Fair Market Price (was Re: EC-1 fiasco....)

From: Chuck McManis <cmcmanis_at_mcmanis.com>
Date: Mon Nov 6 11:15:48 2000

At 12:58 AM 11/6/00 -0800, Mike wrote:
>My point is that apparently several people on this list would LIKE to have
>one of these old computer things, but don't want to pay a fair market price
>for it. You have my sympathy I hate paying a fair market price for
>anything, and rarely come close to it, but those are often the only kind of
>cookies on the table, deal with it politely.

And other message took me to task for some "low ball" bid.

But both Mike and Craig have expressed a misunderstanding that is important
for people to avoid. The Market Price (MP) is defined between the set of
all buyers for a product and the seller of the product. The "Worth" of
something is defined by a successful transaction. When someone offers
something for sale anywhere, whether it is on this list, at a garage sale,
or at the supermarket, they can either "pre-price" it or simply ask for
offers. No matter what prices are offered they are "fair" in the sense that
this is what the buyer is willing to pay for the product. They may not be
accepted by the seller, in which case there is no market and thus no
determination of worth.

Sellers have something that they think is "worth" $X
Buyers see something that they this is "worth" $Y

What are these people really thinking? That they would participate in a
transaction where the price was acceptable to them. Now of course anything
under $Y is acceptable to the buyer and anything over $X is acceptable to
the seller, so if you graph it, it could be something like:

        Price ->
Seller ............$X*******************
Buyer ************$Y................
                     ^
                     +-- Sales price

        Price ->
Seller ..............$X****************
Buyer ***********$Y...................
                      ^
                      +-- No Sale is possible

        Price ->
Seller ..........$X***************************
Buyer ***********************$Y..............
                      ^
                      +-- Mucho haggling is possible

This is just an expression of price elasticity done in a slightly different
way.

Now one could make the argument that the "Fair" price, if a sale was
possible, was one that right at the center between $X and $Y (assuming $X <
$Y) which would give the seller a premium over their price and the buyer a
discount under their price that was equal, but it doesn't really work out
that way.

In fact the situation is more like this:
        Price ->
Seller ..........$X***************************
Buyer1 ********$Y.............|................
Buyer2 *************$Y........|................
Buyer3 *********************$Y|................
Buyer4 ******************$Y...|................
Buyer5 ************************$Y..............
                               ^
                               +-- "Fair" price

Here there are multiple buyers and the "fair" price is mathematically
defined as just over the price of the next highest buyer's limit. Did
Buyer1 try to "low-ball" this seller? No they just had a lower price that
they were willing to pay for the product. If the buyers are finite then the
next time the seller sells one of these widgets the price will be _lower_
because the "best" buyer already has one.

At the next level you add multiple sellers and multiple buyers and now
you're doing differential equations to figure out prices :-)

--Chuck
Received on Mon Nov 06 2000 - 11:15:48 GMT