grandad wrote:
The use of house prices to compare to taxi fares is nonsense. When house prices start to fall, ALL house prices fall so that if you are selling for a cheaper price whatever you are buying will be at a cheaper price.
Well their are all kinds of dynamics going on in the economy - for example, you could argue that because some retailers are lowering prices to shift stock then consumers benefit.
However, my point wasn't about house buyers and sellers, it was about an estate agent and how he makes his profit - his costs have got nothing directly to do with house prices. My point was about essentially that he would be better off with lower house prices and thus lower commission if that made him shift more.
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With taxi fares it is the opposite at the moment the costs of running a taxi are increasing so by holding prices at the same rate or even lowering them is commercial suicide.
Well that's a simple accountant's cost-based analysis (as with the recent Scottish Traffic Commissioner's decision), but the reason that businesses employ economists as well comes back to what to the question I asked GA and which both you and him ignored.
Raise prices, particularly during an economic slowdown, and you could end up losing sufficient business that you are worse off than before you upped your prices, which is surely commercial suicide as well.
The problem is that although your costs have increased, your customers won't necessarily accept price rises just because of this - they look mainly to their own circumstances, not your costs.
The problem is neatly encapsulated in the article posted by Sussex in another thread:
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Companies are caught in a tricky position because they either have to pass on their higher costs to consumers or watch their margins and potential profits shrink, analysts said,
A number of airlines, and food firms have started to push up their prices in response to the surging raw material costs, but many are resisting for fear of losing customers.
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