🚀 go-pugleaf

[POSTED TO ba.general - REPLY ON USENET PLEASE]

In <3B0C74D1.2068A05C@quiotix.com> on Wed, 23 May 2001 19:41:21 -0700,
Jeffrey Siegal <jbs@quiotix.com> wrote:

>David Robinson wrote:

>> > Every business works that way.  There is a market price for potatoes
>> > which is the equilibrium reached in the marketplace between the highest
>> > cost producer necessary to satisfy demand, and the highest price
>> > consumers are willing to pay.
>> 
>> That is not how the power market is structured.  Assume the state
>> needs 100 units of power, three companies bid:
>> 
>>         A:      50 units @ $0.10
>>         B:      45 units @ $0.12
>>         C:       5 units @ $0.20
>> 
>> As currently structured all 100 units are purchased at $0.20
>> giving A an unexpected profit of $5.00 and B $3.60.
>> 
>> It is one thing for seller A to look at the market and see that
>> C was able to sell at a higher price and raise his to $0.19
>> in hopes of getting more profit, it is another for the government
>> to mandate the extra profit regardless of the offered price!
>
>Think of it this way: You're a farmer and you grow carrots.  Because
>your land is exceptionally fertile, it only costs you $0.10/lb to grow
>carrots.  You take your carrots to the market, expecting to sell them
>for say $0.12 but when you get there you find that, because not
>everyone's land is as fertile as yours (or maybe there was a carrot
>famine this year or whatever), carrots are selling for $0.50/lb.  You
>sell your carrots for $0.50, not $0.12.
>
>There is a single price for carrots (or power) based a balance between
>supply and demand.  In a free market, each seller does not sell his
>product for a different price based on costs.  That only exists under a
>regulated cost-based pricing model (or when buyers have and abuse market
>power to force each seller down to a subsistence price).  Instead,
>everyone sells at the same price, and the more efficient producers
>simply make a higher profit then the less efficient ones.


In a truly free market, your farmer undercuts other farmers by selling
at (say) $0.40, in order to gain market share and sell out the crop.
And the farmer plants more crops to capitalize on the lucrative
opportunity and to preempt other farmers.  Other farmers respond in like
manner, driving prices down.    Only the absence of normal market risk
would permit the farmer sell at the highest price with impunity.

-- 
Best regards,
John Navas     <http://navasgrp.home.att.net/>