Kuta Beach

Kuta Beach

Sunday, 8 July 2012

Where there is a profit there is a rip off

The article Mr Money: the most profitable car companies claims that consumers looking to buy cars should consider buying from car manufacturers who are highly profitable. According to the author, these companies, because they are profitable, are able to offer more discounts:
For customers in the market for new cars, it's essential to know which makers are rolling in money and therefore able to lower their prices or offer incentives such as zero per cent finance or free insurance. Equally, it's just as important that consumers know if they're buying from a struggling manufacturer which might be unwilling or unable to offer good deals or even offer a little flexibility on price.
However, I think this is the wrong way to think about company profitability and finding a car that is value for money. Suppose a can of Coke costs $1. Suppose I buy it from someone who sells it for only $1 and hence that individual makes no profit. Suppose I buy it from someone who sells it for $10 and therefore makes a $9 profit. Clearly I am being ripped off by the provider who sells the Coke for $10. All else equal, the higher the profit, the greater the rip off.

If a company is many enormous profits, a customer should wonder how that company many enormous profits in the first place. There is a good chance that it has ripped off consumers by charging prices that are well above costs.

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