An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Tuesday, July 31, 2012
Lord Keynes — Post Keynesian perspective on price rigidity.
Right. Shoppers are regularly duped by inflated perceived value. Many items cost much, much less to produce than consumers think, and services much less to deliver than buyers imagine. The markup on those things can be huge.
Where consumers have a better understanding of cost, then the price inflation is mostly through using cognitive biases characteristic of marketing and advertising, such as anchoring and confirmation bias, as well as emotional hooks. The slogan used to be FEGG — fear, exclusivity, guilt and greed. These are extremely powerful motivators.
Knowing something about sales, marketing and advertising, I get a kick out of the way that economists approach price theory. Their ideas only apply to special cases.
But, but, free markets always produce perfect prices and... Man always purposely creates perfect produce and, and... all products are always perfectly represented! And all consumers act instantaneously with perfect knowledge. So that proves that "economic calculation" is about the amount of profit you can rake in the lag period before the consumer realizes he's been hosed (aka "economic miscalculation") due to your marketing machine (economic misrepresentation). Unless you can talk him out of the whole thing or drag it out in the courts, or buy off the gov't of another country and dump your crap on them (Economic Monsantoization).
Price = cost + profit....and price is whatever they think the customer can pay.
ReplyDelete@ Andrew
ReplyDeleteRight. Shoppers are regularly duped by inflated perceived value. Many items cost much, much less to produce than consumers think, and services much less to deliver than buyers imagine. The markup on those things can be huge.
Where consumers have a better understanding of cost, then the price inflation is mostly through using cognitive biases characteristic of marketing and advertising, such as anchoring and confirmation bias, as well as emotional hooks. The slogan used to be FEGG — fear, exclusivity, guilt and greed. These are extremely powerful motivators.
Knowing something about sales, marketing and advertising, I get a kick out of the way that economists approach price theory. Their ideas only apply to special cases.
But, but, free markets always produce perfect prices and... Man always purposely creates perfect produce and, and... all products are always perfectly represented! And all consumers act instantaneously with perfect knowledge. So that proves that "economic calculation" is about the amount of profit you can rake in the lag period before the consumer realizes he's been hosed (aka "economic miscalculation") due to your marketing machine (economic misrepresentation). Unless you can talk him out of the whole thing or drag it out in the courts, or buy off the gov't of another country and dump your crap on them (Economic Monsantoization).
ReplyDelete