Tuba Prices REALLY Went Up!

[Rick Denney]

What I want to know though is why the cost of machinemade as well as handmade seem to be going up exponentially. It seems to me that the costs of living are going up slower in percentage than the prices of tubas are.

Is this really just because of a smaller demand?

Probably not. Demand and supply aren't that elastic in the tuba world. (And if they were, the price would be going up because of greater demand, not lesser.)

Probably, most tuba makers are being faced with higher labor and currency exchange costs, and are forced to raise their prices to keep them higher than costs. They will reduce volume when they do so, but they'll hope to ride it out. They may also discover that the market will support a higher price than they thought.

Those whose costs haven't risen as much are probably raising their prices to take advantage of the competition's higher prices. If it turns out that prices were indeed lower than what the market would bear, they'll benefit from those higher prices.

Sometimes you have to test the market to see where the prices should really be. I've said that buyers set prices, but it's up to the seller to find out what the prices are that the buyers will tolerate. If the cheaper tubas suddenly start selling a lot better, then those manufacturers who can lower prices will. For example, Conn-Selmer might have raised the price on the 56J because they perceived that the 56J's competition was enjoying a higher price, but if sales drop off they might lower them again. After all, the 56J is one of the few tubas that is not suffering from a rise in currency costs.

Oh, and a final note about machine-made tubas: They may be hand-assembled from machine-made parts, but labor is still the largest share of cost for a tuba, especially compared to most manufactured goods. All tubas are probably more "hand-made" than most goods sold as "hand-made".

Rick "noting that higher demand = higher prices, and lower supply = higher prices" Denney

[sloan]

Price is set by the buyer, not the seller. Price fixing is an attempt to keep that from happening. Meinl-Weston establishing a minimum advertized price is not price-fixing. Canon does the same thing with cameras.

Dealers get around that by writing "Call!" in their catalogs for Canon cameras.

The XBOX's all sold for the same price because demand was high. Nobody had to sell them for less than the MSRP, because buyers were available at that price for the supply at hand.

While it's rare, automobiles sometimes sell for MORE than the MSRP. ("additional dealer profit"). This was true in 1972 when I was shopping for a 240Z, and it was true last year when my son was shopping for a Prius. When there is a 6-month waiting list, a dealer who does not raise the prices is leaving money on the table.

When I sold my last house, it was customary (in that market, at that time) for houses to sell for more than the listing price. The drill was to list at a reasonable price and then watch as a group of buyers proceed to bid up the price. Interestingly, we were told that it was a bad idea to raise the asking price - it turned out that a more-or-less "correct" asking price tended to attract a small crowd of potential buyers, who would then go into "auction mode" - the lucky winner of the auction usually overpaid.

Price is what a willing buyer pays to a willing seller.

[iiipopes]

OK, from a guy who used to both write and enforce contracts, the practical aspects of it:

1) Price is what is agreed to between buyer and seller. One or the other may "set" a price, but if both don't agree, there is no deal.

2) Price is supposed to be a negotiated detail in an "arm's length" transaction. However, since both supply and demand can be manipulated, whether by the manufacturer or by marketing, or both, this is rarely the case. The whole point of anti-trust law is to try to help keep the market fluid. Most people think of anti-trust only as monopolies, but that is only a very small part of it. Anything that gets in the way of this open negotiation is potentially a violation of anti-trust law. Just because many manufacturers do it does not make it right. So all of these MAP and other pricing "systems" or "methods" run the risk of being afoul, regardless of context.

3) Emotion is the largest contributor to price. Not supply, not demand, but the basic, fundamental, "I want it!" response. It is only after a mature buyer can recognize this and keep it in context, and exhibit the self control to walk away if the deal cannot be made, can true bargaining occur. Think about it: a person only purchases something he or she either needs or desire. If the item doesn't fulfill a specific need (define need however you want to), then it falls into the category of desire, and a lot of products are mixed. For example: I need to eat to stay alive. Do I shop at the grocery store or eat at any number of restaurants? What am I hungry for? The moment choice is introduced into the equation, then need becomes desire. The most profitable products are those whose manufacturers and marketers have taken a desire and convinced the consumer it is a need instead. I also have seen new automobiles go for more than sticker, which this particular dealer called, "market adjustment." The two models that come to mind where I live are, ironically, both Chryslers: the LeBaron convertible and the PT Cruiser when each came out in its first model year, respectively. This is even evident in our English language: the word "want" originally meant deficiency of a substantal necessary aspect. Now we use the word mainly as a synonym of desire instead.

3) There are some items you cannot "walk away from," or have insufficient diversity of source by their nature, and therefore they are governmentally regulated, like utilities, and (editorial comment here) as gasoline should be. For what products or services and how that should be done is a matter for politics and policy setting, beyond this thread.

The bottom line: if every tuba player decided tubas cost too much, then the price would come down. This may sound simplistic, and it also runs the risk that if this were carried to its absurd end, that it would not be profitable for manufacturers to make tubas, then supply would go away. Then from desire there would be people willing to spend more, and the cycle repeats itself.

The key is to be a caveat emptor educated purchaser with self discipline so that some rational analysis of what and why you are purchasing takes place, and you can walk away if you don't absolutely like the deal, knowing the manufacturer and retailer are doing everything they can to appeal to your emotion, not your reason.

[Rick Denney]

1) Price is what is agreed to between buyer and seller. One or the other may "set" a price, but if both don't agree, there is no deal.

Remember that the seller has the product and doesn't want it, but the buyer doesn't have the product and does want it. Therefore, the choice is entirely the buyer's. And the buyer has far more power in the relationship, because the seller is far more highly motivated to sell than the buyer is to buy, at least for luxury consumer goods. And a tuba is a luxury consumer good for most of the people buying them (and therefore the ones setting the prices).

It's the old Passion Paradox. The person most committed to the relationship has the least power. The seller has already made the investment and is compelled to sell, while the buyer has made no commitment and can behave whimsically.

That's why the buyer sets the price. The buyer can afford to walk away. We aren't talking about basic necessities for which demand is inelastic and supply regulated.

And don't think that emotion in any way supercedes the law of supply and demand. Goods bought on emotion may see a different demand curve, but if demand goes up, price will still go up. Why else do people pay soft-drink prices for bottled tap water?

Rick "suggesting that a contract rarely makes a sale, but can sometimes break it" Denney

[sloan]

The key is to be a caveat emptor educated purchaser with self discipline so that some rational analysis of what and why you are purchasing takes place, and you can walk away if you don't absolutely like the deal,...

I note that many reading this are (at one time or another) "sellers" and not "buyers". We need to apply this same discipline with respect to deals that we make when selling our services (or last year's tuba). Played too many disastrous weddings lately? Perhaps you're not asking enough to keep out the riff-raff?

[sloan]

1) Price is what is agreed to between buyer and seller. One or the other may "set" a price, but if both don't agree, there is no deal.

Remember that the seller has the product and doesn't want it, but the buyer doesn't have the product and does want it. Therefore, the choice is entirely the buyer's. ...

Hogwash. The seller has the choice of whether or not to produce the product in the first place. Or (more subtle), the seller may want the product, but would prefer the money - as long as the amount of money is high enough.

In a fully efficient market, prices are in an equilibrium state, where neither seller nor buyer have any particular motivation to make the deal. Deals happen because of transient fluctuations about this equilibrium.

which is why you buy a tuba one year...and sell it the next. When you buy it, for some reason you prefer the tuba over the money required to buy it...and then later on that changes.

[circusboy]

Two models came to market recently: a 4/4-5/4 CC tuba THAT ACTUALLY PLAYS IN TUNE and a 6/4 CC tuba THAT ACTUALLY PLAYS IN TUNE.

Bloke, you tease, come on out with the names of the models to which you refer.

[Rick Denney]

bloke "again, 'upscale tubas' don't quite follow the classic rules of economics, and neither do 'upscale repairs'."

Of course they do. People buy upscale tubas because they want them, and people build them because there are people who will buy them.

The fact that the people who build them are partly motivated by the desire to do so is no different than any other business. Why is my company involved in transportation? Because it is operated by transportation experts. We would probably make more money selling bagels in the lobby (okay--a bunch of lobbies).

Good business look for the intersection of what they can do better than anybody, what the market is willing to pay them to do, and what they are motivated to do. All companies exist because they are enthusiastic about the product. Only the guys who work on Wall Street (figuratively speaking) or who own banks are in the business of making money for the sake of making money.

But that doesn't mean those who do things out of desire don't also apply economic principles to what they do. Gerhard Meinl is a businessman, and he is not playing only with his own money. He has responsibilities to his investors to make sound business decisions. He will still first attempt to build a market/price model to decide how to approach his new product. Yes, he will be enthusiastic about the product, but if he can't make a business case for it, he still won't do it. Why do you think Yamaha seemed so reticent to bring the 826 to market? They were pretty sure they had a good product, and pretty sure they could sell some. But could they sell enough at the right price to exceed costs? I'm not sure they have much confidence in the answer to that even yet.

Companies might also build a world-class high-end product for the purpose of building their brand, even knowing they'll lose money on it. But even that calculus follows conventional economic principles. If they choose to undersell the market in order to build the brand, it will be a choice based on an analysis of what they will achieve.

The companies who don't consider these things often don't survive.

Rick "thinking there's nothing inconsistent between a desire to make something and the economic realities of doing so" Denney

[Rick Denney]

1) Price is what is agreed to between buyer and seller. One or the other may "set" a price, but if both don't agree, there is no deal.

Remember that the seller has the product and doesn't want it, but the buyer doesn't have the product and does want it. Therefore, the choice is entirely the buyer's. ...

Hogwash. The seller has the choice of whether or not to produce the product in the first place. Or (more subtle), the seller may want the product, but would prefer the money - as long as the amount of money is high enough.

No company wants the product. They only want the money. Maybe hobbyist sellers might choose to keep something rather than sell it at a true market price--which may explain why Dale still owns his B&M. But no manufacturer looks at inventory as a good thing.

In a stable market, those who are willing to pay the current price for the product are in equal number to the products on the market at that current price. The equilibrium is based on price. If the number of buyers at that price lessens, and the supply doesn't, the price will inevitably go down. Most companies will "blow out" their remaining inventories at a loss if necessary (and stop producing the product after that). They want the money; they don't want the product.

Your description is not different enough from what I said to merit the word "hogwash", by the way. The fact that the companies can choose whether or not to make something is a point I've made all along. They make those choices based on predictions of markets and prices. They may predict incorrectly, though, and have inventory they didn't expect to have. They tend to correct those mistakes pretty quickly, and often at a loss.

Boutique manufacturers, such as, say, Hirsbrunner and Gronitz, make most of their instruments on order rather than on spec. Thus, they aren't as vulnerable to false market predictions. Even though that lowers their costs, I haven't noticed that it lowers their price. But most manufacturers make the product first and then try to sell it, having already made the choice based on their predictions.

Rick "the point is that buyers determine prices, not sellers" Denney

[iiipopes]

1) Price is what is agreed to between buyer and seller. One or the other may "set" a price, but if both don't agree, there is no deal.

Remember that the seller has the product and doesn't want it, but the buyer doesn't have the product and does want it. Therefore, the choice is entirely the buyer's. ...

Hogwash. The seller has the choice of whether or not to produce the product in the first place. Or (more subtle), the seller may want the product, but would prefer the money - as long as the amount of money is high enough.

In a fully efficient market, prices are in an equilibrium state, where neither seller nor buyer have any particular motivation to make the deal. Deals happen because of transient fluctuations about this equilibrium.

which is why you buy a tuba one year...and sell it the next. When you buy it, for some reason you prefer the tuba over the money required to buy it...and then later on that changes.

It is not hogwash. It is empirical observation. I do agree that there may be variance of position whether you take a macroeconomic approach, as do most of the posts of this forum, or a microeconomic approach, as I did in relating my experience.

[sloan]

No company wants the product. They only want the money.

Not every seller is a "company" (I think you might mean "manufacturer").

I might sell my time. I can also USE my time. I am both a producer AND a consumer of "my time". My time has a value to me, and (perhaps) has a value to other people. When other people value my tiime more than I do, they offer me enough money so that I prefer to sell them my time rather than use it myself. As the supply of "my time" dwindles, its value to me goes up, and eventually you won't be able to offer me enough money to convince me to sell my time to you.

Yes, buyers make choices. Perhaps most buyers should realize that they have more choice than most sellers would have them believe. But the extreme view that ONLY the buyer sets the price is ... just wrong.

Maybe hobbyist sellers might choose to keep something rather than sell it at a true market price--which may explain why Dale still owns his B&M. But no manufacturer looks at inventory as a good thing.

Why do you persist in believing that only the buyer sets the "true market price"? In your example, Dale gets to partipate in the decision about "true market price". In effect, he is both a buyer and a seller. As a seller, he might be convinced to sell - but then he sees that he would instantly become a buyer and must ask: if I didn't have this B&M, how much would *I* pay for it.

Now, it's true that *some* sellers/manufacturers/companies have no earthly use for the product they produce/sell. But not all.

In a stable market, those who are willing to pay the current price for the product are in equal number to the products on the market at that current price. The equilibrium is based on price. If the number of buyers at that price lessens, and the supply doesn't, the price will inevitably go down.

but now, you contradict yourself. If the number of buyers for Maserati's goes down, at a certain point the number of Maserati's available for sale goes to zero, but the price does NOT go down. You have made this point repeatedly.

Most companies will "blow out" their remaining inventories at a loss if necessary (and stop producing the product after that). They want the money; they don't want the product.

Blowing out the inventory is transient. The steady state is that the price is still greater than the manufacturing cost and the price does NOT go to zero. Many companies have no use for their product - but that's hardly universal. I can imagine many scenarios where the company may elect to continue producing the product for internal use in the production of yet another product - one for which there are willing buyers. For example, Dale may elect to keep his inventory at exactly 1 B&M and use it to generate income by playing it for money - rather than selling it at a loss.

Boutique manufacturers,

I'm amused by the way you divide companies into two classes: "most companies" (those that work the way you say all companies act) and "(insert adjective here) companies" which behave differently. "botique manufacturers"..."hobbyist sellers"... Proof by innuendo?

Rick "the point is that buyers determine prices, not sellers" Denney

And the other point is that sellers can and do have a bit to say about prices, too.

Ken "putting the point in a signature doesn't make it more true" Sloan

Proof by aphorism only goes so far.

[Rick Denney]

Maybe hobbyist sellers might choose to keep something rather than sell it at a true market price--which may explain why Dale still owns his B&M. But no manufacturer looks at inventory as a good thing.

Why do you persist in believing that only the buyer sets the "true market price"? In your example, Dale gets to partipate in the decision about "true market price". In effect, he is both a buyer and a seller. As a seller, he might be convinced to sell - but then he sees that he would instantly become a buyer and must ask: if I didn't have this B&M, how much would *I* pay for it.

If there was a buyer willing to pay Dale's price, he would no longer own the instrument. Given that true market price is set by what a buyer and a seller can agree to, and given that the seller wants to sell, the buyer has the final decision of whether or not to buy. Thus, the buyer sets the price. Without a buyer, there is no market, and therefore no "true market price".

An unmotivated seller is what I call a hobbyist seller. We were talking about why tuba manufacturer prices were going up (or how Toyota analyzed the market), not about individual buyers and sellers who may or may not be motivated. An individual selling one item on an occasional basis is not, in my opinion, a seller until a buyer emerges and a deal is made. Someone in the business of selling is always motivated. Else, they have no reason to exist as a seller.

I sell time with a whole lot more motivation than you do. You are privileged to sell some, but if you don't it's no big deal. Thus, you can set a price below which you won't sell at all. (I'm not talking about research as an academic, but rather taking consulting gigs on the side, which I'm assuming your university allows.)

If my company sells fewer than about 1500 of my hours a year, I'll be out of a job. That motivates my company to sell my time. The price at which they will sell my time varies quite a bit, depending on how much of my time is in inventory. They'll sell it at a loss rather than not selling it at all. My hourly rate (price) varies by at least 40% on the projects I'm currently working on, despite that costs are identical between them. Some buyers pay less because they refuse to pay more, and if the alternative is to leave hours unsold, then we'll still accept the work. I make sure that my company doesn't raise my salary (which is what determines cost) to the point where I can't sell it at an acceptable price. Again, even in my consulting work, the buyer sets the price.

Of course, that doesn't mean that a seller doesn't try to change the price the buyer is willing to pay through marketing activities. But ultimately the seller relies on the persuasive arts to try and raise the price, and the decision remains with the buyer. The seller may write something down on an a quote, but if the number written there is above what the buyer will pay, than there will be no sale, no market, and no true market price.

Rick "noting that economists are referring primarily to buyers when they use the term 'market'" Denney

[sloan]

... Given that true market price is set by what a buyer and a seller can agree to, and given that the seller wants to sell.

Why is this a "given"? I rather think that it is given that the seller wants to make a profit (or avoid a larger loss than he would sustain if he did not sell). The "desire to sell" sounds like the kind of motivation a "boutique" or "hobbyist" seller might have - not a commercial profit-seeking enterprise.

the buyer has the final decision of whether or not to buy. Thus, the buyer sets the price. Without a buyer, there is no market, and therefore no "true market price".

And without a seller there is no product, and therefore no "true market price".

The argument is symmetric.

I can just as easily postulate a buyer searching for a product, and a seller who has the "final decision of whether or not to sell".

The high-tech world is just chock full of examples. Bleeding-edge consumers generate a "desire" for all sorts of products - and even set a price at which they will buy the product. There's a buyer, and a suggested price...but the "final say" on the actual price is the supplier who actually creates the product and offers it for sale (or not).

You are assuming an assymetric world, an assumption that I do not accept.

You recognize that your assumptions do not hold in some cases, but apply (pejorative) adjectives ("hobbyist", "boutique") to describe these cases.

In short, you beg the question.

[to be fair, I should offer the HINT that you might want to argue an assymetry in the KIND of consideration offered on each side. The buyer generally offers "money" and the seller generally offers "goods". Everything may well hinge on whether or not the consideration offered can easily be used for some other purpose if the deal does not go through. For example, I'm at the time in my life where I might consider money to be useless to me if I don't spend it - and soon. For some (most?) people, money loses value if not spent - just as surely as goods lose value if not sold. But, if that's the argument you want to make, it has to be a better one than "it is a given that..."]

If my company sells fewer than about 1500 of my hours a year, I'll be out of a job. That motivates my company to sell my time.

Or, it might motivate your company to let you go. It all depends on how expensive it is to let you go as opposed to selling your time at a loss.

The price at which they will sell my time varies quite a bit, depending on how much of my time is in inventory. They'll sell it at a loss rather than not selling it at all.

They are not selling it at a loss - they are selling it at a price which makes a profit *compared to the alternative (letting you go)*, including the lost opportunity cost of not being able to sell your time at a higher rate at some time in the future, which they hope they have predicted accurately.

If NO ONE steps forward to buy your time, there is a price below which they will not go. They will let you go rather than sell your time. This suffices to disprove your assertion that it is *always* the case that "as demand goes down, price goes down". In this case, as demand goes down, fewer units are made available on the market. And yes...sometimes it is cheaper to throw away inventory than it is to do the paperwork on a sale. Not to mention that company may not want to set a precedent by selling even one hour of your time at a fire-sale price. Other customers might notice and negotiate more aggressively (in the future).

Therefore, the seller DOES have a say in setting the price. And, it may well be the *final* say. Not every transaction is an "absolute auction" - sometimes there is a reserve price.

My hourly rate (price) varies by at least 40% on the projects I'm currently working on, despite that costs are identical between them. Some buyers pay less because they refuse to pay more, and if the alternative is to leave hours unsold, then we'll still accept the work. I make sure that my company doesn't raise my salary (which is what determines cost) to the point where I can't sell it at an acceptable price. Again, even in my consulting work, the buyer sets the price.

But...but...you just said that *you* (the seller) "makes sure" that your price (what you sell to the company) does not go up. Isn't that a statement that the seller sets the price? I'm confused by this example - do you mean that the company *might* raise your salary when times are flush...to the point where they would be forced to fire you for lack of business when times are bad?

There are boundaries on both sides of the market price. The seller sets the lower bound, and the buyer sets the upper bound. If you *assume* that the seller has set a lower bound of ZERO, then your conclusion ("the buyer sets the price") follows logically. The problem is that I don't believe your premise. I believe that sellers have a floor and try to raise the price from there, while buyers have a ceiling and try to lower the price from there. In that middle zone, *neither* party has the final say - it's a symmetric negotiation.

So...the car dealer says to you "what will it take to get you to buy this car today?" and you answer "the buyer sets the price - and I'm the buyer, so...$1". Does the dealer answer "you're right - the buyer sets the price; here are the keys"???

Perhaps you mean "all the *other* buyers in the market set the price for this particular buyer"? In which case, I'll reply that it works the other way around as well (except that, in some sense all "buyers" are interchangable, while sellers tend to be associated with unique products).

The key question is: what nitty-gritty detail about sellers and buyers breaks the symmetry. I suspect that you think it has something to do with "inventory" - but your argument doesn't make that clear. For me, it's more likely to have to do with the *kind* of consideration offered: how is "money" different from "goods" or "services". And...who do you think "makes the final decision" in a barter arrangement? Who is the seller and who is the buyer?

No more D.S. - go directly to CODA.

[sloan]

[quote="bloke"]http://www.townhall.com/columnists/Walt ... inking_101[/quote

Everyone needs to read this.

Bloke shouldn't be chatised for pointing it out.

[smurphius]

Hm... neat little article... very good!

[iiipopes]

Indeed.

[iiipopes]

Those who study only economics and try to explain markets solely in that manner would be well advised to study psychology.

[iiipopes]

I hate to pop your bubble, but there are now so many different theories and philosophies of economics, as there are as well with other disciplines, such as psychology, that even if everybody were better educated, especially politicians, about economics, it would just create more viewpoints to argue about and even less would get done, ironically decreasing economic benefit.

[Rick Denney]

Ken, we are arguing for the sake of arguing, not for the sake of illuminating the subject at hand. Let's stop.

My point was to make sure that folks understand that they have control over prices. If the price is too high--don't buy. They are not a victim of high prices when talking about a luxury item like a tuba (as it is for most people).

It was also to make people realize that manufacturers who are using investor money have a duty to charge the highest price they can when they are constrained by capacity, or the best mix of cost and price if they are not, in order to maximize profits. It is not only not immoral for them to do so, but in many cases unethical for them not to. So, the reason prices may have gone up can be because we are still willing to pay those prices and nothing else. There doesn't have to be a cost reason.

It was not my intent to be pejorative with "hobbyist" and "boutique". I'm a hobbyist tuba player, and I don't think that represents a self-esteem problem. And by "boutique", I mean that they sell only limited quantities of a high-end product to a customer willing to pay a high-end price, often because that's what the owner of the company wants to do. Individual owners can make those choices and are under no obligation to maximize their return on investment.

Rick "knowing that every good salesperson looks for the 'flinch point'" Denney

[sloan]

Ken, we are arguing for the sake of arguing, not for the sake of illuminating the subject at hand. Let's stop.

Ken "thinking the point would have been made more strongly if you had stopped there" Sloan