--- In [EMAIL PROTECTED], "jhrothjr" <[EMAIL PROTECTED]>
wrote:
>
> --- In [EMAIL PROTECTED], J�rgen Ahting
> <[EMAIL PROTECTED]> wrote:
> >
> > --- In [EMAIL PROTECTED], "jhrothjr"
> <[EMAIL PROTECTED]>
> > wrote:
> > >
> > /snip/
> > >
> > > The thing to understand about economics is that
> > > if you have perfect competition, nobody makes
> > > any profits. Profit is made by exploiting some
> > > inequity in the market. If you understand this
> > > one fact, you can cut through an amazing amount
> > > of the BS that passes for "economics" these
> > > days.
> >
> >
> > You certainly talk about "excess" profits ?
>
> Who said anything about "excess?" I certainly
> didn't.
>
> > In an ideal world profits correlate to the risks you take and the
> > efficiency of your resource allocation.
>
> Profit correlates to market inequities.
> Risktaking behavior and execution efficiency
> are both inequities.
>
> The analysis is that if there are a number
> of suppliers and consumers of the same commodity
> product, the consumers will, of course, buy
> from the least expensive supplier. The rest
> of the suppliers will have to cut prices to
> compete. This will continue until everyone
> is functioning at a break-even level; there is
> no profit (cost - sale price) for anyone.
>
Here you /are/ talking about "excess" profits.
Regular profits are part of the cost, i.e. the "cost of capital". The
"cost of capital" depends on the risk involved, e.g. of not getting our
investment back at all. The mechanism you describe highlights the risk
very well: cut prices or loose customers...
If we are not compensated for the risk involved, we would be foolish to
invest. We better spend the money or just keep it for later. We would
not bring it to a bank because they could not earn interest. On the
contrary we would go to the bank and ask whether any fool has brought
them money and ask for it. They would certainly give it to us without
regard to the risk that we might not intend to bring it back.
Risk is a very important concept and no amount of competition can
eliminate it. To eliminate risk we would have to make the future
deterministic. Inequities in the market may lead to an increase in risk
or - put the other way round - to inadequate compensation for the real
risk involved.
J�rgen
--------
J�rgen Ahting - AMECO GmbH
If you give me six lines written by the most honest man, I will find
something in them to hang him. -- Cardinal Richelieu
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