Guardian takes on VI's.

Generali

the_flying_pig wrote: »

Well, no, I agree that 'supply and demand' is always key, I was just cautioning against applying about it in the very simplest of terms, i.e. assuming that firms are always looking to maximise profits in the immediate term...

http://en.wikipedia.org/wiki/Freebie_marketing

Oh I see what you mean and agree.

I'm old enough to remember what BA did to Freddie Laker - prices aren't always supply and demand in the short run.

the_flying_pig

Generali wrote: »

Oh I see what you mean and agree... I'm old enough to remember what BA did to Freddie Laker - prices aren't always supply and demand in the short run.

Yes, that's an example of the type of thing I meant.

All of the issues that get discussed on these boards are supply or [more often] demand factors.

· Low (high) interest rates decrease (increase) housing supply and increase (decrease) housing demand basically because lower interest rates, on the supply side, reduce the possibility of financial distress causing forced sales and, on the demand side, make investing in housing in order to enjoy a rental income more attractive
· High population growth increases the demand for housing simply because there are more people wanting it.
· Loose lending increases the demand for housing simply because people bidding against each other for a house are able to make bigger bids.
· Government policy such as tax breaks & very high housing benefit paid to private landlords increases the demand for housing by making it more financially attractive to own.
· Etc.

DervProf

Linton wrote: »

I dont see how an argument with one side based on facts and the other on opinions with no factual basis can ever come to a useful conclusion. In fact I dont see how it can ever get away from the initial skirmishing.

Wouldnt it be more constructive to accept that supply and demand controls HPI and then move forward.

Where we can move forward is to understand what drives supply and what drives demand. This is where things get more interesting because it is difficult to get hold of the facts.

This is where your media-driven mass hysteria opinion comes in. Not as an alternative hypothesis to supply and demand but as part of the explanation of it.

I don`t believe the media has caused mass hysteria, I think it`s been a little more subtle than that.

And I`m still not sure that supply and demand is the sole reason for HPI. Here`s why -

If I`m selling Gizmos at £50 each, but demand is low, yet I have quite a lot to supply, what`s to say that I still can`t raise the price to £60 each ? A few might still sell, and I can now say that my Gizmos are worth £60. Of course, if I paid for a media campaign, I might well be able to put the price up more, and sell more. Better still, if that media campaign was free of charge I`d be laughing all the way to the bank.

Linton

DervProf wrote: »

I don`t believe the media has caused mass hysteria, I think it`s been a little more subtle than that.

And I`m still not sure that supply and demand is the sole reason for HPI. Here`s why -

If I`m selling Gizmos at £50 each, but demand is low, yet I have quite a lot to supply, what`s to say that I still can`t raise the price to £60 each ? A few might still sell, and I can now say that my Gizmos are worth £60. Of course, if I paid for a media campaign, I might well be able to put the price up more, and sell more. Better still, if that media campaign was free of charge I`d be laughing all the way to the bank.

Supply and Demand only works when there are many competing suppliers and many competing buyers.

Sure people with a monopoly such as your First Gizmo manufacturer can charge what they like. But if another Gizmo manufacturer (Second Gizmo) enters the market they can gain sales and profit by undercutting First Gizmo with a price of £55.

Further entrants will ensure the price is reduced to little more than the cost of manufacture which is what you would expect when the supply is unlimited.

DervProf

Linton wrote: »

Supply and Demand only works when there are many competing suppliers and many competing buyers.

Sure people with a monopoly such as your First Gizmo manufacturer can charge what they like. But if another Gizmo manufacturer (Second Gizmo) enters the market they can gain sales and profit by undercutting First Gizmo with a price of £55.

Further entrants will ensure the price is reduced to little more than the cost of manufacture which is what you would expect when the supply is unlimited.

Enter the Gizmo agent.

The Gizmo agent markets Gizmos for all the Gizmo manufacturers (in return for a fee). Part of the deal is that the Gizmo agent will advise the Gizmo maker on what price the Gizmo should be marketed for. Of course, most Gizmo vendors will choose the Gizmo agent that says that he will achieve the highest price.

As the Gizmo agent isn`t really concerned about the technicalities of how the Gizmo is made, or what it cost to build it, he often will look at the spec of the Gizmo and price it according to what similar Gizmos have recently sold for.

Oh, and should word get around that Gizmos are in short supply (even if in reality they are not), the Gizmo agents can bump up the asking price, meanwhile potential buyers of Gizmos will are more willing to pay the asking price, or a little more.

Linton

DervProf wrote: »

Enter the Gizmo agent.

The Gizmo agent markets Gizmos for all the Gizmo manufacturers (in return for a fee). Part of the deal is that the Gizmo agent will advise the Gizmo maker on what price the Gizmo should be marketed for. Of course, most Gizmo vendors will choose the Gizmo agent that says that he will achieve the highest price.

As the Gizmo agent isn`t really concerned about the technicalities of how the Gizmo is made, or what it cost to build it, he often will look at the spec of the Gizmo and price it according to what similar Gizmos have recently sold for.

Think again - remember that the suppliers are completely rational and aiming for maximum profits.

The situation you describe is an attempt to return to a monopoly.

Any rational Gizmo supplier will realise that they could sell directly at a slightly cheaper price undercutting the Agent and gain more from increases in sales than they lose by reduction of price.

If the suppliers get together to persuade each other not to renege on the deal you have a cartel - that's illegal.

Of course the chance of someone opting out becomes higher as the number of suppliers increases. In the case of the housing market its millions of customers and millions * x% of suppliers.

Proxy

I want a gizmo

nembot

Oh please spare me the supply and demand rubbish, the biggest factor without a shadow of a doubt why prices are so high was the easy credit. Not one poster on here has come even close to debunking that fact, of course there were obviously other factors at work - but ultimately, the knock on effect from these had minimal impact.

We've had alleged supply and demand issues in the last two years, where are the prices rises we saw from 2001 onwards - now lending criteria has tightened?

Best of luck explaining that one, if anyone can.

Generali

Linton wrote: »

Supply and Demand only works when there are many competing suppliers and many competing buyers.

Sure people with a monopoly such as your First Gizmo manufacturer can charge what they like. But if another Gizmo manufacturer (Second Gizmo) enters the market they can gain sales and profit by undercutting First Gizmo with a price of £55.

Further entrants will ensure the price is reduced to little more than the cost of manufacture which is what you would expect when the supply is unlimited.

Supply and demand still works in a monopoly, it's just then the supplier gets to decide what supply is. There is also a thing called a monopsony, a market with a single buyer. I guess the UK retail market increasingly looks that that to farmers.

Gizmo (about half way through)

DervProf

Proxy wrote: »

I want a gizmo

Buy one now, or miss the boat.