Originally Posted by
jamar
The primary assumption seems to be that if the merchant prices to include the cost of fraud, then it prices itself above the market. Ignoring the fact that this does not happen to just one place, it happens everywhere.
If fraud is unavoidable everywhere, then there's nothing to discuss. By definition, you're working with a premise that doesn't have a solution.
Originally Posted by
jamar
And ignoring the fact that the market may decide to move with it, as we saw with baggage fees.
What did you see with baggage fees?
I see some airlines offering two free bags, some one, some none. I see different ticket prices too. Whether an airline bundles various services to one price, or they break it out into ala carte pricing is 6 to 1, half a dozen to the other.
Originally Posted by
jamar
Same thing here- if it's happening to everybody, then everybody can push their prices up.
Depends on how many competitors there are. If there's 2-3 competitors, it's almost like a monopoly and market forces aren't very strong. You would have to name a particular restaurant before we could assess the competition. If there are tens competing, then underdogs are more pressured to utilize an advantage and undercut the competition. When competition is as stiff as the restaurant business is in any populated area, you can't be sloppy. You can't afford to.
Originally Posted by
jamar
At some point, reduced cost burden (more cost pushed onto consumers) justifies reduced volume (higher prices driving lower-end customers away).
It doesn't matter because the cost is still an independant variable. There is only one optimum price. You don't need a cost to justify charging the optimum price. If you're competent, your goal is to find the optimum price regardless of your costs. If you let your costs influence this, you're only fooling yourself -- and doing yourself a disservice.
Originally Posted by
jamar
Also, percysmith seems to have made the point better than I have.
And on the last point- that mom-and-pop store better kick up their prices on the basis of cost. The other option in the case of restaurants is to lower the quality of ingredients. Three words- drainage ditch oil. No thank you.
Of course reducing the cost of product quality is also a variable that can be played with. If you reduce the cost of quality in a way that also reduces the quality along with it, that doesn't necessarily mean profits will increase either because the change affects demand. The illusion here is you believe costs not relating to quality are somehow affecting the price, when you've really just simultaneously introduced a quality change. It's the quality change that affects the optimum price, not the cost.