Actually, it would be in your both interest to collude being the only two guys with the water, unless you two were like mortal enemies or something like that. — Posty McPostface

It was an example, not meant to be taken literally, but it's why in the real world monopolies and market fixing are illegal. The point is, presuming they are in competition with each other, they would not both work out what the price 'should' be and then "may the best man win", they undercut each other to get the sale until the lowest possible price was reached.

This might interest you:

https://en.wikipedia.org/wiki/Economic_calculation_problem

https://en.wikipedia.org/wiki/Economic_calculation_problem — Posty McPostface

Thanks, I will be having a look :)

It was an example, not meant to be taken literally, but it's why in the real world monopolies and market fixing are illegal. The point is, presuming they are in competition with each other, they would not both work out what the price 'should' be and then "may the best man win", they undercut each other to get the sale until the lowest possible price was reached. — Inter Alia

Hmmm... are they really illegal, or are there in truth legal and illegal forms of the same thing? For example, take airplane seats. Business class gets a slightly bigger chair and slightly different food. Is that worth +$1,000 compared to economic class for a 2 hour flight? I don't think so. So clearly this is market segmentation - a legal form of what is very similar to price discrimination.

it's why in the real world monopolies and market fixing are illegal — Inter Alia

I'm not sure if this is true; but, most business entrepreneurs aim for being a monopoly. Sometimes it's the most efficient means of resource allocation for some specific type of good or service. This is particularly true for the technology sector. Don't quote me on that.

I'm not sure if this is true; but, most business entrepreneurs aim for being a monopoly. Sometimes it's the most efficient means of resource allocation for some specific type of good or service. This is particularly true for the technology sector. Don't quote me on that. — Posty McPostface

>:) - Peter Thiel wrote a good book on economic philosophy and monopolies called Zero To One.

And if you have a unique product, you're always a monopoly O:)

The "good" and "bad" are psychological associations made based on price. The $200 one may be as good as the $10,000 one in reality. — Agustino

The fact that they're psychological doesn't alter the demand hypothesis. If more people wanted green cars than red ones, you could price green cars higher because the demand is there, there's nothing better about green cars than red ones, it's just a psychological preference, but they're still two different products (one green, one red). The £1000 shirt has something about it that makes it a different product from the £5 shirt, maybe a label, maybe the prestige of being associated with a famous person, the demand is not created by being rich (poor people would like one too, they just can't afford it). The point is, no matter what the difference is, it's still a different product. even a rich person would not buy the same product for a hugely inflated price for no reason, there still has to be something about that product that makes it in high demand.

(poor people would like one too, they just can't afford it). — Inter Alia

I think it's wrong to think that this would represent demand. I think rather that poor people would want one at the price they can afford one. That's where they are found on the demand curve.

£1000 shirt has something about it that makes it a different product from the £5 shirt, maybe a label, maybe the prestige of being associated with a famous person, the demand is not created by being rich (poor people would like one too, they just can't afford it). — Inter Alia

Oh sure, but psychologically what really makes it a different product is its higher price :P

even a rich person would not buy the same product for a hugely inflated price for no reason, there still has to be something about that product that makes it in high demand. — Inter Alia

It doesn't make it "high" in demand. Rather that, if you go back to the basics of the demand curve, you see that some people (fewer people) are willing and able to spend more for Tshirts, and some people (more people) are only willing and able to spend less for it.

In America the Sherman Antitrust Act 1890 prohibits restraint of trade and abuse of monopoly power. In the UK the Competition Act 1998 does much the same thing but with more restrictive powers, but in both cases, yes it would be illegal to do what you're suggesting the water salesmen do.

In America the Sherman Antitrust Act 1890 prohibits restraint of trade and abuse of monopoly power. In the UK the Competition Act 1998 does much the same thing but with more restrictive powers, but in both cases, yes it would be illegal to do what you're suggesting the water salesmen do. — Inter Alia

Again these are grey waters here. In some situations and in some forms this is illegal, in others, it isn't. Maybe we don't agree on it, but rather the salesman and I become partners in a new LLC, and that LLC sells the water. What's the problem then? Or maybe we each sell one water at the price of half his wealth each.

There are different ways to do the same commercial act. Typically the entrepreneur decides what act to do, and then accountants and lawyers figure out the way to legally do it.

Well we've reached the end of this discussion then, I just don't agree with you. I don't agree that poor people don't also want the expensive shirt, I don't agree the the higher price is what makes the difference and I don't agree that the 'something' about the shirt isn't what makes it 'high demand'. Unless you can furnish me with some evidence to support your assertions I see no reason to just take your word for it.

I don't agree that poor people don't also want the expensive shirt — Inter Alia

They do want the shirt, at a price they can afford. I'm not talking about fictive and impossible wants now, but real ones. And I'm sure economists do much the same.

I don't agree the the higher price is what makes the difference — Inter Alia

Psychologically this seems to be the case. If you study consumer psychology, you'll understand that we're quite certain that it IS the case in fact.

https://www.psychologytoday.com/blog/ulterior-motives/201111/price-quality-and-value

'something' about the shirt isn't what makes it 'high demand' — Inter Alia

You're confusing things. It doesn't go at a higher price because the demand for it is higher than the demand for the other shirt. For all intents and purposes, the demand could be the same, for instance, but the supply curve would be lower. Or it can be psychological as I've explained.

rather the salesman and I become partners in a new LLC, and that LLC sells the water. — Agustino

That just sets them back to the example of one salesman in the desert. As I said, it's just an example, in the real world there are thousands of water salesmen, and thousand more ready to pick up a market they see available, they're not going to all join forces, and even if they tried, that's what the monopolies laws are in place to prevent.

You're confusing things. It doesn't go at a higher price because the demand for it is higher than the demand for the other shirt. — Agustino

You keep saying that but I'm not getting your evidence for it. What are you using to come to that conclusion? I get that it's a possibility, what I'm not getting is why you think it's definitely what happens.

I get that it's a possibility, what I'm not getting is why you think it's definitely what happens. — Inter Alia

I don't mean it always happens for all products. In the example I gave though, it's absurd to say that the demand for one shirt is greater than the demand for the other based on Bayesian probability. They're the same kind of shirt afterall. It's more likely that the difference is psychological given that they are the same kind of shirt than that one is demanded more than the other.

Now take something like diamonds and water. The demand for water is probably far greater than the demand for diamonds. And yet diamonds are more expensive than water. Why? Low supply of diamonds.

They're the same kind of shirt afterall. — Agustino

That's your presumption, I've not seen any examples in the real world. All the expensive shirts I've seen have either been made of better materials, associated with some famous designer, worn by a famous actor. I've never seen two identical shirts, one in mayfair selling for £50 and one in the supermarket for £5, not the same shirt. Not unless the supermarket is deliberately taking a lss to draw people in, or some other temporary marketing ploy (a sale or the like).

Also I'm missing the point of the article you linked. It doesn't (on my reading) say anything like "people think more expensive stuff it better just because it's more expensive", nor does it say "rich people will buy the same stuff for more". All it says is that people use price to judge value, but that it can work both ways and depends a lot on other factors. All they're doing is estimating the quality of the product using price, if a product turns out not to be the quality they were expecting it will very soon lose sales and become a loss for the company, they will reduce it's price to meet the actual demand for such a low quality product.

I think you're confusing people estimating what the value will be (when the combined effect of supply and demand have had time to influence the market) with people actually setting the price. Your 'undervaluing stocks' scenario, for example. It wouldn't be of any interest to the investment firm that the stocks were undervalued unless they expected them to soon return to the value they expect. All that's happened is the company (or perhaps a group of early investors) responsible for setting the starting (or current) price have made a mistake in their estimate of what the market value is. They're not accessing some mathematical calculation for 'real' value, they're just guessing what the market, supply/demand led value will be, sometimes they get that guess wrong, but it soon becomes apparent.

Consumers too have to guess whether a product is the sort of thing they want (demand). It might turn out not be of the quality they were expecting for the price, it might turn out they don't like green after all, but again, this will soon become apparent and the price will alter to reflect real demand for the product's actual real qualities. You might sell a £1000 website to your oil tank firm, despite the fact that it's the same one as the £5 coffee shop site, but if they buy it they will be doing so expecting it to be of sufficient additional quality to justify the investment. When it turns out it's no better than the £5 coffee shop version they will not buy from you again. enough such transactions and you will either have to lower your price or raise the actual quality of your premium version.

The importance of all this (my interest and area of expertise anyway) is in ethics. It is because price is dictated by supply and demand that there is an ethical problem with the actions companies take to artificially inflate demand and restrict supply (especially in essential commodities). Companies exploit the momentary gap between the consumer's estimate of value and their realisation of it, they exploit the monopolies law to artificially restrict supply, they trade in commodities without using them which artificially inflates demand. All these things have ethical consequences, but they're missed if you presume there's some 'real' value that's just a mathematical certainty.

But then I suspect (from your other posts about wealth) that that's exactly what you intend to do because it acts as a crutch for your fantasy that everyone can be rich if only they try hard enough, and the rich deserve their wealth because they're so very clever and generously supply us with just what we want at the price we want it.

Economic value is the cardinally-enumerated aggregate of all the subjective acts of ordinal evaluation in society, in which individuals exchange what is less preferred on their individual scale of preferences (often, less preferred "at the margin"), for what they anticipate they would prefer more.

Or: it's a society-wide reflection of the aggregate of all individuals' economic exchange decisions, each exchange being made on the basis of subjective preference rankings.

Because there are certain commonalities (e.g. all human beings need food of some kind) then there are some generally predictable common values - but those are still at bottom the result of individual preferences (one doesn't prefer "food" in the abstract, one prefers cherries to potatoes, or whatnot).

From the subjective point of view, value is "that which you act to gain/keep"; in the trading relationship, you exchange something for what you want to gain/keep. The thing you exchange is a thing you value less than the thing you anticipate getting in exchange.

For example, if you are employed, then unless you just drifted into employment mindlessly, that means you value the abstract purchasing power of a certain quantity of money over the value of the other things you could have been doing during those working hours. More specifically, it means that the value to you of what you can do while employed in your job is higher than the value you could have gotten out of other uses of your time. (e.g. you might enjoy weaving baskets, and be damn good at it, but if you can make as much money - again, abstract purchasing power - in 1 hour on the stock exchange as you could have done in 8 hours of weaving baskets, it's a no-brainer to go for 8 hours at the stock exchange, and weave baskets as a hobby just for its own intrinsic pleasure - which can be a value to you too. Generally, the more you can do with less, the more you have left over to do other things with. This is the core meaning of "economy" in a context where resources are intrinsically scarce in relation to human wants, which are potentially unlimited.)

Billions of exchanges go on every day, with each individual exchange, and its confrontation of two independent scales of preferences, in some small way affecting all others across the entire web of exchange, and economic values (prices, etc.) are the objective precipitate of all those individual subjective evaluations.

That's your presumption, I've not seen any examples in the real world. All the expensive shirts I've seen have either been made of better materials, associated with some famous designer, worn by a famous actor. I've never seen two identical shirts, one in mayfair selling for £50 and one in the supermarket for £5, not the same shirt. — Inter Alia

Well sure, if you count the presence of a brand name written on it as being a different T-shirt... As I said, technically different, but really the same. I for one don't count a branded product to be different from a non-branded product just because there's a name on one and there's no name on the other.

All they're doing is estimating the quality of the product using price — Inter Alia

Exactly. That's all that matters. We're in the business of getting sales. Getting their attention is the first step. This isn't to say that you don't have to follow up with the quality, but the quality is irrelevant if you cannot get their attention to begin with. So price of $200 loses in the scenario provided previously. Regardless of the quality that the person could provide - it may be the best quality out there, doesn't matter.

if a product turns out not to be the quality they were expecting it will very soon lose sales and become a loss for the company, they will reduce it's price to meet the actual demand for such a low quality product. — Inter Alia

There are lots of industries where "theft" is common. In the internet world, SEO optimization companies will many times take your money and you'll never hear from them again.

But yes, you must deliver what your marketing says you will deliver, otherwise, it's false advertising and it would be against the law in most countries. But there are ways that companies use to get around this, while still getting the benefits of certain marketing. For example, say they're selling a weight loss product. They may, for example, say that "(their product) may help you lose weight faster than any other option out there". So, see what's happening? The marketing gets the point across that this is the best product for losing weight, while leaving an exit with the "may" so if it doesn't work for you, oh well, it only said that it MAY work.

Consumer psychology reveals that most people cannot keep track of whether the "may" is there or not. So the sentence "(their product) helps you lose weight faster than any other option out there" and "(their product) may help you lose weight faster than any other option out there" are identical in terms of persuasion, especially for those who are peripheral thinkers.

But anyway, honesty pays off in the long run and it's easier than being dishonest - so you should always be honest in business anyhow. Delivering super high quality isn't hard so long as you're closing contracts and getting the money. So why not do it? You've got the hard part (sales) done, and you can't get the easy part (quality)?

It wouldn't be of any interest to the investment firm that the stocks were undervalued unless they expected them to soon return to the value they expect. — Inter Alia

It's almost the fundamental assumption of market economics that the market will correctly value stocks (and other assets) in the long run. So everyone takes this on faith, more or less.

They're not accessing some mathematical calculation for 'real' value, they're just guessing what the market, supply/demand led value will be, sometimes they get that guess wrong, but it soon becomes apparent. — Inter Alia

:s I've never seen nor heard about an investor or a businessman "guessing" what the supply/demand led value will be. These are very abstract concepts, investors tend to use more practical tools in decision making. There are also different types of investing. Value investing is certainly interested in whether an asset is undervalued or overvalued for example. Looking at balance sheets, P&L statements, DCF analysis, and other such tools may be used to determine whether a stock is undervalued or overvalued. Certain forms of stock trading may, on the other hand, simply be interested in different forms of technical analysis that may reveal price patterns that can be exploited in the short-run.

So what were you thinking of when you said "guessing"? I'm quite certain that investors and businessmen who guess end up bankrupt.

You might sell a £1000 website to your oil tank firm, despite the fact that it's the same one as the £5 coffee shop site, but if they buy it they will be doing so expecting it to be of sufficient additional quality to justify the investment. When it turns out it's no better than the £5 coffee shop version they will not buy from you again. enough such transactions and you will either have to lower your price or raise the actual quality of your premium version. — Inter Alia

Nope. It doesn't work that way. The quality of the website is really irrelevant since they just want to use it to get clients. Getting clients is what's relevant. So the website can be as bad as it gets (within reason of course). The employer wouldn't give a damn in this case - so long as his results are coming. So the value isn't in the quality of the website - it's about getting clients. In the end, that's all a business cares about - sales. If that's going well, everything else can be fixed.

Now, this isn't to say you shouldn't deliver quality websites to such clients. Only that the real value isn't the technical quality at all. Average quality will do, so long as your salesmanship, your availability, your marketing strategy, etc. are excellent. People tend to work with people they like in the end anyway. Business is not as rational as economics would want to have it.

It is because price is dictated by supply and demand that there is an ethical problem with the actions companies take to artificially inflate demand and restrict supply (especially in essential commodities). Companies exploit the momentary gap between the consumer's estimate of value and their realisation of it, they exploit the monopolies law to artificially restrict supply, they trade in commodities without using them which artificially inflates demand. All these things have ethical consequences, but they're missed if you presume there's some 'real' value that's just a mathematical certainty. — Inter Alia

From my experience, this is not how businesses function for the most part. I won't say that there aren't such businesses, but by all means, these are not the majority, nor are they the most successful businesses. Honesty is important in business success.

From my experience, this is not how businesses function for the most part. I won't say that there aren't such businesses, but by all means, these are not the majority, nor are they the most successful businesses. Honesty is important in business success. — Agustino

Evidence

1. Deceptive financial practices. The Consumer Financial Protection Bureau fined Citibank $700 million for the deceptive marketing of credit card add-on products.

2. Cheating depositors. Citizens Bank was fined $18.5 million by the CFPB for pocketing the difference when customers mistakenly filled out deposit slips for amounts lower than the sums actually transferred.

3. Overcharging customers. An investigation by officials in New York City found that pre-packaged products at Whole Foods had mislabeled weights, resulting in grossly inflated unit prices.

4. Food contamination. In a rare financial penalty in a food safety case, a subsidiary of ConAgra was fined $11.2 million for distributing salmonella-tainted peanut butter.

5. Adulterated medication. Johnson & Johnson subsidiary McNeill-PPC entered a guilty plea and paid $25 million in fines and forfeiture in connection with charges that it sold adulterated children’s over-the-counter medications.

6. Illegal marketing. Sanofi subsidiary Genzyme Corporation entered into a deferred prosecution agreement and paid a penalty of $32.6 million in connection with charges that it promoted its Seprafilm devices for uses not approved as safe by the Food and Drug Administration.

7. Failure to report safety defects. Among the companies hit this year with civil penalties by the Consumer Product Safety Commission for failing to promptly report safety hazards were: General Electric ($3.5 million fine), Office Depot ($3.4 million) and LG Electronics ($1.8 million).

8. Workplace hazards. Tuna producer Bumble Bee agreed to pay $6 million to settle state charges that it willfully violated worker safety rules in connection with the death of an employee who was trapped in an industrial oven at the company’s plant in Southern California.

9. Sanctions violations. Deutsche Bank was fined $258 million for violations in connection with transactions on behalf of countries (such as Iran and Syria) and entities subject to U.S. economic sanctions.

10. Air pollution. Glass manufacturer Guardian Industries settled Clean Air Act violations brought by the EPA by agreeing to spend $70 millionon new emission controls.

11. Ocean dumping. An Italian company called Carbofin was hit with a $2.75 million criminal fine for falsifying its records to hide the fact that it was using a device known as a “magic hose” to dispose of sludge, waste oil and oil-contaminated bilge water directly into the sea rather than using required pollution prevention equipment.

12. Climate denial. The New York Attorney General is investigatingwhether Exxon Mobil deliberately deceived shareholders and the public about the risks of climate change.

13. False claims. Millennium Health agreed to pay $256 million to resolve allegations that it billed Medicare, Medicaid and other federal health programs for unnecessary tests.

14. Illegal lobbying. Lockheed Martin paid $4.7 million to settle charges that it illegally used government money to lobby federal officials for an extension of its contract to run the Sandia nuclear weapons lab.

15. Price-fixing. German auto parts maker Robert Bosch was fined $57.8 million after pleading guilty to Justice Department charges of conspiring to fix prices and rig bids for spark plugs, oxygen sensors and starter motors sold to automakers in the United States and elsewhere.

16. Foreign bribery. Goodyear Tire & Rubber paid $16 million to resolve Securities and Exchange Commission allegations that company subsidiaries paid bribes to obtain sales in Kenya and Angola.

17. Wage Theft. Oilfield services company Halliburton paid $18 million to resolve Labor Department allegations that it improperly categorized more than 1,000 workers to deny them overtime pay.

Where's yours?

Evidence — Inter Alia

Evidence of what? I thought we were talking of artificially inflating demand (didn't know that was illegal) or artificially controlling supply. We certainly weren't talking about not meeting certain regulatory standards with regards to environmental pollution, marketing tactics, etc.

And regardless 17 cases out of what? Trillions of cases of fair practice? :s

You said "honesty is important in business success" and "but by all means, these are not the majority, nor are they the most successful businesses."

So I listed the top 17 crimes in 2015 all perpetrated by some extremely successful businesses. These are just the top crimes in one country in one year. At the very least they disprove your argument that dishonest and unethical businesses are not the successful ones, but I also think they go some way to indicating what general practice is in big business.

You said "honesty is important in business success" and "but by all means, these are not the majority, nor are they the most successful businesses." — Inter Alia

Right, but that was mostly with regards to what I was responding to.

It is because price is dictated by supply and demand that there is an ethical problem with the actions companies take to artificially inflate demand and restrict supply (especially in essential commodities). Companies exploit the momentary gap between the consumer's estimate of value and their realisation of it, they exploit the monopolies law to artificially restrict supply, they trade in commodities without using them which artificially inflates demand. All these things have ethical consequences, but they're missed if you presume there's some 'real' value that's just a mathematical certainty. — you

So I listed the top 17 crimes in 2015 all perpetrated by some extremely successful businesses. These are just the top crimes in one country in one year. At the very least they disprove your argument that dishonest and unethical businesses are not the successful ones, but I also think they go some way to indicating what general practice is in big business. — Inter Alia

So out of trillions of transactions, your evidence is that there are illegal practices in 17 of them - and that's what you use to combat my claim that "these are not the majority [of business practices]".

Also please keep in mind that doing something illegal - according to the judgement of a certain government - isn't necessarily being dishonest. For example, if I throw my garbage in the river, I'm not being dishonest by that act, just disobeying the law.

I see your faith in the American dream is as unshakeable as your faith in the church, it was a mistake to bother discussing the matter. If you really can't see how the fact that within seconds I can list 17 major crimes by some of the biggest companies in the world, indicates that business is not about honesty and integrity but about making as much money as possible by whatever underhand, deceptive and cutthroat means available, then there is little point in continuing.

You're basically saying that unless I can list more than a trillion crimes there's no case to answer. We should just presume the best. That's as ridiculously self-immunised an argument as your stance on religion.

If you really can't see how the fact that within seconds I can list 17 major crimes by some of the biggest companies in the world, indicates that business is not about honesty and integrity but about making as much money as possible by whatever underhand, deceptive and cutthroat means available, then there is little point in continuing. — Inter Alia

That's a fallacy called selection bias in philosophy (or alternatively cherry picking). You've shown to be quite proficient at that. But you have to look at the overall number of crimes, vs the overall number of non-crimes which could have been crimes.

You're basically saying that unless I can list more than a trillion crimes there's no case to answer. We should just presume the best. That's as ridiculously self-immunised an argument as your stance on religion. — Inter Alia

It's not about listing them, it's about telling me what the proportion is of crime to non-crime.

But sure, when you have a large operation, it's unavoidable not to do illegal things. A certain number of defects and errors, whether intentional or not, is unavoidable. For example, the owner may put in quality control systems, which supposedly check all products so that they are in good condition. And yet, 0.1% of customers may find that the product is broken once it arrives with them. Well, too bad. It's unavoidable that such things happen, regardless of what the owner does. So they'll just pay the fine and on with it.

I had a look at this. I'm not much of a believer in the free market anyway - at least not a pragmatic believer, in the sense that the free market is the only way, or the best way, to allocate resources. So my argument against communism isn't based on "communism doesn't work", but rather it's aesthetic. I wouldn't like communism because it tends to stratify control over the distribution & allocation of resources based on one's position in the social system, something that also becomes ossified. But I think communism can allocate resources as well as capitalism otherwise. Under a smart manager, it's going to be as good as capitalism or maybe even better.

The reason I prefer capitalism over communism is that in capitalism, it is capital that dictates the distribution & allocation of resources. So, in capitalism it doesn't matter who you are - whether you're from the King's family or you're just a peasant. If you have money, then you can decide how resources get allocated and distributed. So under capitalism, pretty much anyone can, through their own intelligence, wit and ingenuity, garner the capital they need to change the direction of society in whatever way they deem right.

Whereas under communism, it's being able to fulfil the interests of the other elites that matters - if you can do that, they will let you hold power. So to change the allocation of resources in communism, you need to be a good slave to others, bow your head, till you grab the reigns of power. That seems much like a system for slaves to me, not one for free men. That's why I dislike it. In one you climb up through ability, in the other, you climb up through social manipulation.

Cost: the amount of money spent to produce x
Price: the financial reward from selling x
Value: what x is worth to your customer

As you can see, value can't be quantified as easily as the other two.