Businesses charge what customers are willing to pay. If they have more money, they are willing to pay more. Competitiuis the countervailing force, but Netflix has exclusives and serials and network effects (fandoms and friends)
The standard formula for profit is (units sold * price per unit) - (fixed costs + marginal costs * units sold).... Netflix, like every other company, wants to maximize that profit.
For most non-digital companies, the marginal cost is significant, and follows a u-shaped curve... at first, marginal costs decrease as you sell more units, since you can get intermediate goods for cheaper prices as you buy in bulk. At a certain point, however, the marginal price starts increasing again as you start to hit various bottlenecks and intermediate goods start becoming more expensive as you consume all the easy to produce supply. In other words, you can't scale linearly.
Digital goods have a much flatter uptick on that marginal cost graph, and I am very curious what that means at the macro economic level.
Here, M is the money supply, V is the velocity of money, P is the price level, and Q is the real quantity of goods and services.
It's easy to see that if M increases and Q increases the same amount, then if V is constant, P will also hold constant.
Or if Q is constant and a decrease in V offsets the increase in M, P will again hold constant.
Increasing the money supply by printing money does not automatically cause prices to increase, because there are other variables in the equation.
Mr. Beer above stated that an increase in demand for Netflix would not increase the market price of Netflix. But because Netflix is a quasi-monopoly, they would be likely to increase prices to find the new equilibrium maximum profit point.
That is, he made a microeconomic argument which was invalid-- arguing that because Netflix's marginal cost is low the price elasticity of the product they supply must necessarily be low-- but this is not necessarily true. Netflix has some degree of pricing power.
I made no macroeconomic argument, and.. while I agree with your macroeconomic assertions... increasing the supply of money still increases inflationary pressures. If you're facing massive deflationary headwinds because of slowing velocity of money, sure, it may not be enough to cause inflation or even entirely prevent deflation, but it still is net inflationary.
For a physical good, if you have a surge in demand as more people can afford you're product you start running into supply issues. This will likely result directly in a price increase as you can't increase profit by just selling more when you don't have anymore to sell.
In the example of netflix, the supply issue almost completly disappears. They don't HAVE to increase the price to increase their profit. Yes Netflix may decide that with the flood of new customers they can put the price up and maintain or increase their profit.
The point I think that is being made is that their isn't a physical supply issue in effect "forcing" them to increase the price. They are doing it because they want to, not because they need to.
That's the thing though, if they have a perfectly horizontal supply curve, then the maximum profit point would move horizontally but not vertically, and price would not increase. This sort of analysis is surely too simplistic, but that's the model.
It doesn't matter if prices double, remain constant or halve. It matters is people can afford more, the same or less stuff. At the moment, the rapid pace of technological advancement means most people should be able to afford much more and they can't because of the incessant money creation being done by people in charge of the system.
Then, if money is unexpectedly debased, absolute price levels may not change, but they would go up relative to where they should have been. Contracts still end up being distorted. People with cash under their mattresses still end up with their holdings devalued.
I wonder, if one had the task of building an economic system from scratch, if they would come up with the current system or with something else. The current system seems like a mess of patches upon patches, many heuristics, and is not very philosophically sound.
That's like totally wrong. Goods provide some value to the customer, and that determines what they are willing to pay for it. If I wake up a millionaire tomorrow, that doesn't mean I am suddenly willing to spend $500 the same haircut that was $50 yesterday.
Very often customers will pay twice as much or more for the same or equivalent good that delivers the same value, you're local grocery store will show some examples. People will often pay 5x more for brand name items over white label ones. Stores will very regularly discount some items to take advantage of price discrimination, people not paying attention to specials are effectively paying twice as much for the exact same items. If you go to a different grocery store in a wealthier/poorer area you'll see the exact same items at different price points. These are all ways companies will maximize profits because people willingly pay more for the same items.
I’m not a millionaire but I’m certainly well off, and I just happily overpaid for lumber for a project. At prices that three years ago would have made me cancel the project. Not because I couldn’t afford it but because the perceived value wasn’t worth the price.
My mom wants to nix Comcast, and it's not that easy.