurants sell them for $15, instead of what we have currently where grocers sell them for $1 and fast food places sell them for $3.
I am trying to look for a smart libertarian economist's opinion on the incident, and I can't yet find one. If I can find anything convincing, I'll let you know. But my default opinion, and I think the standard economist's response, would be that collusion can happen. Monopoly can let a single seller unfairly raise prices, and collusion can let competitors act like a monopoly. This was in an area with only seven big retail sellers, and two big bread wholesalers, that were all selling basically equivalent bread, so it was a relatively easy area for collusion. And even so, they didn't always act in sync, there was an incident in 2012 where they didn't increase prices and argued between themselves about it. And it was caught eventually, and they're getting punished for it. That sort of collusion is not common.
I agree that it's easier to coordinate not to lower prices. It's fortunate in that way we experience inflation and that it's quite rare that a fast food place manages any sort of improvement so dramatic that lowering their prices, even if their competitors didn't, would be a good idea for them.
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