Cliffs at Bottom
Okay, I apologize in advance if this sounds rude, but,
You're basing your argument off of google with no real study of economics. Gotcha. You even quoted WIKIPEDIA. WIKIPEDIA. Have you ever tried citing wikipedia as a source in a higher learning environment? In any case, yes this isn't higher learning. But let's straighten something out - Your projected demand increase for a 250$ price drop is pretty laughable, I can assure you the real world DOESN'T work like that. If, for example, a macbook pro is 250$ cheaper do you know what happens to the sales? They skyrocket by a TON. Exponentially. Stuff like this causes stock at some distro centers to sell out, because the demand for such a price drop is that much higher - Your example is just a joke because the demand for a 250$ price drop would be far more substantial than you indicate - in fact, sweet spot or lower prices generally have so many additional sales that it increases profits by a sizeable margin, this is profit maximization.
Now, obviously as I mentioned earlier nvidia is selling GK110 in other segments as well, and they know what they're doing. They study statistics non stop to optimize the price and allocate all of the GK110 chips in such a way that it makes them and their shareholders the most money - and they hire economists like all firms do to assist them in the process. So they know what they're doing with their GTX 780 price. I just want to point out that your demand example is outright laughable and ridiculous.
Price Elasticity for Products is dependent on the product.
I'll go in order and debunk some of your theories.
blackened32 said:
When price lowers, the number of potential buyers goes up exponentially.
This is false. It is dependent on the product. If the price of bread drops by 300%, sales do not then jump by 900%. You only need enough bread to keep you alive. Price Elasticity is dependent on the product. Every product has a different Price Elasticity.
blackened32 said:
You even quoted WIKIPEDIA.
It's a definition of Price Elasticity and Veblen goods. If you know a lot about economics, you'd know the definitions are correct. I could list 100 other sources that state the exact same definition. Would you like them? This is similar to a personal attack by attacking not the information, but the source itself and isn't allowed by the rules or moderators.
blackened32 said:
Your example is just a joke because the demand for a 250$ price drop would be far more substantial than you indicate - in fact, sweet spot or lower prices generally have so many additional sales that it increases profits by a sizeable margin, this is profit maximization.
I agree with you. I actually agree. Except you missed a vital point. Goods are Price Elastic (Meaning like you said, when prices drop substantially, demand increases substantially) when there are MANY substitutes. For example, there is a substitute for the GTX 680, it's the 7970. If the 680 dropped in price substantially, people would purchase that over the 7970. However, there is no substitute for the GTX 780 as no card is performing in its bracket. So this quote doesn't hold as much weight.
blackened32 said:
So they know what they're doing with their GTX 780 price. I just want to point out that your demand example is outright laughable and ridiculous.
blackened said:
I can assure you the real world DOESN'T work like that. If, for example, a macbook pro is 250$ cheaper do you know what happens to the sales? They skyrocket by a TON. Exponentially.
I'm unsure why you even say these two quotes because you basically agree with me then. If you didn't agree with me then Nvidia would do exactly what you'd say. They'd drop prices by $250 and their sales would skyrocket exponentially. Instead they don't, indicating exactly what I said, sales wouldn't skyrocket exponentially, hence they hold the price where it is because revenues are higher at the price point for Titan and GTX 780, than they would if they lowered both prices by $250.
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It's hard to understand some of this stuff if you don't have a good background in Economics. The biggest problem with this kind of material is that people make very broad blanket statements, which are simple to understand. However, it's much more complex. The blanket statements are general rules, but every rule has its exceptions in Economics. Simple stating "When prices fall, demand rises" is GENERALLY, correct, but once you start accounting for substitute goods, giffen goods(A consumer good for which demand rises when the price increases, and demand falls when the price decreases. This phenomenon is notable because it violates the law of demand, whereby demand should increase as price falls and decrease as price rises. To be a Giffen good, the item must lack easy subsitutes and it must be an inferior good, or a good for which demand declines as the level of income in the economy increases. Economists disagree on whether Giffen goods exist and how common they are. ), and veblen goods(Goods that are perceived to be exclusive as long as prices remain high or increase. Veblen goods get their name from economist Thorstein Veblen, who was one of the first to look into and write about conspicuous consumption and the concept of seeking status through consumption.
Veblen goods are often referred to as "status symbols".). Those defintions are taken from investopedia for you, since wikipedia is a problem for you when considering basic definitions, but I'll source economics books if you want me to get them out for you as I have tons.
Hope this helps.
-teNtial
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Cliffs
-Essentially Blackened32 has stated that Nvidia knows what it's doing (I agree with this statement) but at the same time saying that if Nvidia dropped the price on the product they'd sell exponentially(this means profits would increase) more products and make more revenue.
-This makes no sense, so feel free to ignore the whole post as it's mostly meant to help educate him.