“Doesn’t necessarily matter. Prices in a marketplace are determined not only by costs, but also by the demand curve and by the amount of competition.”
It does matter
“Therefore, two suppliers in the same marketplace will have to set prices about equal to one another, even if the costs of one supplier are greatly different from the costs of the other supplier. It’s the most basic working of supply and demand.”
OK, example.
We each own a whole appliance business in the same general area. You rent your warehouse for $30k monthly while my rich daddy left me my warehouse. Both of us employ the same number of people and use same utility company and pay the same R.E. taxes.
We both do right at 1 million per year in gross business and buy in the same quantity from the same mfr and so pay the same $ for our product.
In order to determine your net after expenses you need to take your 1 million and deduct $360,000, then salary, benefits, utilities, insurance etc all of which is the same as my expenses...and come to let’s say another $300,000. This leaves a net before tax for YOU $340,000. Taxes for you are about $70,000 leaving you about $270,000 for the year.
My business expenses however are 360,000 LESS than yours so my net before taxes is, $700,000 and after taxes is $553,000 or double yours.
So here come the tariffs and our supplier jacks up the price we pay 20%. If you want to maintain your $270k after tax profit you pass it along to the retailer and so would I, BUT I can easily absorb the increase based on my much larger bottom line and keep my prices the same which gives me a great price advantage with the retailers, allowing me to increase my volume at your expense.
With my expense advantage I could literally put you out of business if I so choose.
>> With my expense advantage I could literally put you out of business if I so choose <<
Interesting example.
So because you start out with a higher profit margin than me, the higher tariffs will allow your firm to put my firm out of business?
OK, whatever.