Your goal as a company is not to sell as many, but to make the greatest profit. So let’s say that the new market price is $3 000.
You’re the new company. Your supply is 20 000.
Do you
a) Sell fridges @ $2 950/each, undercutting competition while selling whole supply, because of demand being higher than your supply, making $59 000 000?
or
b) Sell fridges at a reasonable price of $400, selling the same amount, because your supply is limited anyway, making $8 000 000?
The company still has no incentive to go B route. They only need to undercut the competition, not make prices reasonable.
Free market self regulates, provided nothing artificially screws with supply and demand and there are competitors. Both scalping and price fixing screws with it. It is literally the cancer of free market, and people screwing with it call themselves “investors”, while actually destroying the economy.
It is the government’s responsibility to prevent those situations before they happen, otherwise these changes may be irreversible.
Btw. A situation like this was happening recently in the GPU market. Nvidia had a crazy high demand for their GPUs because companies invested in AI were going to buy these cards no matter the price. So they bumped the prices like crazy, and they were instantly sold out.
Meanwhile Nvidia’s competitor - AMD - didn’t have nearly as strong GPUs for Ai as Nvidia. Do you think AMD’s prices stayed the same? Nope. They bumped it just like Nvidia, barely undercutting them, because there was still demand, in fact growing demand, for GPUs for gaming, while AMD’s supply was obviously limited.
2 years later, lower demand, GPUs actually in stock, but prices are still fucked (though not as much) because people got used to it.
I don’t think you ever took even economics 101 in school because for almost all products there exists a price where you can actually increase your profits by decreasing the price because the larger sales volume offsets the revenue lost. Applies to your fridge example as well. You just assumed the same sales in both scenarios which is not even close to being realistic. And your Nvidia/AMD example ignores the high inflation seen during that period.
Your goal as a company is not to sell as many, but to make the greatest profit. So let’s say that the new market price is $3 000.
You’re the new company. Your supply is 20 000.
Do you
a) Sell fridges @ $2 950/each, undercutting competition while selling whole supply, because of demand being higher than your supply, making $59 000 000?
or
b) Sell fridges at a reasonable price of $400, selling the same amount, because your supply is limited anyway, making $8 000 000?
The company still has no incentive to go B route. They only need to undercut the competition, not make prices reasonable.
Free market self regulates, provided nothing artificially screws with supply and demand and there are competitors. Both scalping and price fixing screws with it. It is literally the cancer of free market, and people screwing with it call themselves “investors”, while actually destroying the economy.
It is the government’s responsibility to prevent those situations before they happen, otherwise these changes may be irreversible.
Btw. A situation like this was happening recently in the GPU market. Nvidia had a crazy high demand for their GPUs because companies invested in AI were going to buy these cards no matter the price. So they bumped the prices like crazy, and they were instantly sold out.
Meanwhile Nvidia’s competitor - AMD - didn’t have nearly as strong GPUs for Ai as Nvidia. Do you think AMD’s prices stayed the same? Nope. They bumped it just like Nvidia, barely undercutting them, because there was still demand, in fact growing demand, for GPUs for gaming, while AMD’s supply was obviously limited.
2 years later, lower demand, GPUs actually in stock, but prices are still fucked (though not as much) because people got used to it.
I don’t think you ever took even economics 101 in school because for almost all products there exists a price where you can actually increase your profits by decreasing the price because the larger sales volume offsets the revenue lost. Applies to your fridge example as well. You just assumed the same sales in both scenarios which is not even close to being realistic. And your Nvidia/AMD example ignores the high inflation seen during that period.