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PaperclipPerfector  9mo ago (text post)   3314 thread views

Friday Fun Thread for March 22, 2024

Be advised: this thread is not for serious in-depth discussion of weighty topics (we have a link for that), this thread is not for anything Culture War related. This thread is for Fun. You got jokes? Share 'em. You got silly questions? Ask 'em.

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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

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.

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

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.

but how's that relevant to why McDonald's wouldn't set their price to $10

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

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.

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.

why is my experience[…]

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:

At the moment, according to the site, the cheapest Big Mac in the country is being sold in Oklahoma for $3.49. The most expensive Big Mac in the U.S. will run you $8.09 in Massachusetts. That’s more than double the price of Oklahoma’s.

What you can do as a consumer is do research and, perhaps, support local stores,” Klyman noted. “Giant global chains are sometimes not being honest and bringing up their price 200% even though their cost hasn’t gone up at that rate, so do your research, and you might find that local stores and restaurants won’t upcharge you as much.”

Back to you:

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?

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.

I appreciate your advice to look at Khan Academy. I will look for a cost-efficient reading comprehension program to suggest you.

You and @non_radical_centrist: stop this schoolyard nonsense.

It wasn't supposed to be a slight at him. Khan Academy is a great learning resource, and I'm pretty sure he's never learnt any economics beyond articles and blogs(If he has and just chose to reject it, then I should stop wasting my time here). I think he'd learn from just going through the lessons there than any amount of arguing with me or reading more articles and blogs, because there are actual graphs and formulas involved that Khan Academy is better set up to teach.

It wasn't supposed to be a slight at him.

I'm not buying it. Maybe you do honestly believe he fails to grasp basic economics, but "Let me recommend Khan Academy/community college/a textbook" is a polite way of saying "You're ignorant and you don't know what you're talking about," and it's very old and not subtle.

Maybe you do honestly believe he fails to grasp basic economics, but "Let me recommend Khan Academy/community college/a textbook" is a polite way of saying "You're ignorant and you don't know what you're talking about,"

I do believe he fails to grasp basic economics, although I'd guess it's more he doesn't "know" basic economics than "fails to grasp" basic economics. He seems smart enough from his writing ability. In his own words, "It’s an entrenched mythology of capitalism that companies lower prices based on competition". That's some pretty basic economics he's denying. Not knowing basic economics is the same thing as being ignorant and not knowing what he's talking about. The best way for him to learn, in my opinion, is to go through some Khan Academy lessons. I could've recommended he enroll in some Harvard classes instead, but that'd cost him hundreds of dollars and probably not actually be as effective despite being more prestigious.

Do. Not. Be. Patronizing. That is the lesson. That is all.

I really wasn't intending to. I think Khan Academy has great lessons. If I need to refresh myself on economics, since I really only have a 101 knowledge level myself, that's where I go to. I think everyone who wants to argue about economics should go through all the Khan Academy lessons first.

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

You never properly answered it so I asked again.

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.

This is a proper answer. However, it contradicts with what you said earlier,

It’s an entrenched mythology of capitalism that companies lower prices based on competition.

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.

https://www.huffpost.com/entry/why-mcdonalds-prices-are-wildly-different-from-one-location-to-another_l_65665af4e4b03ac1cd17b7d9

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.

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.

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:

look no further than Stanley Cups, why should one company make so much profit on cups just because they have the funds to psychologically manipulate the public’s desires

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.

why does mdonald’s not need to lower for Wendy’s, but does for wholesale

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

retailers and supermarket chains reached a secret agreement among themselves to artificially inflate the price of bread at the wholesale and retail levels from late 2001 to 2015[1] (some sources stated that the price fixing continued into 2017[2]). The Competition Bureau of Canada alleged, in court documents released 31 January 2018, that seven Canadian bread companies committed indictable offences[3] in what journalist Michael Enright later termed "the great Canadian bread price-fixing scandal" of 2018

the scheme inflated the price of bread by at least $1.50

The retailers who participated in the scheme, including Loblaws, Walmart Canada, Giant Tiger, Sobeys and Metro, allegedly "demanded" that the bread suppliers manage actively their retail competition by co-ordinating bread prices between the retailers.

Retail customers would call threatening to reject a price increase if another retailer was offside in terms of pricing alignment. None of them wanted to be the first to implement the price increase. There was always a negotiation process going back and forth between the four retailers where the supplier was trying to coordinate it, because somebody had to be the first to move.

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

A new analysis from the White House Council of Economic Advisers suggests that elevated profit margins among large grocery retailers could be contributing to the stubbornly high price of food on store shelves. The analysis, which relies on Quarterly Financial Reports data from the Census Bureau, found that food and beverage stores had increased their margins by about two percentage points since the eve of the pandemic, reaching their highest level in two decades.

I’ll edit and reply to other points in a bit

Yes, cartels happen, are bad (because they effectively turn something from competition into a monopoly), and so are usually illegal. They still aren't going to be worse than monopoly pricing, and will usually be a little better, because you might have people defect from the cartel. But yeah, a known problem.

Anyway, in general, fast food pricing is not usually by a cartel. There are usually multiple fast food restaurants in an area.

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.

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?

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.

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.

the scheme inflated the price of bread by at least $1.50

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 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.

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.

Imagine how evil it would be if the scientist who discovered penicillin tried to maximize profit.

This is just where we arrive at a differential in positions on economic theories. My wager is that if there had been a substantial profit motive, industrial manufacturing would have started up more quickly. I don't think there is a plausible case for patenting the relevant molecule, since it can be isolated from naturally occurring molds, just the industrial processes used to manufacture it in large quantities. Here's the summary of that development where manufacturing at scale wasn't feasible until Pfizer developed the process for doing so.

To the extent that IP laws could have allowed monopolization of penicillin or regulators could have prevented competition by not allowing different companies to manufacture penicillin, these are complaints about government regulation rather than profit motive. While there are market failures, what we mostly find in competitive markets is that prices come down and goods become broadly available. Despite the object-level complaints on the price of McDonald's in this thread, pretty much everyone can afford a Big Mac and almost no one thinks that the situation would improve if governments were responsible for the manufacture and distribution of burgers.

To the Ozempic example, the ability to profit-max outside the bounds of what most would consider ethical is a product of regulatory capture, not a unique process for creating semaglutide that no one else can match.

I agree with you that repealing IP laws would increase competition and lower prices significantly — look no further than Stanley Cups, why should one company make so much profit on cups just because they have the funds to psychologically manipulate the public’s desires — but economies of scale come in and demand centralization. One or a few factories producing Ozempic will always be more efficient than a dozen or two dozen, no? It could be this way with fast food giants, as well. McDonald’s and a couple other giants simply due to economies of scale and accumulated institutional knowledge can uniquely lower food prices, but it’s unlikely this will ever happen because nothing enforces the competition past a certain point (“lower than grocery stores and not painfully higher than competitors” is all their profit needs to be, but they will never willingly race to the bottom for prices because they can anticipate lower total profit as a result)

One or a few factories producing Ozempic will always be more efficient than a dozen or two dozen, no?

There's more likely to be disruption.

Not everything will centralize. Innovation, differences in product, or diseconomies of scale can lead to there being other more efficient competitors.

I agree that we probably need to think more about what the best law is for drugs, but the buckets of money that are invested in researching new drugs are funded for by the expectation of future profits, so it doesn't seem to me like we can do without high profits unless we want fewer drugs. That's not to say that the system can't be improved though. We definitely don't take enough advantage of cheap effective drugs, I believe, because they don't have big producers and lobbyists?

In what way did IP laws help Stanley sell cups? Are you seriously advocating repealing Trademarks?

Trademarks should be used to compensate for the cost of innovation. The reason Stanley profited so much from their product is that they succeeded in manipulating female buying preferences by associating it with high status. That’s it. It’s a grotesque waste of resources and predicated on manipulating the public imagination. So in the case of stupid cups and other status items, there should be no trademarks (maybe a small number on the bottom of items to guarantee quality with a trusted producer only).

It’s funny that this is where the buck stops with capitalists. No no no, you can’t regulate like this, you need to regulate like that! Changing how we regulate is unthinkable!

Am I understanding you to be arguing that female status games should be illegal?

Trademarks are valuable: brands let you know how much you can trust the product. Brands let companies convey to you more quickly what the quality of the product will be. If you get rid of them, then it becomes way harder for the consumer to know whether the product is a cheap chinese knockoff or something that actually will work well and last a while.

The evolution of humanity requires increasingly prosocial status games. For women, the status game can be intelligence (see the high STEM rate among Iranian and Saudi women), inner beauty (acts of compassion in a community, singing, poetry, see the ancient world), external beautification (beautiful prosocial religious or quasi-religious art), and fidelity (to some social principle, like anti-consumerism).

The status games we have concocted for women today are bad. Placing poison on their face, wasting their money under false allusions, social media, music festivals, tRaViLiNg… all bullshit. Because for some reason we let for-profit corporations infect the minds of the impressionable.

Bullshit male status games should also be illegal, of course.

Fair enough that those are costly socially, often for not much benefit, and not great for the soul.

I don't think they can be chalked up to "for-profit corporations" though. It's usually just from the rot within us.

Trademarks should be used to compensate for the cost of innovation.

That's not what trademarks are for. Trademarks are for authenticating products as coming from one manufacturer and not another.

The reason Stanley profited so much from their product is that they succeeded in manipulating female buying preferences by associating it with high status.

As far as I can tell this is false.

https://www.retaildive.com/news/stanley-quencher-tumblers-viral-success/699416/

They were not putting money into marketing or selling the product and the popularity seems to have been driven by a group of Mormon influencers who placed a bulk order for ten thousand mugs and resold them to their followers. They sold out of them in short order and only then did Stanley get in on the action.

Trademarks are for authenticating products

That’s not what trademarks are for in practice. They are for signaling status. Any visible trademarked logo you see is for status. I’m all for manufacturer authentication, just not visible externally or too small to be noticed by someone else.

https://www.newyorker.com/culture/infinite-scroll/how-the-stanley-cup-went-viral

In 2019, the brand’s now star product, the forty-ounce Quencher, was selling so poorly that the company had stopped restocking or marketing it. A partnership with the Buy Guide, an affiliate-marketing site based in Utah, where the Quenchers were popular among Mormon mothers, saved it. Coached by the Buy Guide, in 2020, Stanley launched a new Web site and an affiliate-marketing system through which fans could make money by driving sales

Outsourcing marketing is marketing

What might appear to be an organic phenomenon, though, is actually an engineered corporate crossover. Companies prepare carefully, and expensively, to cultivate their moments of ubiquity. They leverage our attention, the same way an influencer does, to convert online viewers into fans and customers.

That’s not what trademarks are for in practice. They are for signaling status. Any visible trademarked logo you see is for status.

Right, the visible trademarked logo on e.g. LingLong tires is for status.

I’m all for manufacturer authentication, just not visible externally or too small to be noticed by someone else.

It'll be way better when people have to show the bottom of their Stanley cups to show that they are part of the latest trend than when they show the side.

A partnership with the Buy Guide, an affiliate-marketing site based in Utah, where the Quenchers were popular among Mormon mothers, saved it. Coached by the Buy Guide, in 2020, Stanley launched a new Web site and an affiliate-marketing system through which fans could make money by driving sales

The partnership only happened after they sold the ten thousand units they bought at their own risk in no time.

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