Thomas Anderson

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Fixed Pricing would be much better than Supply and Demand

When I was 5-years-old, I wanted to make a dollar. I painted 10 sea-shells, and started selling them for a ten cents each. I then realized that if I sold 20 sea- shells, I could sell them for 5 cents each, and still make my dollar. Then everyone would be happier, and I would still earn my dollar.

The first kid that decided to use supply and demand, and sell his/her shells for 50 cents, cheated everyone.

Fixed Pricing would be much better than Supply and Demand.

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    Dec 31 2011: I'm sorry the choices available to you are not to your liking. I for one am happy with most of my options, although I completely agree with your dislike of monopolies and corruption. The restrictions I dislike in my consumer choices have more to do with government regulation than with free-market pricing.

    What I still fail to see is how fixed pricing will make any of these things you've mentioned better.
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      Dec 31 2011: I think monopolies and corruption are the direct result of greedy people using supply and demand.

      So deep down, it doesn't bother you to live in a throw-away society where there is unequal distribution of resources, 30% of food goes to waste, and people are starving right now, and my blender already fried after just 8 months?

      PS..I love this debate so far...I appreciate the conversation and...someone called me naive! I thought TEDsters were supposed to stay pro..

      PSS. So far, no one has taken my side yet. My daughter is becoming very aware of the Supply and Demand attitude that people have, and it doesn't really set well with her either. Women fighting over clothes in a department store. What a crazy mentality.
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        Dec 31 2011: I'm bothered by many of the same things you are. I just don't see how fixed pricing would alleviate these problems.

        My condolences on the blender. Just recall, however, that consumer product quality under the centrally-controlled Soviet system was notoriously bad, precisely because there was no incentive for manufacturers to make a better product. With fixed prices, the incentive is actually to make worse products that consumers have no choice but to keep re-purchasing. At least in our supply and demand market, you have the option of purchasing a commercial-quality blender that will last you a lifetime.
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          Dec 31 2011: So what do you think are the problems with the airlines? Too much supply or not enough demand, or was price fixing not working?

          I can't afford a blender that will last me a lifetime, and even the 300 dollar model is quite faulty, and many of the people who made the 300 dollar blender worked for really low pay.
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        Jan 1 2012: If you truly believe that the problem is capitalist greed, and that it is practical to provide impeccable services and products at low cost, I offer you a challenge: start your own business, and run it ethically. Pay your workers a wage you consider fair, and charge the customer only as much as it takes to cover basic costs and provide you with a fair income as well.

        If you are correct in what you say, your business will flourish. Consumers will see the true value of your product(s) and employees will flock to work for you. The magic of open markets is that entrepreneurs can set their own prices. If someone's being greedy and charging too much, someone else can compete with lower prices and take away the greedy person's business.

        "So what do you think are the problems with the airlines?"

        Could you be more specific?
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          Jan 1 2012: Hello Sir,

          I completely agree with you about running a business like you proposed. At this time, there are probably 10 businesses running like that. And it works. But alas, what about the greedy media and phone and oil and food businesses?

          I was hoping this debate would get someone from one of those businesses to submit a comment such as "shut up, you are lucky you have us for a business"

          Also, when a society can reach a balance between fixed pricing and S+D, that typically means that the values of that society are changing, and people are more willing to use their time for the benefit of society, rather than to just make a dollar.

          Yes, I wish all companies were like the one you propose!

          The airlines have been moving from regulation, to de-regulation, fixed pricing, competitive pricing,,,like railroads on the Monopoly Board. Their CEO's are raking in the cash, but services have not really improved. (I guess this may be another whole debate, so no worries)

          You got me good with your business proposal. (I appreciate that!)
      • Jan 3 2012: Maybe the blender broke because the mfr was targeting a low price model and wasn't concerned with quality. Much like your seashell hypothesis, there are too many omissions - quality of shell, quality of work, size of shell, rarity of shell, etc. So no, it doesn't bother me that you acquired an inferior product without considering the quality, warranty, etc. if you don't want a throw away society, don't focus on fixed-price, low price, disposable options.
        Why is fixed pricing a better alternative? After all, a supplier will want a guaranteed profit to supply a product at a fixed price. An example of where this fails is government defense bids, which often seek "firm fixed pricing." Suppliers that participate always build into their pricing the uncertainty of their own situation - costs of raw materials, unforeseen regulations, interruption of supply, etc. so the price is artificially inflated.
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      Dec 31 2011: I have not read Hayek yet, thank you for the idea.

      "We are the Borg, resistance is futile, we will set all prices."
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    Dec 29 2011: So the problem is: how do you set the price for things that are not abundant, yet are in demand? How do you know how much to charge? And who gets to do it?

    At what price do you fix gasoline? Wine? Electricity? Diamonds? Truffles? Bluefin Tuna?

    What all these schemes that attempt to eradicate markets and money have in common is that they are willing to trade one tyrant—the market—for another—the people or group who get to allocate and price limited resources.
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      Dec 29 2011: One for me, One for you...always works. You can have all the wine, diamonds and truffles. As soon as I have an electric car, you can have the gasoline, and as soon as Humanity gets off it's #$%^%$ butt and grows it's own fish protein, then you can have all the Bluefin Tuna.
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        Dec 29 2011: One for me, one for you does not work in a world with 7 billion people. Sorry. Who is going to make seven billion electric cars? Where will we get the material for the batteries? Where will the energy to power them come from? If we can't have one for everyone, who allocates them?

        If your argument is: in a world with unlimited energy, resources, and food we don't need supply and demand, then of course you're right. But until then, you can't escape the problem of demand outstripping limited resources without some sort of constraint on consumption. Currently that constraint is a price that reflects the balance between supply and demand.

        The utopian ideas always sound so nice until you try to work out the details
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          Dec 30 2011: Nah, I don't need an electric car either. Utopia could happen, details would follow true caring. Plus, if we all got along, the Earth could hold 7 billion electric cars.(Even though we wouldn't need them. If we stop beating the crap out of Earth, there are plenty of resources. We waste 30 % of the food grown every day. Waste is everywhere.

          Keep arguing with me, this is fun! I appreciate it. It's virtually free, and I may be able to convert you to a tree hugging utopian, we'll go live in a commune, and give up our worldly possessions! You In?
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        Dec 30 2011: I'm already a tree hugger. And utopia sounds just as nice to me as it does to everyone else. I just don't find giving authority to someone to fix prices particularly utopian. To me, it sounds authoritarian, as do many utopian ideas once you begin to examine them. Remember, the word 'utopia' is Thomas Moore's little joke on us—it means 'no place' in Greek.
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    Dec 28 2011: Thomas, I don't know if fixed pricing will solve all men's issues with the economy, but I enjoyed reading your story.

    I know of professionals who charge according to what the customer can pay. Some of these professionals sometimes work for free because the customer cannot pay. When one owns the company, or is the one who provides the services directly to the consumer, than one has alot of freedoms with pricing.

    I thought this idea was interesting.....I personally like the barter system.
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      Dec 28 2011: The barter system is an awesome idea. However, if someone performed brain surgery on me and saved my life, what could I offer them?
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        Dec 29 2011: Hopefully, you would have settled this "prior to the operation"....I don't know, what does a brain surgeon need that you could offer him? Maybe he owns a summer house on Sanibel island and you could decorate it with your artisan sea shell collection. All of them one-of-a-kind signed originals.

        I loved the barter system while living on a caribbean island and trading my knowledge for fresh fruits, vegetables, eggs, and other food staples. They needed the knowledge I had, and I needed the food they grew. It was an even trade in my book.
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    Dec 28 2011: The former Soviet Union tried this on a grand scale. It didn't work out so well for them.
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      Dec 28 2011: Very true, because the corrupt few ruined the dream...(probably)

      Let's try it again.
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        Dec 29 2011: Assuming you're correct -- that the Soviet's fixed-pricing scheme failed due to a few corrupt leaders -- what you're admitting is that a fixed pricing system is an unsustainably fragile thing, liable to utter collapse at the hands of a select few. How would you propose that corruption be checked?

        If, on the other hand, fixed pricing failed for inherently stuctural reasons, which is my understanding of central-planning economics, utter collapse is inevitable. Whoever would be in charge of setting prices for everything would require a superhuman knowledge of all factors involved with manufacturing in order to fairly and equitably set prices. Since this is practically impossible, centrally-planned pricing is unpractical.

        Supply and demand, for all its faults, is the fairest and most "organic" (bottom-up) means of price assignment.
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          Dec 29 2011: I always felt that the "one for me, one for you" method works best.
          3% of the population are the bad guys. If the 97% played fair, price fixing would work.

          Supply and demand, as well as auctions, bring out the worst in people. The person with the most money wins. I'd write more, but it will cost you, because now people are paying me to give them thumbs up. 10 dollars a point. You in?
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        Dec 30 2011: "One for you, one for me" for all economic transactions would require policing on a grand scale. This sounds even less practical than centralized price-setting.

        As for supply and demand bringing out the worst in people (compared to fixed pricing), I disagree. Consider your example of someone selling painted shells at 50 cents apiece (compared to your 5 cents apiece). Far from cheating anyone, it would simply result in more customers coming to you and less paying the premium price, assuming all shells were of the same quality. However, if all shell prices were fixed at some uniform value, it would cheat those who put in more artistic work into the painting, or who had to work harder to obtain the shells. There would be no incentive to produce a superior product (i.e. one requiring greater labor, more expensive raw materials, etc.), and fixed pricing could economically prohibit people from selling shells at all who could not recuperate their costs.

        Supply and demand naturally stabilizes prices based on a multitude of factors, the adjustments made by entrepreneurs themselves based on the free choices of consumers.
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          Dec 30 2011: A superior product in this economy is very rare. Everyone is just trying to make a buck. Consumers don't really have free choices either...oh, except we have 20 different types of toilet paper to choose from.

          "Value" models are the perfect example of entrepreneurial crap, as well as built in obsolesce.
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        Dec 30 2011: "A superior product in this economy is very rare."

        First, I should clarify that I used the term "superior" to describe a relative attribute: something better than something else. Any time you have multiple producers designing and marketing a common product, there will be differences in quality and options -- differences some people feel are worth paying more for. Even your example of toilet paper illustrates this: do you seriously think all toilet paper brands are equivalent? Ever wiped yourself with sandpaper-like institutional toilet paper, and wished you could use something nicer like what you buy for yourself at home? That's because the institution decided to cut costs by purchasing the lowest-price toilet paper they could find. Most people, however, prefer something softer for themselves and thus choose to buy better-quality (i.e. "superior") toilet paper.

        With a fixed-pricing scheme, all products and services would have to be sold at the same cost. This discourages innovation (requiring extra investment) as well as premium quality (requiring more selective raw materials and/or more labor to produce). What you'll get is a lowest-common-denominator scenario in terms of options and quality. Any producer "going the extra mile" for no additional compensation would be giving their additional quality/services away for free.

        "Consumers don't really have free choices either."

        Consider these consumer choices, each with its own advantages/disadvantages and relative costs:

        * Housing (rent, own, trailer, townhouse, bungalow, mansion, etc.)
        * Transportation (car, motorcycle, bicycle, etc.)
        * Clothing (cheap, utilitarian, name-brand, designer)
        * Post-secondary education (online, community college, university, private institute)
        * Food (fast-food, organic, conventionally farmed, etc.)
        * Media (internet, radio, television, newspaper, etc.)
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          Dec 30 2011: At this point in time, the infrastructure of 90% of the houses are old, inefficient, and run down, the roads are mediocre at best, clothing wears out real fast, most made at less than minimum wage, education should be free, certification or licensing should be earned, the whole food industry is wasteful, gluttonous, and unfair. Media...corrupt and and too many monopolies. My internet service just went up 5 bucks a month...because it can. I only have 2 other choices, and they have an agreement not to undercut each other.

          I agree, consumers don't really have choices.
  • Jan 2 2012: I would have to say, at least in the United States, that we already do have a system of price fixing. If our economic system were entirely based on supply and demand, the prices of most goods any individual buys on a routine basis would fluctuate quite a bit. Speaking of retail sales mostly of course.

    The error in your argument, to me, is that you see price fixing as a way to have everyone realize their needs or desires through a change to the system. If your argument is really against demand-based inflation, is demand-based inflation really not just an organic way of controlling the limited resources we have available to us?

    From your preface, you state that selling 20 sea-shells at 5c a piece would earn you a dollar. However, as a 5 year old, you likely failed to consider cost/benefit of painting sea shells because you were selling what was essentially free to you. However, you added value from time and resources. The question you are posing to me is this: Should I be able to set the value of my time, or should I allow the market to assess the value of my time?

    Greed is very real, and the first kid setting his price at 50c probably didn't sell very many shells. You should know the system of checks and balances used for him not selling those shells was, in fact, supply and demand. Supply and Demand gives consumers a voice in the pricing of products. If you prefer price fixing, you only need look at monopolies and the costs of inflation in a market where competition does not exist.

    I do not understand your preface, and I think you proposition actually runs counter to your desired end result. If you desired an economy where everyone could get a sea shell, supply and demand is much better than price fixing. What if 5c was still too high for someone to have bought a sea shell, but they desired them? Would you lower your price to accommodate, or would you stick to your fixed price? Price fixing gravitates more toward the ceiling than it does the floor.
  • Jan 1 2012: Hello,

    I don´t think supply and demand bring out the worse in people, but I do think unregulated markets do. Government should guarantee there is actual competition for instance forbiding sellers to set a fixed price, forbiding monopolies, forbiding fusions the will result in 1 company controlling more than 60% of the market. There should also be consumer rights laws to avoid abusive contracts, dishonets propaganda, untruthul claims product return or money back in case of fabrication defect. This way there is a better power balance and a the supply and demand rule can actually work. If you have only one giga company that controls the production and sale of a service or product they'll give you fake options (like between supercheap use once and trash it and crazy expensive designer stuff. Other than that do you know what happened if the government freezes the prices of any product? The products dissapear, manufactors will rather export or not sell at all to pressure the consumers agaist the shortage, if you had to fight your fellow shoppers for the last toylet paper in the city (the bad sandpaper stuff) you'd be protesting really fast. Many capitalist countries with rampant inflation went through this.
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    Dec 31 2011: I associate fixed pricing with socialism where industry is government run. I you compare two stores to make the assessment. First GUM in Moscow. Long lines (called ques) are at every section. There are literally thousands of a product all the same size. The factory was told to produce 1000 a day. They did all one size and one style. They meet the quota. Since the government is in charge who do you complain to. You can not go to a competitor because they do not exist. Compare that to Macy's / Harrods / etc ... That is in competition for customers and where satisfaction matters. They must make price and availability a marketing issue if they are to survive. Then there are stores like Neiman Markus / those on Rodeo Drive that price to their customers. They are rich and flambount. They pay for shoes in thousands of dollars. Many go to Wal Mart or Target to meet their needs at reasonable costs.

    No I want the option to shop my needs to the best deal I can get.
  • Dec 30 2011: On Fixed pricing;
    1. A high risk of corruption, due to implementation at the top of society - which if price fixing is corrupted it leads to greater well being inequality, as per, in authoritarian regimes over modern history.

    2. The negative externalities of S &D are more readily associated with political policy rather than a problem with the fundamental economic culture. Rejecting S & D is a facet of rejecting a consumerist society which as we know in the acceleration of the West was what helped drive the economic growth which inevitably funded technological growth, creating a snowball effect of development.

    3. Price fixing stifles innovation as most companies face a less favourable trade off between investing in the research & creation of innovative new products / processes etc and the risk of that innovation not producing profits. Ie the risk from investing and then earn essentially a 'fixed profit margin' is a likely to reduce if not turn off investment!

    On Consumer pricing;

    Companies lack of ability to forecast expected revenues, adds uncertainty to the companies profit function, which is highly likely to stem investment and in turn stem planned investment and job creation. = a waste of time!!

    On S&D;

    It certainly is not the best or most robust economic culture, however it is the best among the options we currently have.
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      Dec 30 2011: I don't think companies are that innovative anyway. Companies should try to do things that help Humanity, not try to make the most amount of money.

      S&D brings out the worst in people. I'll tell you why for 10 dollars, but right now my phone line is demanding me.
      • Dec 31 2011: The positive externalities (human benefits) from the profit incentive are a much stronger force, in the imperfect world we live in. As per your comment on the innovation of companies; I think you should read some more books before making yourself sound any more naive. The innovation of profit driven companies certainly go someway to explain why Bhutan (a closed and rural barter economy) has no medical advances to increase life expectancy, reduce infant mortality and increase health standards, yet the UK has an ageing population, with enviable health standards. Incase you didn't realise the UK is S&D driven.
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          Dec 31 2011: Cool, do you have a British accent? They are in demand over here! Portland women love the British accent!

          It's too bad the technology we really have in this world isn't being offered to everyone.
      • Jan 1 2012: Some companies do try to work with fair trade standards, by offering fair wages, good working eviroment to employes, using sustainable e certified raw material not buying from suppliers that use child or slave labor...of course all this adds to the final price. And this company would be competing directly with the evil ones. Now, the question is are YOU willing to pay more to a company tha Companies try to do things that help Humanity, not try to make the most amount of money? Or do you always hunt for the best deal?
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    Dec 30 2011: how hard were the shells to paint? how in demand were the shells? how big was each shell? how much did the paint cost? how long did it take you to make and sell each shell?
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    Dec 30 2011: Going back to the original question, I think supply and demand is much better than price fixing. But I have a feeling that we are no longer in a supply and demand economy any more. The idea of companies that make better products at better prices and this succeed is a relic of the past. I would also suggest that corporations are actively engaged in price fixing, and the public demand for goods is swayed by the manipulated availability of an item, as well as the perceived need for the item.

    For example, last year a militant group disrupted a pipeline in Nigeria. The price of gas at the pump in the US immediately jumped an average of 15 cents per gallon. Now, there are many economic factors involved in petroleum, but since the immediate supply was not affected, and the demand had certainly not changed (because the majority of Americans never knew about the incident), the only conclusion is that this was price fixing.

    We like to think we are one economic model when really we are on the other.
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      Dec 30 2011: Excellent point ! I love it ! Yes fixing prices at a HIGH level ! Very good point! But that is using demand in a enethical selfish way!
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    Dec 28 2011: Aw Kristzian, Don't be so self-deprecating
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    Dec 28 2011: Let me get this straight: You deliberately made twice as much work for yourself without making any additional money.

    Hell, why not sell 100 at a penny apiece?
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      Dec 28 2011: You would call painting sea-shells work for myself? Finding 100 of them would be hell!

      You must be one of them capitalists! I will argue with you for 100 dollars per comment!
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        Dec 28 2011: I'm clearly not so much a capitalist that I didn't misread that subject as "price fixing would..." and think "what the hell?" first before correcting it.

        I simply have learned that there are only so many hours in a day and would prefer not to have to work twice as many of them to make the same amount. I think people should be able to live comfortably and still have time to enjoy life, regardless how much they enjoy what they do for a living.
  • Dec 28 2011: Thomas, I've been contemplating the use of consumer pricing. Let consumers pay in accordance with how they value the product or service.
    • Jan 1 2012: But will consumers have a fair view of how much that product is wort or will they pressure the market for the cheapest prices? When you get a deal so good it's a steal be sure someone is being exploited somewhere. You might not see them but you'll know they exist when all the manufacturing industries start laying people of to move there,
      • Jan 2 2012: I want to live in a society based upon truth, honor, integrity. When an increasing number of people start using truth as their norm, we can do things like my suggestion of consumer pricing. Think about ordinary commercial dealings. People make contracts. Honorable people have honorable intentions. We know what can be done using the legal system, if people do not wish to act honorably. If people want to act in honorable ways, they will and they will develop a reputation for that and their business will increase. What gave me this idea was attending a concert that was so magnificent, I felt undercharged for my ticket. I thought the symphony hall would have been smarter to ask people to pay on the way out, rather than on the way in. I would have gladly paid more than double what my ticket cost. I think we can co-create a healthy, prosperous, happy world for all. We are co-creating our world with each word and each act of and everyday.
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    Dec 28 2011: i want to be your friend. because you counted everyone's interest except your own. being your friend must be so much fun.
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      Dec 28 2011: You seem like a good guy yourself! If you're ever in Portland, I'll buy you a cup of will be a little over priced, though, and the people serving will be making minimum wage...but I'm a good tipper.
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        Dec 28 2011: thanks for the invitation, one day we might make it real. however, i was not at all a good guy this time. i was rather selfish. i was going for the cheap shells.
  • Dec 28 2011: I'm for freedom from supply and demand where everyone will share with each other and work together for the common good of Humanity...I know it sounds unrealistic and maybe even paradoxical to think like this....But I foresee A future unlike the Earth or Humanity has possibly ever known or experienced on a global level before. I see a garden and space together full of the richness of the Immortal Spirit of Love!