Australians believe in spooks!

[FluffyMcDeath]

T_Bone wrote:
My sister in law is kind of a freak. She started screaming at me once last summer because I touched a rock she had on a bookshelf. I supposedly contaminated the crystal and brought her bad luck. :roll:

Bet you felt like "contaminating" the side of her head with a clue-by-four.

[FluffyMcDeath]

mikeymike wrote:
Imagine how many people would be employed in the police force using these skills for starters...

Casinos would go broke.
Everything you buy would suddenly get way cheaper because the free market would operate efficiently since you would know what the other guys costs were and he wouldn't be able to make 200% margin.

[FluffyMcDeath]

T_Bone wrote:

After a time, that lack in profit would correct itself as businesses started making less money, paying less dividends, etc  :-)

Exactly. In a perfectly efficient, no-one makes any profit. Profit only comes from inefficiency, which comes from disrupting information. If I'm trying to sell you something, it is important that I never tell you what I paid for it.

[FluffyMcDeath]

iamaboringperson wrote:

No profit = No business

If I'm trying to sell you something, it is important that I never tell you what I paid for it.

Why is it important?

Sometimes people like to know what it cost the retailer before they buy. FACT.

If people are rational, they will want to get the best price that they can for a given item. (This is why competition is supposed to serve the consumer by bringing down prices). If they know what the cost of the item was in the first place they can have a pretty good idea of their bargaining position and they can refuse to buy for more.

Example:
If you are trying to buy a watch from a guy and he wants $100 for it, and the information you have available is that other sellers are selling the watch for $50, you'll probably try to talk him down, or pass. If you also happen to know that he bought the watch for $5 you are more inclined to try to bargain for a lower figure than $50.

Given the choice between him getting profit and you getting a deal, which is the more important to you?

If you want to get a good price for something that you are selling, you must let the customer get the impression that they are getting a good deal out of you. If they find out how little you paid they will push harder for a better deal.  

[FluffyMcDeath]

T_Bone wrote:

Once you get rid of profit, what ensures efficiency? It's the prospect of profit that forces efficiency. If there's no chance of a profit, why strive for efficiency?

All else being equal, you increase profit by increasing efficiency within your organization. However, once the consumers find out that you can now produce for less, they improve their efficiency by making you forgo your profit.

Let's say company A produces raw materials.
Company B produces parts from As materials.
Company C produces product from Bs parts.

Assume that right now no-one makes profit. It's all break even.

Company A finds a way to produce for less. Efficiency of A goes up but the efficiency of the system remains the same. The same amount of end product at C still costs the same.

B finds out that A now has margin and asks for a better deal. Since their costs are now lower B has profit (but A looses margin). C finds out about Bs lowered costs and pushes them to pass it on.

Finally, at the end of the chain, efficiency is increased when C are forced by the consumer to lower their prices.

So long as there is competition and good information flow margins will be razor thin and transient. Overall efficiency will improve.

To prevent this a certain degree of information witholding and even misrepresentation must be entered into. Ther is also collusion between competitors (not necessarilly overt, but competitors keep an eye on each other to get a feel for what they should be bidding.

Other ways of introducing inefficiencies are government regulations and futures trading. One huge inefficiency enforced by government regulation, for example, is patent protection.