usrevenge t1_j2c2xwg wrote on December 31, 2022 at 3:30 AM

You sell computers for $300.

You spend $200 on the computer.

So you make $100 per computer.

You sell 10. So you made $1000.

You drop price to $250.

You sell 30 computers now.

You made $1500 this time.

Companies find the point where their product maximizes profit. You can't sell for less than $200 or you make $0. But if you sell more than $300 almost no one buys any so you make no money.

Some companies will try a loss leader which is a product sold for a loss but you end up buying other stuff when there. Like if McDonald's sold a 8 piece nuggets for $.50. They might lose money but they are getting most people get fries and a drink while there as well so they make money.

For computers and computer parts most items are way cheaper at the OEM level. Dell pays significantly less for parts than you will pay. Things like windows 11 will cost almost nothing to them compared to retail purchasers.

sterexx t1_j2cm1f2 wrote on December 31, 2022 at 6:25 AM

I can visualize the econ 101 graphs right now!

And this is almost too obvious to mention, but those computers aren’t exactly the same. They’re generally differentiated in at least some way, even if it’s just aesthetically.

But if we’re talking about precisely equivalent products, yeah economies of scale can get so interesting. My favorite is that Amazon can sell items at cost and still come out ahead.

Because they’re such a big (and reliable) customer to their vendors, they can get great terms on their invoices where they don’t have to pay for like a couple months after receiving their inventory.

So Amazon gets this $1000 TV in inventory but doesn’t have to pay yet. They sell it to me for $1000. They now have $1000 they can invest and earn interest on (or otherwise do whatever they want with) and don’t have to pay it back for a while

I don’t know exactly what scale they’re doing that at these days but it’s still amazing to me

sundays_sun t1_j2cln1i wrote on December 31, 2022 at 6:21 AM

They can also value engineer their product "upgrades" by improving a few important specs, while installing cheaper parts elsewhere - allowing them to lower the retail price. They lower the cost of production in order to make the same profit margin despite selling the product a lower price.