4/11/2006

Kinder Capitalism

Capitalism has always been about making the most bang for your buck. But recently there has been a few new companies arising trying to sell their products for only around a 33 percent markup. This is unheard of in our capitalistic economy. These companies buy their products from different poor countries and turn it around for a little profit. They believe in fair-trade, giving the consumer and wholesales more money in their pocket.
If this was my company I wouldn’t have the same business attitude. Maybe it is because I’m a college student waiting to make the return on my investment of school, on the other hand, I might have the same views in the long run.

2 comments:

will said...

I can see why any company would want to get the largest possible profit off any product but maybe by having a lower mark up the companies sell more of the product and in return get a higher profit overall. On the other hand maybe the companies truly want to offer their products at a lower price for kindness. If I owned a business I would probably want to go in between the two options. Of course I would want my business to be successful.

Dr. Tufte said...

This is idiotic, and business students should know better.

There is nothing restricting any of these folks from maximizing profits, and then donating the profits to the causes which interest them. Instead, they are intent on reducing the spread between prices and costs by raising the latter. It isn't hard to prove that this is a sub-optimal strategy. This is a victory of the intention of doing good over actually doing good.

Secondly, markup is inversely proportional to elasticity. These people aren't "charging" a lower markup - they simply are not that omnipotent. Rather, they are satisfying a market with more elastic demand. Look at the picture of the shop in the photo. Does this look like the sort of place that people with inelastic demand shop in? This isn't deep, sensitive, or fair. It is merely exploiting a different market niche.