[rgbrenner]

Prices aren't set based on costs. Prices are set at the maximum the market will bear. If you've ever set prices for a product, you would see this yourself. Price*Volume=Revenue

Consumers dont care if you can pay for the inputs to your product. They obtain a certain value from your product and have a certain expectation of what the price should be, and if your costs are above that, consumers are happy to watch you go out of business. In fact, inability to increase prices over time while inflation increases the cost of inputs, is one of the ways the economy pushes marginal business out of the market.

[avianlyric]

> If you've ever set prices for a product, you would see this yourself. Price*Volume=Revenue

If your market is completely elastic, then sure. But only hypothetical markets (and perhaps some fungible goods) are completely elastic. Most markets don’t have a perfect linear correlation between price and demand.

The other things you’ve completely ignored, is the fact that interchange impacts all sellers equally. So as a consumer you can’t avoid the interchange tax by shopping around, which in turn will increase a consumer’s willingness to pay higher prices.

This may come as a surprise to you, but consumers don’t have a perfect way to calculating the value of something. Ironically, the perceived value of a product is highly influenced by both its price, and the price of its competitors (with Veblen goods being the extreme). So if you introduce a flat 2% price increase across all sellers, then it’s reasonable to expect consumers value perception to increase by a similar amount.

[rgbrenner]

"But only hypothetical markets (and perhaps some fungible goods) are completely elastic."

That's exactly my point.. You can't change the price without changing the volume.. and that's why you cant pass on costs. The item is already priced at the optimal point in the price-demand curve. Moving the price based on cost increases, only results in lost revenue. The only companies that are able to do that are the ones that haven't priced their goods correctly to being with.

"then it’s reasonable to expect consumers value perception to increase by a similar amount."

You seriously think consumers know when the prices of the inputs for an item change? And then they adjust their perceptions of the item based on their detailed knowledge of how the product is made? The average consumer doesn't know how anything is made or what any of the costs of an item are. Go ask some random people what they think a credit card costs merchants... nearly guaranteed you only get wrong answers.

[avianlyric]

> That's exactly my point.. You can't change the price without changing the volume.. and that's why you cant pass on costs.

In an elastic market. This is not true in non-elastic markets. Obvious example is the price of ERs in the US. Pricing doesn’t impact volume in a meaningful way, because people don’t decide get injured based on how much an ER costs.

> The item is already priced at the optimal point in the price-demand curve.

This is a bold claim. You’re gonna have to provide some evidence that every item in world is somehow priced at the optimal optimal point on the price-demand curve.

> The only companies that are able to do that are the ones that haven't priced their goods correctly to being with.

You are correct. But pricing at the optimal points is the rare exception. Most items aren’t priced at the optimal point, because discoing the optimal point is incredibly difficult, and not a requirement for a profitable business.

> You seriously think consumers know when the prices of the inputs for an item change?

No, that’s quite obviously not what I wrote. I think consumers perception of value increases as prices increase.

You seem to have a great deal of difficulty identifying the differences between theoretical perfect behaviour, and reality. Very few things in the real world closely match their theoretically perfect behaviour, so theirs inefficient and market gaps everywhere. Something things like interchange can capitalise on. If you’re gonna come back with another response about how this doesn’t work in a perfect market, then I recommend you don’t waste your time, I’m not interested in debating if reality and theory match.