Pricepoint Factors
There are a variety of factors that determine a product's price point that the target market does not understand. An entrepreneur’s price point must reflect the cost of gathering all essential resources, and many other determining factors while also ensuring they maintain profitability. These invisible aspects of production directly affect the entire market. However, despite all these contributing elements, ultimately, the true value of any merchandise or service is subjective and the true power belongs to the consumer.
Real World Correlation
For example, many young to middle-aged men are the core demographic for video games. Tencent, Sony and many other large public gaming companies have increased the cost of their video games. Because consumers still believe the financial amount they will exchange matches the value they will gain, both parties walk away at an equilibrium. However, if they were to continue raising their prices, they face the risk of losing customers due to individuals no longer believing the exchange point is equal. Because of the many licensing deals, and resources they have spent on establishing their popular games, they must determine a sweet spot with their price point that is high enough that they feel properly compensated, while remaining within the range that their target audience can afford. Bylund illustrates these core themes when he outlines,
Entrepreneurs earn profits or suffer losses based on how well their actions satisfy real consumer wants. And through their productive efforts, they generate the price that guide other entrepreneurs. (Bylund, p. 44, 2016)
These massive companies have conducted an ample amount of market research and tests that have landed them at their asking price. This is why, in most cases, the walk-away value is non-negotiable. They have tested the industry and have allocated for their customer acquisition cost, market demand, and financial status of their target market. In the end, entrepreneurs measure their success by their ability to satisfy their customer’s wants and needs. If they are able to do so efficiently, they will be rewarded with returning customers and recurring revenue.
Misinterpretation and Miscommunication
Our society in its entirety is currently battling with a large rational economic organization issue. At the core of this problem is the idea that while many of the pillars the American economy was built upon were well-established philosophies, over time the data has trickled down and become misconceived. This economic problem stems from our society’s rush to change in different circumstances. The price system is a great example of this. It is crucial to fully understand the way it operates to be able to act. While initially, this system was a complex telecommunication system, over time different individuals have gathered bits and pieces of information from its entirety and developed their own theories while leaving out significant facts.
Throughout American history, our government has worked in unison to implement laws and policies to allocate our country's resources that will increase the nation’s economic activity. However, what are the premises these policies have been based upon? Our administrative system has built its economic approach on knowledge that is oftentimes miscommunicated or misinterpreted. This is the core issue our economy must find a solution to. If our government, political figures, and mass corporations are basing their financial decisions on misguided knowledge, ultimately our country will pay the price. To compensate for this matter, a small controversy has been sparked; one side says there should be a centralized authority to interpret the knowledge at hand, while others believe these tasks should be divided among a group of qualified central figures that will converge regarding all newly presented information. Hyak states his viewpoint on the debate when he mentions,
“We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by some form of decentralization.” (Hyak, p. 524, 1945)
In my eyes, I completely agree. There should be no dispute about utilizing collaborative methodology. Our American government is a democracy, based around removing a dominant figure that controls all decision-making, and electing an association made up of sharp-witted, insightful individuals that we believe can collaborate for the betterment of our society. Why abandon this political ideology if it has bred strong results? We have already established that much of our country’s legislation was established by individuals who were not completely educated on a topic at hand. Therefore, solely placing the responsibility on one central figure who does not properly remember all essential information would not do our society well. That is why I believe it is crucial that we have analysis from multiple perspectives.
References
Bylund, P. L. (2016). Chapter 3: What Prices Communicate. In Seen, the unseen, and the unrealized: How regulations affect our everyday lives (pp. 27–45). essay, Lexington Books.
Hayek, F. A. (1945). The Use of Knowledge in Society. American Economic Review, 35(4), 519-30.