Subject: Re: appliance-based business models
From: "Stephen J. Turnbull" <stephen@xemacs.org>
Date: Tue, 25 Oct 2005 17:26:15 +0900

>>>>> "Joe" == Joe Corneli <jcorneli@planetmath.org> writes:

    Joe> (BTW, your words about "value to the customer" versus "markup
    Joe> on your costs of doing business" strike me as being red
    Joe> herrings; the actual pricepoint is determined by supply and
    Joe> demand.)

I hate to say it, but you're taking Econ 101 too seriously. :-)

In fact, excluding auction markets, in almost all markets price in the
short run is determined by vendors' guesses at what their marginal
cost curve is (precise and usually reasonably accurate) and what their
demand curve looks like (wild and woolley stuff, that).

For the entrepreneur, "value to the customer" is a better way of
thinking about it than either "markup on cost" or "equilibrium of
supply and demand": it focuses your attention on the harder problem
whose solution will make you money.  There is a whole raft of
marketing problems that it forces you to think about in advance.

So someone who is better than the next guy at estimating demand curves
can make a _lot_ of money _before_ the market settles to equilibrium.
That's important if you've got investors looking over your shoulder.
Furthermore, even over time they will have much better control over
cost, because they're more able to build at a rate they plan, rather
than having wild swings as they overbuild and underbuild.  Investors
like that, too.

-- 
School of Systems and Information Engineering http://turnbull.sk.tsukuba.ac.jp
University of Tsukuba                    Tennodai 1-1-1 Tsukuba 305-8573 JAPAN
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              ask what your business can "do for" free software.