Quote:Because the market will or won't allow it. You say businesses raise prices when they figure out they can charge that much. It's much more complicated. Say business A charges 6 bucks for a product. They learn that their two competitors charge 9 for it. They could say well they charge that much so I can too. Or they may keep it at six to undercut the market hoping more volume make up for it. Or they may raise it to ten. But then when they raise the price they may lose customers who went there specifically for the savings. So it's not as simple as that. I am not saying that all businesses are honest or fair. But a decent amount by are just trying to make a living, not gouge everyone.

 

Yes, pricing can be complicated, but I am taking issue with the idea that prices are set according to cost.  Nothing could be further from the truth.   Costs may determine how much profit the business can make, and costs can determine whether that business will even exist in the near future, but cost does not determine the price of the products that business sells.  Pricing is done to maximize revenue, or to undercut the competition, or to increase the customer base, but the price you set for the product is not set by how much the product cost you.   Because none of your customers care how much the product you are selling to them cost you.   They only care how much they want it and how much they are willing to pay for it.  Period.  If you tell them the lasagna is priced at $25 because it cost you $20, then they will say, that's interesting but I don't want the lasagna enough to pay $25 for it, regardless of what it cost you.  

 

Prices are set by supply and demand.  How much money do I have, and how much to I want your product.   I don't care how much it cost you.  I only care about what it's worth to me.   And if you find out that I am willing to pay $25 for your lasagna, then you might raise your price to $25.   Because that's all that matters: how much is the customer willing to pay. 

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