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by doublespanner 1142 days ago
Only if the competition thinks the increase in share is worth more than the increase in per unit profit.

And depending on the industry, there might not be much more to be gained by scaling up. Going from 45% to 60% of the market might not be more profitable than an extra few percent per unit.
1 comments
lores 1142 days ago
That's hitting the nail squarely. If your margin is 5%, going to 10% is far better and far easier than doubling your market share.
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mitthrowaway2 1142 days ago
Perhaps, but that's sort of like pointing to the prisoner's dilemma and saying "clearly, the best and easiest option for both prisoners is to both cooperate, thus achieving the best outcomes for both".

We usually expect that competitors would try to compete, and going from 5% to 10% market share would result in getting undercut so badly that you lose far more customers than the higher margins are worth. It's not so easy to hand-wave the reasons why that hasn't happened here.

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doublespanner 1141 days ago
Well no, there is no real dilemma, because unlike the prisoners you can change your choice at any time. You can do research and make a decent guess at the units sold at a price point of you only make a small increase, and then your competition does the same, and as long as you can all keep pushing the price each small increase is absorbed. This is essentially a mechanism for discovering inflation, it continues step by step until people stop buying.
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mitthrowaway2 1141 days ago
The "and then your competition does the same" is precisely what I'm talking about. If their input costs have not gone up, there's no reason they need to do follow in step rather than take your customers away. It doesn't matter whether it happens gradually.

Multilateral increase in margins demonstrates a lack of competitiveness between competitors.

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doublespanner 1141 days ago
It's because both competitors are making the same calculation where a loss in market share is worth less than the per unit profit increase.

This isn't really a matter of competition, it's that people's willingness to pay (in nominal value) is much higher.

If people's willingness to pay were less, then increasing prices would loose a greater portion of the market.

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mitthrowaway2 1141 days ago
How is the calculation you're describing different than the calculation of optimal pricing for a monopoly?
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