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View Diary: Papa John's CEO is exaggerating when he tries to scare you on Obamacare's cost per pizza (140 comments)

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  •  It's not a myth. (3+ / 0-)
    Recommended by:
    drmah, tinfoilhat, rhauenstein

    Taxes and regulatory expenses are a special case of costs because they apply to everyone in the business.  There is no disincentive to pass them along.  

    Pretty much the same thing happens when ingredients go up in price.  They go for everybody, so everybody passes along the increase.

    The most likely reason that Papa Johns isn't passing the increase along yet is because it hasn't been incurred -- and hasn't hit their competitors yet, either.

    LG: You know what? You got spunk. MR: Well, Yes... LG: I hate spunk!

    by dinotrac on Thu Nov 15, 2012 at 04:54:05 PM PST

    [ Parent ]

    •  If costs go up... (0+ / 0-)

      ...I have to make a decision whether or not to raise my prices.

      If I know that my competitors will raise prices, then that's collusion.

      PJ knows that if they raise prices too much people will simply not eat out. They have already fixed their price at what they think is the maximum they can get away with.

      •  No. Collusion requires agreement. (0+ / 0-)

        Deciding it's safe to raise your prices because you figure that others will also raise theirs is not (in most cases) collusion.

        Your assertion that that PJ has already fixed their price at the maximum they can "get away" with does reflect an Econ 101 understanding of basic market forces, but falls a bit short as an analysis:

        1. While it's true that people will not go to restaurants if the price of restaurant food goes too high, that is not the only price determinant.  Papa John's must also compete with other pizza joints (specifically) and other restaurants targeting the same customer space. That competition may (and likely does) cause prices to be set at levels lower than the price that will cause potential customers to eat at home instead.

        2.  The actual pricing decision is based on profit maximization, not some single price point to which all businesses must adhere.  For example, Apple prices its products significantly higher than competitors' products.  Consequently, iPhones do not make up a majority of the smart phone market.  iPhones are not even the most popular brand of smart phone.  That suits Apple fine: they earn the biggest margin in the industry.  They make more money on fewer phones than their competitors.

        LG: You know what? You got spunk. MR: Well, Yes... LG: I hate spunk!

        by dinotrac on Thu Nov 15, 2012 at 10:39:08 PM PST

        [ Parent ]

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