does it really cost them 30-40% more to make a stainless steel appliance?

[Sureshot324]

I already said the price could be lower than what you are willing to pay. You are not telling me anything new here.

And sellers don't HAVE to endlessly undercut competitors, some companies succeed by raising prices. hell look at Apple, very high markup, because PEOPLE ARE WILLING TO PAY!

You are trying to argue that production cost does not affect sale price which is so wrong I can't believe so many people in this thread believe it.

Apple is a bit of a special case, because they can offer something no competitor can offer: OSX. However, Apples prices are still closely tied to the production cost. If their margin is 20% above cost instead of 5%, that price is still based on the production cost. Lets say Apple suddenly decided to raise prices so that all their computers cost double what an equivalent Windows PC cost. Few people will be willing to pay that much of a premium to have a Mac BUT if the cost of all computers doubled, people would buy them because the competition has similar pricing.

In the 80's it was normal to pay $5k+ for a computer. I would be willing to pay $5k for an old 486 right now if that's the only computer I could get, but it's not, so I won't.

In most markets, sellers DO have to undercut/match their competitors. The vast majority of products in your local grocery store are sold for very low margins.

 

[Sumguy]

Having worked for a major appliance manufacturer, the mark-up is not even remotely close to what the price difference of production is. People are willing to pay more, though.

I'm sure everyone knows that. Knowing the exact difference between a low end appliance and the stupid expensive ones is pretty funny, though.

 

[Sureshot324]

Having worked for a major appliance manufacturer, the mark-up is not even remotely close to what the price difference of production is. People are willing to pay more, though.

I'm sure everyone knows that. Knowing the exact difference between a low end appliance and the stupid expensive ones is pretty funny, though.

I'm curious now, what's the difference between low end and top of the line fridge or stove?

 

[Train]

You are trying to argue that production cost does not affect sale price which is so wrong I can't believe so many people in this thread believe it.

Apple is a bit of a special case, because they can offer something no competitor can offer: OSX. However, Apples prices are still closely tied to the production cost. If their margin is 20% above cost instead of 5%, that price is still based on the production cost. Lets say Apple suddenly decided to raise prices so that all their computers cost double what an equivalent Windows PC cost. Few people will be willing to pay that much of a premium to have a Mac BUT if the cost of all computers doubled, people would buy them because the competition has similar pricing.

In the 80's it was normal to pay $5k+ for a computer. I would be willing to pay $5k for an old 486 right now if that's the only computer I could get, but it's not, so I won't.

In most markets, sellers DO have to undercut/match their competitors. The vast majority of products in your local grocery store are sold for very low margins.

You havent added anything to dispute my point. You keep talking margins.... the market does not care about margins. Margin only matters to the seller.

You talk about what you are willing to pay for a computer if it was all you could get... but that price is also irrelevant of the production cost.

 

[Train]

Having worked for a major appliance manufacturer, the mark-up is not even remotely close to what the price difference of production is. People are willing to pay more, though.

I'm sure everyone knows that. Knowing the exact difference between a low end appliance and the stupid expensive ones is pretty funny, though.

interesting... the market doesn't even KNOW the margins

 

[Sureshot324]

You havent added anything to dispute my point. You keep talking margins.... the market does not care about margins. Margin only matters to the seller.

You talk about what you are willing to pay for a computer if it was all you could get... but that price is also irrelevant of the production cost.

Price I am willing to pay for your product depends price of your competitor's products which, due to price competition, converges with the cost of production.

 

[Train]

Price I am willing to pay for your product depends price of your competitor's products which, due to price competition, converges with the cost of production.

company A sells widgets for $120, it costs $100 to make. A tidy 20% margin

company B sells nearly identical widgets for $120, but ony pays $50 to make, a much bigger margin.

Due to tight competition, both prices continually adjust to match eachother. The market treats both products the same, and DOES NOT CARE ABOUT PRODUCTION COSTS. While supply and demand come into play, costs to the seller do not.

 

[Train]

Price I am willing to pay for your product depends price of your competitor's products which, due to price competition, converges with the cost of production.

Not to mention... if this were true, all digital goods would be sold for fractions of a penny.

 

[Sureshot324]

company A sells widgets for $120, it costs $100 to make. A tidy 20% margin

company B sells nearly identical widgets for $120, but ony pays $50 to make, a much bigger margin.

Due to tight competition, both prices continually adjust to match eachother. The market treats both products the same, and DOES NOT CARE ABOUT PRODUCTION COSTS. While supply and demand come into play, costs to the seller do not.

Well if that's the point you were trying to make this entire time, then I guess we're in agreement, but in every market mentioned in this thread except maybe xbox360 vs ps3 the production costs are roughly equal.

 

[Sumguy]

I'm curious now, what's the difference between low end and top of the line fridge or stove?

Fridges are more complex in that you have models with the freezer on the top (cheapest), side-by-side (mid), and bottom (crazy pricey). Usually its just that the control board might have an extra relay or two for a top end fridge that controls a damper (a little flap between the freezer and fridge). They throw some extra "features" in like temperature control for compartments (a little slide that you physically manipulate, partially closing a hole that leads directly to the freezer). A relay to control the water dispenser (plus the solenoid to control water flow for that), another for ice dispenser (depends on how they design the ice dispenser, might not need one). If the fridge has automated defrost, add a heating element, some fans, and enable some output pins. Slam another hole in the body to allow water to flow out. Also, more space.

Interfacing for a high end fridge has a few more buttons and they're going to touch screen now. All control boards have the programming to control all current production fridges, they just select the model during production. And, of course, the outside looks prettier.


For ranges, I can't really say (didn't work with those much). I'd have to guess an extra rheostat for additional coils, slightly different programming. Unless they have something weird going on (they'd tell you exactly what), I'm not seeing much they can do...coil designs maybe?

 

[silverpig]

Yet businesses still get stuck selling stuff below cost all the time due to unforseen circumstances. But that still doesn't show any forced correlation between production cost and final cost.

The inverse can also true, produce something for a penny, sell it for $100k:

Seller: Bu bu bu but... your production costs!
You: ROFL

The price is set by the market, NOT your costs (at all)

Look up the definition of the market. The market isn't just customers. It is sellers as well.

Sellers set prices as much as customers do. Sellers determine the low end, customers determine the high end. Sellers determining the low end generally have a cost+ in mind as a go/no-go criterion for whether to manufacture.

Yes, sometimes businesses sell for cheap to get rid of things, but that doesn't really apply here. In this case the business is considering its cost of storage + opportunity cost of not storing something else, and compares that to the sunk cost of the item they have to get rid of. Production cost is written off as a loss and a tax shield (one of the accountants here can elaborate), so they sell it off to get as much as they can for it.

You can talk firm A vs firm B manufacturing widgets with 100% differences between their input costs all you like, but understand that this isn't econ 101 and things are much different in the real world.

 

[mafia]

Cars don't cost 10x what they cost to make. The auto market is extremely competitive and most cars don't have large profit margins. For low end cars like Nissan Versa, Honda Fit, etc. often the manufacturer barely makes any money at all. They just sell those models to maintain marketshare/mindshare.

Acctually car manufacturers make most of their money selling low end cars. They are very cheap to make and they can sell them in large quantities. Its cars like Nissan GT-R or Lexus LFA that are used for mindshare. For example, the LFA has a higher production costs than the selling price.

 

[Train]

Look up the definition of the market. The market isn't just customers. It is sellers as well.

Sellers set prices as much as customers do. Sellers determine the low end, customers determine the high end. Sellers determining the low end generally have a cost+ in mind as a go/no-go criterion for whether to manufacture.

Yes, sometimes businesses sell for cheap to get rid of things, but that doesn't really apply here. In this case the business is considering its cost of storage + opportunity cost of not storing something else, and compares that to the sunk cost of the item they have to get rid of. Production cost is written off as a loss and a tax shield (one of the accountants here can elaborate), so they sell it off to get as much as they can for it.

You can talk firm A vs firm B manufacturing widgets with 100% differences between their input costs all you like, but understand that this isn't econ 101 and things are much different in the real world.

"the market" as I was using it, is the buying and selling of the final product.

The production cost is internal to the seller, what "goes to market" is the bottom line. Period. And no, the seller does not "set the floor", he may set his OWN floor (similar to how a buyer has their max), and that's it.

heh 101. Funny, as those arguing against me are quoting 101. Ever hear the saying "a little bit of knowledge is dangerous?"

 

[silverpig]

"the market" as I was using it, is the buying and selling of the final product.

The production cost is internal to the seller, what "goes to market" is the bottom line. Period. And no, the seller does not "set the floor", he may set his OWN floor (similar to how a buyer has their max), and that's it.

heh 101. Funny, as those arguing against me are quoting 101. Ever hear the saying "a little bit of knowledge is dangerous?"

Newsflash: production costs for the vast majority of items are the same from firm to firm.

It costs Samsung about the same as it costs Whirlpool to make a fridge.

 

[Train]

Newsflash: production costs for the vast majority of items are the same from firm to firm.

It costs Samsung about the same as it costs Whirlpool to make a fridge.

Irrelevant. The market didn't care when the internal costs were different, why would they care when they are the same?

 

[Sureshot324]

Acctually car manufacturers make most of their money selling low end cars. They are very cheap to make and they can sell them in large quantities. Its cars like Nissan GT-R or Lexus LFA that are used for mindshare. For example, the LFA has a higher production costs than the selling price.

They make most of their money making mid range cars, like Honda Accord, Ford Fusion, F-150, and SUVs. Low end subcompacts like Toyota Yaris, Honda Fit, Ford Fiesta are sold for barely above cost unless you add a ton of options, which most people don't with these cars.

The same is true for computers. If you buy a $400 computer from Dell they barely make any money off that. In fact they often sell these computers at a loss hoping you'll buy accessories, service plans, and so on. If you build an equivalent to a $400 Dell yourself, it will cost you more than $400. If you build the equivalent to a $3000 Dell, you can build it much cheaper than $3000.

 

[MagnusTheBrewer]

Get rid of the abomination that is the 'open kitchen concept' and, people will stop buying fashion appliances.

 

[BlahBlahYouToo]

Get rid of the abomination that is the 'open kitchen concept' and, people will stop buying fashion appliances.

what's wrong with an open kitchen?

 

[actuarial]

company A sells widgets for $120, it costs $100 to make. A tidy 20% margin

company B sells nearly identical widgets for $120, but ony pays $50 to make, a much bigger margin.

Due to tight competition, both prices continually adjust to match eachother. The market treats both products the same, and DOES NOT CARE ABOUT PRODUCTION COSTS. While supply and demand come into play, costs to the seller do not.

But that's not what happens in open markets. What will happen is either:

a) Company B reduces their price to $95, driving Company A out of business, and makes a greater total profit from the increased market share and increased demand (due to lower price). They make less per widget, but more overall.

b) Company C sees the huge margins company B is making, does the same thing, and they battle each other for market share down to $60 (the same 20% profit that Company A found acceptable). Or even lower.

In either case, the reduced production costs Company B realized eventually reduce the price to consumers. In the short term, changes to production cost are meaningless (as you say, someone buying only cares what it costs them, and once something's made it is usually sold), but in the long run market forces will push the price downward if production costs decrease or upwards if production costs increase. This is especially true when the demand is extremely inelastic, and the market wants X widgets and doesn't care at what price.

The only thing stopping the above from happening are monopolies / collusion.

 

[bignateyk]

I'm curious now, what's the difference between low end and top of the line fridge or stove?

http://en.wikipedia.org/wiki/File:Gas_stove.jpg

vs

http://www.alibaba.com/product-free/11932031/DCS_36_Professional_Nat_Gas_6/showimage.html

 

[Train]

But that's not what happens in open markets. What will happen is either:

a) Company B reduces their price to $95, driving Company A out of business, and makes a greater total profit from the increased market share and increased demand (due to lower price). They make less per widget, but more overall.

b) Company C sees the huge margins company B is making, does the same thing, and they battle each other for market share down to $60 (the same 20% profit that Company A found acceptable). Or even lower.

In either case, the reduced production costs Company B realized eventually reduce the price to consumers. In the short term, changes to production cost are meaningless (as you say, someone buying only cares what it costs them, and once something's made it is usually sold), but in the long run market forces will push the price downward if production costs decrease or upwards if production costs increase. This is especially true when the demand is extremely inelastic, and the market wants X widgets and doesn't care at what price.

The only thing stopping the above from happening are monopolies / collusion.

You are assuming a company's margins are public knowledge. You are also assuming there is no end to the competitor under cutting. This is just flat out ridiculous in the real world, or else everyone with a competitor's margins would be pennies. Companies can (and do) compete freely, yet still make comfortable margins.

 

[lxskllr]

SS is about played out, look for horribly expensive aged bronze/copper looks in the near future.

Lets get back to this. Do they make copper clad appliances? If I had the cash, I'd definitely get this. Copper is my favorite metal, and it looks great once it starts to tarnish.

 

[actuarial]

You are assuming a company's margins are public knowledge.

The majority of companies are, if they're publicly traded. And even still: the first scenario doesn't required public knowledge of the other company's margins, just that their expected increase in market share outweighs the lost revenue per widget. If they do that and it works, why wouldn't the continue it?

You are also assuming there is no end to the competitor under cutting. This is just flat out ridiculous in the real world, or else everyone with a competitor's margins would be pennies. Companies can (and do) compete freely, yet still make comfortable margins.

No I'm not. I didn't say there's no end to it, I said they'll compete themselves down to a comfortable profit. Company C's not going to come into the industry if their expected return isn't enough to offset the risk vs other areas of investment. But they will if their expected return is high enough. There's a breaking point.

In either scenario, companies are going to set their prices such that they will attempt to maximize profit. The buyers dictate how much they will buy at what price, and that sets the revenue portion of profit.

But profit is a function of both revenue AND expenses, so if you change expenses you are often going to change the price/volume point which maximizes profit. Your scenario happened to be a good example of this. Neither of my proposed long term scenarios would be possible if there was no way to make a widget for $50.

There are certainly industries where this relationship is very weak, but there are also industries where you do see a nearly proportional relationship with expenses.

 

[Train]

The majority of companies are, if they're publicly traded. And even still: the first scenario doesn't required public knowledge of the other company's margins, just that their expected increase in market share outweighs the lost revenue per widget. If they do that and it works, why wouldn't the continue it?



No I'm not. I didn't say there's no end to it, I said they'll compete themselves down to a comfortable profit. Company C's not going to come into the industry if their expected return isn't enough to offset the risk vs other areas of investment. But they will if their expected return is high enough. There's a breaking point.

In either scenario, companies are going to set their prices such that they will attempt to maximize profit. The buyers dictate how much they will buy at what price, and that sets the revenue portion of profit.

But profit is a function of both revenue AND expenses, so if you change expenses you are often going to change the price/volume point which maximizes profit. Your scenario happened to be a good example of this. Neither of my proposed long term scenarios would be possible if there was no way to make a widget for $50.

There are certainly industries where this relationship is very weak, but there are also industries where you do see a nearly proportional relationship with expenses.

Thats great, but it still remains an internal struggle. Period. The market does not care about what your profit is. that whole point is INTERNAL to the company only. Wether you make a killing, lose your ass, or anywhere in between, it does not effect the final price. It's the sellers problem, ONLY.

 

[actuarial]

Thats great, but it still remains an internal struggle. Period.

That's great, but it still changes the price that someone who buys a widget pays. Period.

And just to preempt your same inapplicable argument: it does not change what someone is WILLING TO PAY. But we know they're willing to pay $120, which means they're also willing to pay $115, or $110.