How Much Should You Sell A Product For? This story shows theres no one "RIGHT" price!

[Dien Rice]

Originally Posted by MichaelRoss

Unfortunately, it illustrates only one thing... and Not what you think it does.

All it shows is... people will pay more for something when they didn't Earn the money themselves.

See this in action. Watch "Deal or No Deal". People have $20k in the hand and will Risk it to make it $25k. Hey, why not? They didn't Earn that first $20k.

If those same people have $20k in the bank, after years of saving, you can rest assured they would NOT be so flippant with the money to turn it into $25k. That's why they choose the low risk savings account.

A Sales Price is a Result of Supply and Demand. The market will bear only so much. And the business owner also needs to decide at which point it is more or less profitable supplying the demand.

In the end, a thing is worth Only what someone is willing to pay fot it. And the best price is what the Business Owner decides is best for him, in terms of amount of work done for dollar return.

Hi Michael,

Thanks for sharing your thoughts...

I don't have a problem with your first general claim, that "people will pay more for something when they didn't Earn the money themselves".

However, I don't think the example I wrote about is like "Deal or No Deal" at all.

On "Deal or No Deal", as you pointed out in your post, they RISK for example $20k for a chance to make $25k. If they don't succeed, they lose it all (to my understanding), or quite a lot of it anyway (I've never seen the show).

In this example, because of the way it was structured, each person has "lost" already. The "buyer" will have to spend $50,000 on a new computer system the next day if there is no deal, and the "seller" will have to give away their computer system for scrap (i.e. get $0) if there is no deal.

So if any "deal" is made for a sale between $0 and $50,000 means a GAIN for both the buyer and seller. There is no "chance" of a loss in such a deal, relative to their starting positions, in this exercise. So it's quite different from "Deal or No Deal". On "Deal or No Deal" you RISK making a loss relative to your starting point. Here, for any deal between $0 and $50,000, both parties GAIN relative to their starting point (it's "win/win", though each party may "win" unequally depending on the deal they make).

The next part of your post was regarding "supply and demand" forces in the market.

It's not clear from what William Cohen wrote (in the book I cited) as to whether that's the case here, as it's unclear if the students "paired off" first (one seller with one buyer) and negotiated that way - or if it was a "free for all", where anyone could negotiate with anyone else. Clearly, in the first case, there would be no "supply and demand" market forces, whereas in the second case, there would be.

However, another factor was they only had 20 minutes to negotiate! So, if it was a "free for all" and they also had to find a "buyer"/"seller" to negotiate with, then their window of opportunity was very small! This limited "time window" would also reduce "supply and demand" market forces, since there would probably not be enough time for every "buyer" to negotiate with every "seller", and vice versa.

Now, a person might argue that with these restrictions it does not apply to business. However, there are business situations where negotiations may have severe time pressures to get the deal done - and those situations could mimic this classroom situation.

Finally, I'll just point out (as you would know), you can "break" supply and demand forces to a degree through market differentiation, and by differentiating your product accordingly. Hence, in many businesses, it is possibly to "get around" supply and demand forces this way - at least, until a competitor mimics you!

However, you brought up some interesting points!

- Dien