Economists have two standard very simple models of product competition: firms can compete on price or compete on quantity. Early in the Dotcom internet revolution, I remember some people, including even Bill Gates I think, forecasting that since it becomes easier to find and compare prices on the internet, products sold on the internet would have stronger price competition. And since price competition tends to be stronger than quantity competition, that would bring down prices and be good for consumers. Yay internet!
Price competition and quality competition are not mutually exclusive. Some firms sell high end stuff and compete on quality - others shift mountains of cheap goods - and compete on price. Sometimes the same firm uses both approaches with different product lines. Both approaches are doing pretty well on the internet - as far as I can tell. Robin cites no evidence of the internet lowering price competition. Surely, Bill was right: yay internet!
A classic model where two firms choose quantity independently. Prices arise from market clearing. Given market demand, firms can compute best-response functions to the other firm's quantity choice; equilibrium arises when each firm's strategy is the best response to the other's choice.
Can you expand on your claim that price competition is low on the Internet?
If you look at sellers on Amazon for the same product, they give the superficial appearance of competing very hard on price. There are often a lot of sellers for each item, and their prices often vary. Moreover, Amazon prominently displays the various prices offered, and in such a way that it's the first and easiest piece of information you can learn about each seller.
1) Price, 2) Quantity, 3) Profitability or Debt4) Rents (firms like polities accumulate renters) 5) Adaptation Costs (innovator's dilemma).
Why? Decreasing production cycles, increasing distribution of production, the increasing importance of TALENT and innovation service industries. vs capital or credit in manufacturing and distribution companies.
In a highly efficient market, one can sacrifice profits for talent while larger organizations accumulate internal rents. This is most frequently the reason
Generally speaking, higher profits incentivize more rents. And while prices are sticky, internal rents are much stickier than prices.
Generally speaking, adaptation costs vary dramatically from industry to industry: service firms trade out people and production firms trade out people and capital. The difference being that GAP regulation and tax policy obscure the tail of fixed vs human capital, largely because we can finance against the illusion of fixed capital value while we cannot finance against the obvious lack of control over human capital.
Curt DoolittleThe Propertarian Institute Kiev, Ukraine
A link to resources about Quantity Competition would be most welcome. The term elicited a puzzled looks and "do you mean Geffen goods?" from the nearest smart-guy-with-two-semesters-of-undergradate-econ.
"since it becomes easier to find and compare prices on the internet, products sold on the internet would have stronger price competition. And since price competition tends to be stronger than quantity competition, that would bring down prices and be good for consumers. Yay internet!
This argument makes intuitive sense"
How did it make intuitive sense? It requires one to believe that "price competition tends to be stronger than quantity competition", but is that really so intuitive, I wouldn't have assumed this on intuitive grounds, I wouldn't have ruled it out either but at least to me it wouldn't have been intuitive.
Btw, how do you know you're doing economics "right" beforehand? There's always a more complicated model out there and you don't know whether your model is complicated enough until you have real data to compare it against.
If you ask the average layman about bases for competition, he would say price and quality. What are the implications (if any) of price versus quantity competition on product quality?
Quantity competition is a new concept for me. The many undoubtedly excellent explanations on the internet tend to go straight to the math of how to figure the Nash equilibrium in a quantity-competitive setting without doing much to explain the concept. For instance, is there a reason why a buyer or seller might desire a quantity over a price-competitive market? If car manufacturers could produce cars like pizzas, would that mean that they would compete on price rather than quantity? Would they want to? Would we want them to?
**Insert obligatory I'm not an economist preamble here**
This article is interesting but basically makes no sense. Ok, what on earth is competing on quantity? We all know what competing on price means. This article makes no attempt to explain this other mysterious type of competition... A simple example, perhaps a duopoly, would be nice.
When a firm competes on quantity, the thing it chooses is the quantity of the product to offer, and then price is determined indirectly via where the total quantity offered by all firms hits the total demand curve.
I think--but am not sure--that the author meant "quality" not 'quantity' in this sentence, and globally: "firms can compete on price or compete on quantity".
As a non-economist, I'm still trying to grasp the difference between competing on price vs. on competing on quantity. Is it something like the following old joke?++++A man walks into Joe's Pickles and inquires about prices. "Pickles are two for a nickel," Joe responds. The man says "But for a nickel, I can get three pickles at Sam's!" Joe responds, "So, buy your pickles at Sam's." The customer looks at his feet and says, "Sam is out of pickles today." Joe says, "Oh, well when I'm out of pickles, I also sell them three for a nickel!"++++So... in the example/joke above, is Sam "competing on price," while Joe is "competing on quantity?"
I think the above analysis is flawed. Products compete on factors affecting the buyer, such as price, delivery, quality, features, and ease of return. Quantity isn't a consumer factor, unless the consumer wants say 1000 of the item.
Quantity in a production run is significant to the manufacturer. It can achieve lower unit costs and greater profit/unit if it can make more in a run and sell them all. The buyer doesn't care about the production run.
All sales factors interact to result in the market price. Manufacturers will adjust their production to respond to that price. When a manufacturer finds that it can make more per run and sell them all, this changes the market price.
To find the effect of the Internet on prices, one would need to compare prices over time for a product which was not sold on the internet to the price when sold there.
Many prices plus shipping on the internet are close to the price in a physical store. This doesn't tell us what factors set that price. Maybe internet availability caused the store to lower its price. Many stores say they will match an internet price.
My experience is that many items on the internet cost less including shipping than in local stores, along with greater variety. This has to be a tough time for local stores.
Price competition and quality competition are not mutually exclusive. Some firms sell high end stuff and compete on quality - others shift mountains of cheap goods - and compete on price. Sometimes the same firm uses both approaches with different product lines. Both approaches are doing pretty well on the internet - as far as I can tell. Robin cites no evidence of the internet lowering price competition. Surely, Bill was right: yay internet!
https://en.wikipedia.org/wi...
A classic model where two firms choose quantity independently. Prices arise from market clearing. Given market demand, firms can compute best-response functions to the other firm's quantity choice; equilibrium arises when each firm's strategy is the best response to the other's choice.
This isn't about differences that individual customers perceive. It is about the key choices firms make.
Can you expand on your claim that price competition is low on the Internet?
If you look at sellers on Amazon for the same product, they give the superficial appearance of competing very hard on price. There are often a lot of sellers for each item, and their prices often vary. Moreover, Amazon prominently displays the various prices offered, and in such a way that it's the first and easiest piece of information you can learn about each seller.
I have taught the following:
1) Price, 2) Quantity, 3) Profitability or Debt4) Rents (firms like polities accumulate renters) 5) Adaptation Costs (innovator's dilemma).
Why? Decreasing production cycles, increasing distribution of production, the increasing importance of TALENT and innovation service industries. vs capital or credit in manufacturing and distribution companies.
In a highly efficient market, one can sacrifice profits for talent while larger organizations accumulate internal rents. This is most frequently the reason
Generally speaking, higher profits incentivize more rents. And while prices are sticky, internal rents are much stickier than prices.
Generally speaking, adaptation costs vary dramatically from industry to industry: service firms trade out people and production firms trade out people and capital. The difference being that GAP regulation and tax policy obscure the tail of fixed vs human capital, largely because we can finance against the illusion of fixed capital value while we cannot finance against the obvious lack of control over human capital.
Curt DoolittleThe Propertarian Institute Kiev, Ukraine
I somehow finished my MBA without ever hearing about “Quantity competition”.
A link to resources about Quantity Competition would be most welcome. The term elicited a puzzled looks and "do you mean Geffen goods?" from the nearest smart-guy-with-two-semesters-of-undergradate-econ.
"since it becomes easier to find and compare prices on the internet, products sold on the internet would have stronger price competition. And since price competition tends to be stronger than quantity competition, that would bring down prices and be good for consumers. Yay internet!
This argument makes intuitive sense"
How did it make intuitive sense? It requires one to believe that "price competition tends to be stronger than quantity competition", but is that really so intuitive, I wouldn't have assumed this on intuitive grounds, I wouldn't have ruled it out either but at least to me it wouldn't have been intuitive.
Btw, how do you know you're doing economics "right" beforehand? There's always a more complicated model out there and you don't know whether your model is complicated enough until you have real data to compare it against.
If you ask the average layman about bases for competition, he would say price and quality. What are the implications (if any) of price versus quantity competition on product quality?
Quantity competition is a new concept for me. The many undoubtedly excellent explanations on the internet tend to go straight to the math of how to figure the Nash equilibrium in a quantity-competitive setting without doing much to explain the concept. For instance, is there a reason why a buyer or seller might desire a quantity over a price-competitive market? If car manufacturers could produce cars like pizzas, would that mean that they would compete on price rather than quantity? Would they want to? Would we want them to?
**Insert obligatory I'm not an economist preamble here**
This article is interesting but basically makes no sense. Ok, what on earth is competing on quantity? We all know what competing on price means. This article makes no attempt to explain this other mysterious type of competition... A simple example, perhaps a duopoly, would be nice.
When a firm competes on quantity, the thing it chooses is the quantity of the product to offer, and then price is determined indirectly via where the total quantity offered by all firms hits the total demand curve.
I very much meant "quantity".
I think--but am not sure--that the author meant "quality" not 'quantity' in this sentence, and globally: "firms can compete on price or compete on quantity".
As a non-economist, I'm still trying to grasp the difference between competing on price vs. on competing on quantity. Is it something like the following old joke?++++A man walks into Joe's Pickles and inquires about prices. "Pickles are two for a nickel," Joe responds. The man says "But for a nickel, I can get three pickles at Sam's!" Joe responds, "So, buy your pickles at Sam's." The customer looks at his feet and says, "Sam is out of pickles today." Joe says, "Oh, well when I'm out of pickles, I also sell them three for a nickel!"++++So... in the example/joke above, is Sam "competing on price," while Joe is "competing on quantity?"
I think the above analysis is flawed. Products compete on factors affecting the buyer, such as price, delivery, quality, features, and ease of return. Quantity isn't a consumer factor, unless the consumer wants say 1000 of the item.
Quantity in a production run is significant to the manufacturer. It can achieve lower unit costs and greater profit/unit if it can make more in a run and sell them all. The buyer doesn't care about the production run.
All sales factors interact to result in the market price. Manufacturers will adjust their production to respond to that price. When a manufacturer finds that it can make more per run and sell them all, this changes the market price.
To find the effect of the Internet on prices, one would need to compare prices over time for a product which was not sold on the internet to the price when sold there.
Many prices plus shipping on the internet are close to the price in a physical store. This doesn't tell us what factors set that price. Maybe internet availability caused the store to lower its price. Many stores say they will match an internet price.
My experience is that many items on the internet cost less including shipping than in local stores, along with greater variety. This has to be a tough time for local stores.