Saturday, May 02, 2015


The WSJ recently described the costs involved in Smart phone manufacture and the "mark-up" to the retail price. This is where economists part company with accountants -- and useful for teaching purposes. Prices are discovered by sellers. This is on-going work. "Sale", "discount", "clearance" and so many others like it are just shorthand for "we made a mistake and must try again to find the market price." So the "mark-up" is endogenous and responsive to market conditions. This also means that it is impossible to judge mark-ups as "too big" or any such thing.

There is much misunderstanding of simple economic thinking in the world and one would hope that respected business press would get this one right.

Successful branding impacts demand and gives sellers a shot at mark-up and profit. But buyers have their reasons for preferring brands. Whether these are "good" or "bad" reasons is unknowable. Sellers do their best to understand all this - and often get it wrong. Will people like the current version of the Smartphone -- at the current price?  Many are anxiously waiting to see.