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Comment by _Codemonkeyism | Hacker News Reader

I always wonder why people think the only 'fair' pricing is pricing based on costs. This is not how free markets work.

>> I always wonder why people think the only 'fair' pricing is pricing based on costs. This is not how free markets work.

In a real free market that is how it should turn out. If someone is charging too high above cost, a competitor will likely step in to grab market share by offering the same thing at a lower cost. Companies go to great lengths to make the playing field uneven - "unfair" practices, unfair employment agreements, patents (government granted monopolies), lobbying for barriers to entry, etc...

Lots of people like to talk about "free markets" when they really want no such thing. In a real free market, everything tends toward commodity pricing.

Even in a perfectly free market, there would not be "perfect competition" for every product. This page lists the many reasons https://en.m.wikipedia.org/wiki/Perfect_competition

"In a real free market, everything tends toward commodity pricing."

No.

This assumes people only buy products based on price and would choose cheaper alternatives.

Doesn't look like this to me, e.g. I'm a consultant, I base my pricing on value not cost (what is my cost anyway?) and people pay on value. Other consultants are not undercutting my prices, for various reasons, e.g. because reducing prices would diminish value perception. I'm not a commodity and never will be (perhaps if AI makes great leaps forward).

Same happens with Apple devices which are far from cost based pricing. Assuming others have the same product - I don't want to get into quality, brand recognition etc. just pretend - if they base their products on cost and undercut Apple, they would move out of the luxury/premium segment. One could argue Apple pricing is high because of an 'Apple monopoly on Apple devices', but the same works for any premium segment (Nike and Adidas premium shoes for example).

Beside the premium argument there are other examples where "In a real free market, not everything tends towards commodity pricing" - in particular only commodities do.

(Interesting side note: Read about value maps, evolution of products towards commodities and strategies from Simon Wardley)

>> I'm not a commodity and never will be

Consultants can be somewhat specialized and can have high demand. Gold is a commodity, but scarcity (or perceived scarcity) makes it higher priced than other metals. If there weren't as many consultants out there, you might be able to charge even more.

Android is a cheaper alternative to iPhone, as is Nokia. You are correct that there are other factors at play that make the situation less like a commodity market. Copyrights and patents - both government sanctioned monopolies - are the primary thing enabling Apples high prices. That's not to say I'm against those things, just pointing to the real reason for what's going on.

No.

Brand is the primary thing enabling Apples high prices.

>> Brand is the primary thing enabling Apples high prices.

Trademarks are another government enforced monopoly.

You seem to be suggesting that something unfree is going on here, but in this case there is no evidence for any of the candidate causes that you list. The reality is that the tendency towards commodity pricing is only a tendency, with a highly situation-dependent lag and inertia, even in the absence of more direct restrictions on competition.

That's very very true. However, "fair pricing" is mentioned because companies tend to use the term in their marketing explanations for raising prices. In free markets, it is also the responsibility of consumers to understand not only the prices they pay today, but the prices they allow companies to set tomorrow.

You are right that pricing on costs is not how it should work. A better pricing would be based on the value created. In this case however the value created correlates to the man hours saved (vs. e.g. managing instances manually without the tool). And since manually managing a large instance is not more work than managing a smaller one, there is no additional value created, so the pricing logic is unreasonable.

Value created has its own sets of problems. Customers with very basic use cases are not entitled to preferential pricing - i.e. Microsoft is not interested in offering big discounts to people who use the Office Suite as a "TV typewritters". Rather they should select a tool that better matches their needs.

On the other side of the spectrum, "value added" can be used as an excuse to charge more money to wealtier customers. Using the same example above, Microsoft should not be able to charge a million dollars for an Excell license that is used by financial wizards to make billion-dollar decisions. The potential is there in the tool, but most of the value added comes from the expertise of the user.

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