[keerthiko]

I'm pretty sure in a free market, how much someone is willing to pay for something is what determines how much a company charges for something, not how much it cost to provide. We wouldn't have inflation of most goods/services if it was based on how much it cost to produce/provide.

[bitdivision]

True - how much someone is willing to pay matters. However in a competitive market, companies can’t just charge whatever people will pay. Competitors will undercut them, so prices should eventually align with the cost of production plus a reasonable margin.

[freedomben]

You're right, but generally in a free market competition will force prices down until they are close enough to production costs that going lower risks loss. In practice this rarely happens because we don't really have "free" markets, but rather a weird hybrid plus legal landmines all over the place.

[sigmoid10]

Nope. In free market theory (=perfect competition, no barriers to entry, unlimited buyers etc.) prices are set as the equilibrium where demand equals supply. Supply ends up being equal to marginal cost in the mathematical limit. So in this limit, companies no longer make profit because if they charge cost+epsilon, they will loose demand to other suppliers. That's literally what you learn in economics 101. Of course in the real world you won't reach that limit, but getting to it within first order is still very good for consumers. The further you go away from this free market state, the more companies can extract what consumers "are still willing to pay" (irrespective of their cost) as you say. The opposite limit is the monopoly, where consumer welfare doesn't matter at all and companies can set their prices to maximise their own profit, because they don't need to adhere to any supply curve. They can literally charge extra until people go broke for inelastic demand curves like those of basic utilities (which phones are becoming more and more).