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Author Topic: A fallacy in the "need current conversion rates" pricing arguments?  (Read 1003 times)
markm
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March 10, 2012, 03:34:56 AM
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I can understand the desire to sell inventory for far far more than you paid for it, gas (petrol) stations used to love doing that for example.

But isn't it considered to be more "reasonable" to average the vost of your inventory as you buy it, so when you get it cheap, the price you charge for it after your retail (or whatever) markup is lower, passing on the savings to the customers?

And similarly, if you buy a batch that costs more, the average cost went up, and that too ends up being passed on to customers?

If that actually is a reasonable practice, then you should not need to know what bitcoins are selling for on some market somewhere when you sell some of your inventory, all you need to know is how many bitcoins that inventory cost you and your retail markup.

Obviously whoever is stuck with those two famous pizzas in their inventory might find fault with such an approach, but luckily in that particular case they problem ate that "loss" already...

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Fizzgig
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March 10, 2012, 03:50:05 AM
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No, that makes no sense at all, because a thing called liquidity exists. If you passed your savings onto customers by selling a product lower than market value, that would just be unwise because you can get a better price instantly (assuming the asset you are selling is very liquid). If you want to give money away then yes, you can do that just fine.

The whole idea of markets is price discovery. Did I understand and/or answer your question at all?

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markm
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March 10, 2012, 03:52:01 AM
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I don't know, maybe I mis-understood the whole gas-station thing.

If I picked up a bunch of inventory back when my bitcoins were worth USD $30 each, I ought to be able to undercut other dealers of that type of inventory right now by quite a bit.

On the other hand if I bought inventory now while my bitcoins fetch far less than that, I wouldn't want to be stuck with such expensive inventory when inventory prices go back down (aka bitcoins go back up). Thus, I'd be (and in fact I am) wary of buying inventory right now.

(I include inventories of USD, CAD, and similar pieces of paper or cheap metal in that too of course.)

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DeathAndTaxes
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March 10, 2012, 05:38:04 AM
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What you paid for inventory is irrelivent.  What matters is what price consumers are willing to pay and they don't care if you bought at $30 or $3.
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March 10, 2012, 05:46:05 AM
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What you paid for inventory is irrelivent.  What matters is what price consumers are willing to pay and they don't care if you bought at $30 or $3.

+1
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March 10, 2012, 05:52:23 AM
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What you paid for inventory is irrelivent.  What matters is what price consumers are willing to pay and they don't care if you bought at $30 or $3.

what's relevant is the cost of replacement of your inventory.

if you paid $3 some months ago, and a customer wants to buy today, what are you going to do with the money they give you? you're going to restock, at TODAY'S prices.
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March 10, 2012, 05:55:55 AM
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What you paid for inventory is irrelivent.  What matters is what price consumers are willing to pay and they don't care if you bought at $30 or $3.

what's relevant is the cost of replacement of your inventory.

if you paid $3 some months ago, and a customer wants to buy today, what are you going to do with the money they give you? you're going to restock, at TODAY'S prices.

+2  =)
JoelKatz
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March 10, 2012, 06:07:08 AM
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If I picked up a bunch of inventory back when my bitcoins were worth USD $30 each, I ought to be able to undercut other dealers of that type of inventory right now by quite a bit.
Sure, but only because you made a profit on the purchase that you are now giving away for no logical reason. You can't expect to make it up by selling above market some of the time because nobody will buy from you when you are above market. So when you have gains due to good luck, you'll give them away. When you have losses due to bad luck, you'll be stuck with them. And consumers will shun you because your pricing won't be reliable.

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Phinnaeus Gage
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March 10, 2012, 06:14:01 AM
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What you paid for inventory is irrelivent.  What matters is what price consumers are willing to pay and they don't care if you bought at $30 or $3.

what's relevant is the cost of replacement of your inventory.

if you paid $3 some months ago, and a customer wants to buy today, what are you going to do with the money they give you? you're going to restock, at TODAY'S prices.

I buy reclaimed lumber daily from different suppliers at different rates, then resell it at a somewhat fixed rate depending on the customer.
Exonumia
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March 10, 2012, 06:46:05 AM
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This might help... http://arnoldkling.com/econ/markets/efficiency.html

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