quote:

ORIGINAL: tj444

So Burger King is doing a tax inversion to escape high US taxes.. its buying Tim Hortons.. and moving to the "tax haven" known as.. umm.. Canada.. whodathunkit????

My comment is tongue n cheek as I never considered Canada to be a low tax country..

quote:

ORIGINAL: MrRodgers

First of all...ALL costs are passed on to the consumer...all costs. That includes all of the profits of their suppliers, all of their wages and internal costs and wages...so there is no distinction to be made by making such a statement.

quote:

ORIGINAL: Musicmystery

quote:

ORIGINAL: MrRodgers

First of all...ALL costs are passed on to the consumer...all costs. That includes all of the profits of their suppliers, all of their wages and internal costs and wages...so there is no distinction to be made by making such a statement.

Well, no. Whether and how much of the costs are passed on depends on the elasticity of the good.

quote:

ORIGINAL: freedomdwarf1

Very true.

But that assumes you're (potentially) losing 50% of sales - an argument I see all the time that doesn't usually happen in real life.
Unless the price hike is exorbitant and you suddenly become uncompetitive compared to your competition, chances are, your sales will drop by a very very small margin and probably less than 0.5%.
So it wouldn't always make sense to swallow the price increase.

In your (unrealistic) example, what most companies do in that situation, and knowing that psychologically the $1.01 price tag doesn't sell as well as things ending in $0.99 (stupid consumers usually only see the whole $$'s), they'd use a tactic like "$1.09 each or 2 for $2.09" making the consumers think they'll actually save money by buying 2 instead of one.
We see that a lot over here when fuel prices go up and chain stores start forecasting that product prices will rise as a result of the fuel hike. And strangely enough, it actually works and sales go up!!

quote:

ORIGINAL: KYsissy
Companies eat price hikes all the time. The company I work for ate price hikes in steel for a year. Why? Because our competition was. We finally said no more and raised our prices a tad. Our competition followed suit.

quote:

ORIGINAL: freedomdwarf1

quote:

ORIGINAL: KYsissy
Companies eat price hikes all the time. The company I work for ate price hikes in steel for a year. Why? Because our competition was. We finally said no more and raised our prices a tad. Our competition followed suit.

Exactly!
Maybe the US businesses are a bit slow on this or the competition isn't as strong as it is over here.
Companies here very rarely swallow price hikes unless it is very small and gives them a really really competitive edge.
Usually here, prices will rise even when there is a sniff of external costs rising whether it actually happens or not. The prices go up in unison until they have a price war between them to vie for new customers. And if the hike didn't materialize, the price rarely drops to what it was before so it becomes a permanent increase.

Also, I think European consumers are waay more loyal to their retail outlets than they are in the US.
I witnessed that when I lived there for a while. Americans will frequently shop around for the best deal as long as it doesn't involve going too far from base. Europeans, on the other hand, will tend to shop at their usual place even if it is more expensive than the shop right next door to it because "it's where we always go".

quote:

ORIGINAL: freedomdwarf1

Very true.

But that assumes you're (potentially) losing 50% of sales - an argument I see all the time that doesn't usually happen in real life.
Unless the price hike is exorbitant and you suddenly become uncompetitive compared to your competition, chances are, your sales will drop by a very very small margin and probably less than 0.5%.
So it wouldn't always make sense to swallow the price increase.

In your (unrealistic) example, what most companies do in that situation, and knowing that psychologically the $1.01 price tag doesn't sell as well as things ending in $0.99 (stupid consumers usually only see the whole $$'s), they'd use a tactic like "$1.09 each or 2 for $2.09" making the consumers think they'll actually save money by buying 2 instead of one.
We see that a lot over here when fuel prices go up and chain stores start forecasting that product prices will rise as a result of the fuel hike. And strangely enough, it actually works and sales go up!!

quote:

ORIGINAL: KYsissy
By the same logic, my mortgage interest deduction could be called a loophole.

quote:

ORIGINAL: freedomdwarf1

quote:

ORIGINAL: MrRodgers
In the US the AETR has fluctuated between 10 and 13 % over the last several years and when compared to foreign countries is the 11th lowest out of 27 nations.

If that were the case, they wouldn't be doing a tax inversion dodging tactic would they.

quote:

ORIGINAL: Musicmystery

quote:

ORIGINAL: tj444

So Burger King is doing a tax inversion to escape high US taxes.. its buying Tim Hortons.. and moving to the "tax haven" known as.. umm.. Canada.. whodathunkit????

My comment is tongue n cheek as I never considered Canada to be a low tax country..

That's because you keep electing a conservative prime minister.

quote:

ORIGINAL: Musicmystery

quote:

ORIGINAL: freedomdwarf1

Very true.

But that assumes you're (potentially) losing 50% of sales - an argument I see all the time that doesn't usually happen in real life.
Unless the price hike is exorbitant and you suddenly become uncompetitive compared to your competition, chances are, your sales will drop by a very very small margin and probably less than 0.5%.
So it wouldn't always make sense to swallow the price increase.

In your (unrealistic) example, what most companies do in that situation, and knowing that psychologically the $1.01 price tag doesn't sell as well as things ending in $0.99 (stupid consumers usually only see the whole $$'s), they'd use a tactic like "$1.09 each or 2 for $2.09" making the consumers think they'll actually save money by buying 2 instead of one.
We see that a lot over here when fuel prices go up and chain stores start forecasting that product prices will rise as a result of the fuel hike. And strangely enough, it actually works and sales go up!!

No. Sigh. Again.....

Some goods are elastic. Some goods are inelastic. Many goods are somewhere in between.

How elastic that good is determines whether or how much of the cost will be passed on, because the goal is to maximize profit, not simply margin per unit.

I'm not "assuming" anything. I'm attempting illustrate a principle of which you are clearly clueless and don't want to know either. And it doesn't have to be a 50% drop. A 1% drop might do it -- or not -- depending on volume and margin and -- elasticity. It's honestly (not sarcastically) microeconomics 101. Not rocket science.

Another problem with your misunderstanding is that if producers could simply raise prices and make more profit, they'd already do it. They don't have to wait to pass on costs.

One example is gasoline prices. When prices are rising, station owners don't raise prices as fast as wholesale prices, because they're worried about losing business. And...ironically, they suffer when prices rise. Conversely, when gasoline falls, they are very slow to match the falling prices, to make up their lost margins again.

quote:

ORIGINAL: KYsissy

I have heard there is over $2 trillion in US corporate money overseas due to the tax issue. As it stands, it is cheaper.to borrow money as opposed to repatriating those funds. It is strictly.a business decision. Some like to label it as a loophole, but it is tax law. By the same logic, my mortgage interest deduction could be called a loophole. Think of what $2 trillion flooding into this country could do. Upgrades to exisiting facilities, delayed equipment purchases finally greenlighted, IT systems upgraded. The fallout through the economy could be huge.
Some like to paint this as evil corporations but to me it is more like me, passing the gas station selling gas @ $3.50 and stopping at the one selling it @ $3.39.

If it was up to me, I would rather have 20% of $2 trillion than 40% of nothing.

quote:

ORIGINAL: Musicmystery

quote:

ORIGINAL: MrRodgers

First of all...ALL costs are passed on to the consumer...all costs. That includes all of the profits of their suppliers, all of their wages and internal costs and wages...so there is no distinction to be made by making such a statement.

Well, no. Whether and how much of the costs are passed on depends on the elasticity of the good.

quote:

ORIGINAL: freedomdwarf1

quote:

ORIGINAL: Musicmystery

quote:

ORIGINAL: MrRodgers

First of all...ALL costs are passed on to the consumer...all costs. That includes all of the profits of their suppliers, all of their wages and internal costs and wages...so there is no distinction to be made by making such a statement.

Well, no. Whether and how much of the costs are passed on depends on the elasticity of the good.

I'd like to see a company that doesn't pass on all costs to the consumer.
Coz if they didn't, they'd be trading at a net loss which is a bad business model.
Some might do it temporarily as a lost-leader promo to boost sales of a particular product or to launch a new one to get sales going; but they usually couldn't do that for too long without cutting too far into overall profits.

quote:

ORIGINAL: Musicmystery

It's not altruism -- it's basic microeconomics.

They pass on all costs they *can* ***if*** doing so increases net profit. And that depends on how elastic a good is.

Say you sell something for 99 cents, sell 100,000,000 of them a year, and your costs are 49 cents per unit. Net Profit: $50 million/year.

Now your costs go up 2 cents. But at $1.01, half your customers say "Fuck it." If you pass it on, your net profit is now $25 million/year.

So....you eat the 2 cents, and make a lousy $48 million/year.

Now, if your customers shrug, raise the prices. Or if they bitch but pay anyway. Or most of them -- it depends on how elastic that particular good is.

Microeconomics 101.

quote:

ORIGINAL: MrRodgers

quote:

ORIGINAL: Musicmystery

quote:

ORIGINAL: freedomdwarf1

Very true.

But that assumes you're (potentially) losing 50% of sales - an argument I see all the time that doesn't usually happen in real life.
Unless the price hike is exorbitant and you suddenly become uncompetitive compared to your competition, chances are, your sales will drop by a very very small margin and probably less than 0.5%.
So it wouldn't always make sense to swallow the price increase.

In your (unrealistic) example, what most companies do in that situation, and knowing that psychologically the $1.01 price tag doesn't sell as well as things ending in $0.99 (stupid consumers usually only see the whole $$'s), they'd use a tactic like "$1.09 each or 2 for $2.09" making the consumers think they'll actually save money by buying 2 instead of one.
We see that a lot over here when fuel prices go up and chain stores start forecasting that product prices will rise as a result of the fuel hike. And strangely enough, it actually works and sales go up!!

No. Sigh. Again.....

Some goods are elastic. Some goods are inelastic. Many goods are somewhere in between.

How elastic that good is determines whether or how much of the cost will be passed on, because the goal is to maximize profit, not simply margin per unit.

I'm not "assuming" anything. I'm attempting illustrate a principle of which you are clearly clueless and don't want to know either. And it doesn't have to be a 50% drop. A 1% drop might do it -- or not -- depending on volume and margin and -- elasticity. It's honestly (not sarcastically) microeconomics 101. Not rocket science.

Another problem with your misunderstanding is that if producers could simply raise prices and make more profit, they'd already do it. They don't have to wait to pass on costs.

One example is gasoline prices. When prices are rising, station owners don't raise prices as fast as wholesale prices, because they're worried about losing business. And...ironically, they suffer when prices rise. Conversely, when gasoline falls, they are very slow to match the falling prices, to make up their lost margins again.

You are only very partially correct. Few products are inelastic to pricing. Gas and food are essentially 99% inelastic. The strict technical definition of inelastic pricing has become the question of a product's demand rising when the price falls. There is no longer any question that as prices rise...demand falls but almost all cases, when retail prices go down, demand does not rise.

All true, insofar as microecon is concerned. There are also other factors that are psychological. For example, to use a reductio ad absurdum, if I sell a new Porsche 911 for $10K, demand will fall because no one will believe it's really a Porsche. Even if it is, I'd have to say it's a giveaway. So elasticity is one of many variables (a very important one) subject to a multiple regression analysis. Even at 1 cent, the old diet pills named Ayds weren't going to move. So everything MrRodgers says is true; it's not the only factor unless you're talking only economics. Of course, you address this point. But now, let's say look at a specialty market, say art. As prices rise, as long as there is a belief, even irrational, that prices will continue to rise (e.g., bubbles or even objective evidence), then demand may increase, not fall, because everyone wants to cash in on the future value.

quote:

ORIGINAL: subrosaDom

quote:

ORIGINAL: MrRodgers

quote:

ORIGINAL: Musicmystery

quote:

ORIGINAL: freedomdwarf1

Very true.

But that assumes you're (potentially) losing 50% of sales - an argument I see all the time that doesn't usually happen in real life.
Unless the price hike is exorbitant and you suddenly become uncompetitive compared to your competition, chances are, your sales will drop by a very very small margin and probably less than 0.5%.
So it wouldn't always make sense to swallow the price increase.

In your (unrealistic) example, what most companies do in that situation, and knowing that psychologically the $1.01 price tag doesn't sell as well as things ending in $0.99 (stupid consumers usually only see the whole $$'s), they'd use a tactic like "$1.09 each or 2 for $2.09" making the consumers think they'll actually save money by buying 2 instead of one.
We see that a lot over here when fuel prices go up and chain stores start forecasting that product prices will rise as a result of the fuel hike. And strangely enough, it actually works and sales go up!!

No. Sigh. Again.....

Some goods are elastic. Some goods are inelastic. Many goods are somewhere in between.

How elastic that good is determines whether or how much of the cost will be passed on, because the goal is to maximize profit, not simply margin per unit.

I'm not "assuming" anything. I'm attempting illustrate a principle of which you are clearly clueless and don't want to know either. And it doesn't have to be a 50% drop. A 1% drop might do it -- or not -- depending on volume and margin and -- elasticity. It's honestly (not sarcastically) microeconomics 101. Not rocket science.

Another problem with your misunderstanding is that if producers could simply raise prices and make more profit, they'd already do it. They don't have to wait to pass on costs.

One example is gasoline prices. When prices are rising, station owners don't raise prices as fast as wholesale prices, because they're worried about losing business. And...ironically, they suffer when prices rise. Conversely, when gasoline falls, they are very slow to match the falling prices, to make up their lost margins again.

You are only very partially correct. Few products are inelastic to pricing. Gas and food are essentially 99% inelastic. The strict technical definition of inelastic pricing has become the question of a product's demand rising when the price falls. There is no longer any question that as prices rise...demand falls but almost all cases, when retail prices go down, demand does not rise.

All true, insofar as microecon is concerned. There are also other factors that are psychological. For example, to use a reductio ad absurdum, if I sell a new Porsche 911 for $10K, demand will fall because no one will believe it's really a Porsche. Even if it is, I'd have to say it's a giveaway. So elasticity is one of many variables (a very important one) subject to a multiple regression analysis. Even at 1 cent, the old diet pills named Ayds weren't going to move. So everything MrRodgers says is true; it's not the only factor unless you're talking only economics. Of course, you address this point. But now, let's say look at a specialty market, say art. As prices rise, as long as there is a belief, even irrational, that prices will continue to rise (e.g., bubbles or even objective evidence), then demand may increase, not fall, because everyone wants to cash in on the future value.