The Cellar - View Single Post - New study/experiment. Uber conservatives now get a diagnosis?

Undertoad · 09-19-2007, 02:06 PM

Alright. The secret is, the people he hires are in the same marketplace that the peas are. As much as we hate to think this is true, it's simply fact.

These decisions are not really made by the CEO. As much as the CEO wants to charge $5 per can - because he'll make $4.55 per can - there is no grocer in the world charging that. As much as he wants to sell the cans for 30 cents - because he'll sell more - the decision is not up to him, because at that price point it actually costs the grocer 15 cents per can. He can run it as a special to show off a low price... but only for a while.

The owner has the ability to take a smaller chunk. But so does every single other owner, and so the owner faces the same problem in pricing himself as his faces in pricing the peas.

He especially faces it when pricing labor. In the grocery business, labor costs are the bulk of the costs, aside from the price of goods sold. So as much as he wants to, if he pays $20/hour for checkers, he will go out of business because he won't have any money left. If he chooses to give smaller salaries to management, he'll get worse managers because his competition will get the good managers. His managers will leave to work for the competition. If he chooses to bring in inferior goods to take a bigger chunk per item sold, he'll lose business to quality.

One grocer can't change this system. All 100 grocers in the area might be able to - until some other chain comes to the area and runs it back. All 10,000 grocers in the country may be able to - until an alternative to grocers comes around. If there is a big gap between prices and cost of goods sold, you can bet that it will. Because the business has a built-in profit margin in the single digits, smaller than the average businesses out there. The rules of the market are clearly defined.

You can say that the market for CEOs is confused, that the CEOs make too much because boards don't understand that more people can do that job than the 1000 people vying for Fortune 500 company CEO positions. The boards don't agree with you.

You can say that the market for business owners is confused because too many owners take too much out of their businesses. But starting most businesses, especially those with employees, requires a buy-in of six figures and a rather complete understanding of the market and the profession. You can say, well people should be better owners, and on that we agree. But that problem doesn't lie in the rather forced economic revisionism you seem to espouse. Force labor and wage changes and you will just find the same owners making stupider decisions.

09-19-2007, 02:06 PM	#227
Undertoad Radical Centrist Join Date: Jan 2001 Location: Cottage of Prussia Posts: 31,423	Alright. The secret is, the people he hires are in the same marketplace that the peas are. As much as we hate to think this is true, it's simply fact. These decisions are not really made by the CEO. As much as the CEO wants to charge $5 per can - because he'll make $4.55 per can - there is no grocer in the world charging that. As much as he wants to sell the cans for 30 cents - because he'll sell more - the decision is not up to him, because at that price point it actually costs the grocer 15 cents per can. He can run it as a special to show off a low price... but only for a while. The owner has the ability to take a smaller chunk. But so does every single other owner, and so the owner faces the same problem in pricing himself as his faces in pricing the peas. He especially faces it when pricing labor. In the grocery business, labor costs are the bulk of the costs, aside from the price of goods sold. So as much as he wants to, if he pays $20/hour for checkers, he will go out of business because he won't have any money left. If he chooses to give smaller salaries to management, he'll get worse managers because his competition will get the good managers. His managers will leave to work for the competition. If he chooses to bring in inferior goods to take a bigger chunk per item sold, he'll lose business to quality. One grocer can't change this system. All 100 grocers in the area might be able to - until some other chain comes to the area and runs it back. All 10,000 grocers in the country may be able to - until an alternative to grocers comes around. If there is a big gap between prices and cost of goods sold, you can bet that it will. Because the business has a built-in profit margin in the single digits, smaller than the average businesses out there. The rules of the market are clearly defined. You can say that the market for CEOs is confused, that the CEOs make too much because boards don't understand that more people can do that job than the 1000 people vying for Fortune 500 company CEO positions. The boards don't agree with you. You can say that the market for business owners is confused because too many owners take too much out of their businesses. But starting most businesses, especially those with employees, requires a buy-in of six figures and a rather complete understanding of the market and the profession. You can say, well people should be better owners, and on that we agree. But that problem doesn't lie in the rather forced economic revisionism you seem to espouse. Force labor and wage changes and you will just find the same owners making stupider decisions.