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Comment by DangitBobby | Hacker News Reader

If I used to produce 100 units per month because that's how many I could sell, but now I know I can sell 10000 units per month, that is incentive enough to increase production. Notice here that raising the price is not at all required to increase profits. It's just something companies tend to do because they know they can get away with it in high demand markets.

And since raising prices to increase profits is not necessary with hugely increased damand, it's seen as profiteering to do so on essentials (or in this case things that make you feel less isolated) during a global crisis.

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> If I used to produce 100 units per month because that's how many I could sell, but now I know I can sell 10000 units per month, that is incentive enough to increase production.

For what it's worth, this isn't how "supply and demand" works in economics.

The idea is that a given firm is already producing as much as they can at that price. There's not usually a ton of slack just laying around that could respond to a spike in demand. For instance, my wife who works at a soap factory right now, has seen a ton of demand. They would love to increase production to accommodate but it's just not immediately possible, without retooling the factory. They're managing to increase supply a little, by not offering as many varieties of scents and such, but that's the extent of what they can do immediately.

The reason prices increase with an increase in demand, according to standard economics orthodoxy, is because that allows more firms to enter the market, as well as existing firms to do less efficient things (more workers, more expensive supply chain, etc), to meet that demand.

Yeah, the higher output factory idea only works to the extent that you can find factories that can still add a shift and, more importantly, can find all the upstream capacity to support them doing so.

You can have issues with the economics of supply and demand, but as you outline very well, there's not really a button that just scales supply when you need it.

> If I used to produce 100 units per month because that's how many I could sell, but now I know I can sell 10000 units per month, that is incentive enough to increase production.

This assumes that you can actually scale production to 10,000 units (a plant that can produce 100 items a month is not necessarily one that can produce 1000), that your typical channels can absorb said production (if they need to hold inventory, they likely cannot), that you have enough packaging supplies for your increased inventory (a real problem being encountered at the moment), the list goes on. Supply chains are not linear. You can have valid issues with price gouging despite this fact, but simply saying "increase production, problem solved" is an extremely uninformed position.

It's a tricky spot. Letting the prices rise keeps the folks who don't need one, but merely want one, from buying one, thus leaving some supply for those who actually need one.

On the other hand, prices quickly get out of control if left to their own devices. Some say that's natural, and perhaps it is, but that doesn't mean it's good all the time.

As for increasing production, this is one thing where raising prices can actually decrease the incentive to increase production. For literally the same money that I was using to create 100 units per month, I'm now getting the same profit that 10000 units per month would have given me. Why would I spend money to increase production, thus increasing supply which reduces demand, which lowers prices, which lowers profits?

Economic theory suggests that changing the output of a single supplier does not affect overall prices in a competitive market like this - that’s very different from oligopoly or monopoly situations. I would highly recommend “Basic economics” by Thomas Sowell for anyone interested in a good overview of these kind of issues (audiobook also available on YouTube, I believe)

And then the demand goes down after increasing the production capacity in 6 months. You have under utilized production lines and need to fire a bunch of staff.

You see the problem?

>that is incentive enough to increase production

Alas, the world is rather more complicated than that. Case in point, this Dallas surgical mask factory that is not running overtime, because the hospitals screwed him over last emergency, and he almost went out of business:

https://www.dallasnews.com/news/watchdog/2020/04/03/if-you-i...

This is quite clearly a policy failure. I don’t understand why the US isn’t subsidizing production for something as important as masks or other medical supplies. Obviously it is a national security issue, the same way food security is and which is why agriculture is so heavily subsidized.

Why not just presell future batches with no refunds and cash upfront? People like myself would still pony up cash

If you have to build another production line or pay your people time and a half to work more hours you might not be able to sell at the same price.

After a supply shock and a demand shock, why would profits be the same?

And more to the point: you have no idea. Prices are emergent from trillions of decisions, and are used to communicate a great deal of information. People want to act like it's an engineering problem where we can dial up and down one part without affecting other parts, but anyone who has worked even on a controlled marketplace knows this isn't true.

Go read "I, Pencil" https://fee.org/resources/i-pencil/

Allowing prices to rise allows outsiders to produce with improvised thus inefficient means of production.

Pivoting a factory on a dime to make something else is hard, but often doable by the experts for sufficiently loose definitions of “on a dime”.

Pivoting a factory on a dime to make something else that’s cost competitive with the factories designed and built to do that something else already is impossible. It’s like trying to build a car from junkyard parts to run in F1 races. And old prices will reflect the cost savings those old factories were achieving.

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