An easy question?

massdebater
massdebater

So I like listening to biz podcasts casually sometimes, and I used to watch that faggot Martin Shkreli.

He once posed a question along these lines, how can a country/ company keep producing huge amounts of product at increasingly low prices and still be profitable. He never really answered it, and I always thought demand would be the limiting factor. The US seems to work this way. Can someone give me a simple explanation?

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youtube.com/watch?v=33bouyeSh-w

kizzmybutt
kizzmybutt

How did this dipshit ever get hired as a CEO?

TreeEater
TreeEater

Well no doubt he is a very smart guy, was into finance from 13 years old according to him, Interned at a hedge fund at 16 or so. He's just immature to a ridiculous degree. I blame the system that lets defacto monopolies on drugs exist more than I blame him though.

I was watching him chat very late one night (I think his PR guy makes him stream DESU) and I was a little shocked when he basically admitted the insurance industry is complicit in price rises.
He said he could literally raise the prices as high as he wanted.

PackManBrainlure
PackManBrainlure

how can a country/ company keep producing huge amounts of product at increasingly low prices and still be profitable

There can be a million different reasons for why it's "still profitable", but just to name one on top of my head - supply chain integration. If you own the entire supply chain for a specific product, you can always undercut everyone else in the world due to them being forced to go through middlemen, while you own the middlemen. That comes at a price tho, you're draining potential profit from your subsidiaries and redirecting it to your head company of the supply chain so it can undercut.

To answer your question, you flood the market with your stuff, get revenue, buy parts of the supply chain, reduce the price while maintaining the relative profit spread (due to manufacturing being cheaper), more people buy more of your stuff due to lower prices, which allows you to buy more of the supply chain and so on until no one can directly compete with you anymore due to you being able to FLOOD the market with absolutely cheap products. Walmart is doing that for an example and has one of the best supply chains, which is probably the key to its success

WebTool
WebTool

Thanks, that's some of it, then.
I think truck driver is the 2nd biggest job in America after Walmart, If that all becomes automated a lot of ppl will be out of work, I think it'll put the number of outsourced jobs in the shade lol. Interesting times to come.

LuckyDusty
LuckyDusty

optimization of production processes maybe

Fuzzy_Logic
Fuzzy_Logic

But you should know that while you can buyout the entire supply chain for your product, it's only a temporary boost. When you turn one of those companies into your subsidiary, they stop innovating and start aging instead. If you fund them to innovate and stay competitive, then the purchase was pointless in the first place since you get a value from holding them and then pay it back for innovation. The correct approach to this is to calculate and time it very carefully under the right conditions, when you're sure that global innovation for your specific product is about to reach a bottleneck for an example, which extends the lifetime of your subsidiary where it can operate competitively without needing your capital to innovate and stay competitive (or relevant to the current market). You can't just buy a steam locomotive company so you can deliver your coal for cheaper and hold on to it for a significant time, due to trucks and a better version of your locomotive being invented, which forces you to either refurbish your entire company, or have your supply chain become irrelevant due to other companies integrating this new technology into their more efficient chains.

Crazy_Nice
Crazy_Nice

By creating demand, destroying competition and making backroom deals.

Harmless_Venom
Harmless_Venom

There are many many reasons for this. They can't all be explained simply.

1) Industry competition and hypercompetition might necessitate lower prices without an increase in profit - there might be an illusion of cheapness which isn't real

2) Horizontal integration - See Volkswagen Group, Vertical integration - See Apple

3) Mergers and Acquisitions to increase industry control

2 and 3 could both increase costs if they're employed inappropriately, see Hewlett Packard

4) Biggest reason - economies of scale - the more you produce the cheaper it gets per item. If you're buying steel in larger and larger quantities to make your product, the cost per kg (or whatever) decreases, etc

5) Experience Curve - the more you produce, the better you get at production - tacit knowledge of staff increases, mistakes decrease, efficiencies increase etc

6) Globalisation - see Li&Fung and US clothes industry

7) Legislative reasons - government grants for certain industries - government issuing more H1Bs etc

8) Industry lifecycles - as industries develop the dynamics between companies change. In a maturing industry, prices may decrease due to competition. In the late stage of an industry lifecycle the opposite happens as competition decreases

9) Product lifecycles - more people buy products as the lifecycle of the product matures. If the cost of goods sold doesn't scale linearly with production (e.g. selling a program) then the price can be decreased. The opposite happens as a product's life declines

10) Production efficiencies

11) Control of the supply chain - as you sell more you have more control of the supply chain and have advantages over competition - see Dell during their heyday

The list goes on and on.

You'd be best off doing a PESTEL analysis for the particular industry that you're interested in, and then if you're really interested, read intros to Organisational Strategy, Marketing, Operations Management, Supply Chain Management, Finance

haveahappyday
haveahappyday

I meant to add...Integration and M&A *can* enable the production of cheaper products while retaining profitability, but ultimately the goal of industry control is the ability to increase prices. You can look at the car rental industry as an example of this.

Gigastrength
Gigastrength

Wow thank you, honestly I'm a noob but I like to learn bits and pieces.

whereismyname
whereismyname

Dude.

I watched that asshole on fb the other day.

Twitter b& him.

So not 3 hours later fb shitstorm on twitter followed by a live strea..

The madman.

Fucking turns on livestream and rolls over and take a 3 hour nap.

To troll at this level....

Spazyfool
Spazyfool

You could look up all the terms I mentioned and understand them quickly enough, but if you're completely unfamiliar...there's a pop-business book called Lords of Strategy which goes through the genesis of the main consultancy groups. A lot of the concepts I mentioned were created/described by them, so the book touches on them as it progresses.

It was a long but easy enough read, if I remember right. It specifically goes into the question you asked in relation to costs of production, at one point.

Dreamworx
Dreamworx

You're a retard. Don't diss on Shkreli. You don't even fucking understand who he is or how Turing pharmaceuticals works. You know what's mature? Not being a god damn Buzzfeed-reading moron who thinks he can talk down to one of the smartest people in the world while not being able to think of a single way companies reduce costs.

Are you a multi-millionaire? Did you invent a cure for a crippling disease all by yourself? No? Fuck you. Don't call your superior a "faggot" or "immature to a ridiculous degree".

"I like to learn bits and pieces"

This is why you are a cock-sucking noob. Stop running your mouth off.

Nude_Bikergirl
Nude_Bikergirl

Thank u truck driving school raquet.

$3,000 for truck driving school.

98% turn over rate.

98%!!!

60+ students a week shoved through this place and ran off... 2,000 trucks.

Over 3,000 people a hear hired and fired or ran off at a company of 2,000...

Lord_Tryzalot
Lord_Tryzalot

Ph-pharmabro...
Is it you?

Deadlyinx
Deadlyinx

Because of the lower and lower costs, consequence of the increasement of productivity

Fried_Sushi
Fried_Sushi

kill yourself

JunkTop
JunkTop

Truckers will not be obsolete until the public learns to accept that mindless robots will be hauling 40ton vehicles and killing people as often as truckers do. Then businesses will have to accept the autodrivers cost as much as the truck while humans are cheaper than ever.

King_Martha
King_Martha

Thanks, earliest biz lesson I had when I was 14 or so mentioned improving supply chain.

Shkreli often cites Warren Buffet when he's talking about price rises; even if less ppl buy the product the rise in price more than makes up for it ... so it goes

But then he asks that question and it seems to work in the complete opposite way, which is simple enough, but all I can think is if america aims to produce so much there must be some ceiling to demand though.
Perhaps I've just been surprised how cheap things are in the US relative to Europe, when ever I heard how much something cost it just sounded to damn low to make sense.

Don't do memes kids!

Shkreli has done some good things, maybe he isn't such a bad guy but the drug pricing system is pretty damn broken, the epipen price rise for example, was a lot worse.

There was another Pharma guy on his streams sometimes, he was actually pretty intruging, knew all the drugs, he was kind of paranoid but very clever, said he was buying gold and building a bunker, never showed his face.
This was the guy:
youtube.com/watch?v=33bouyeSh-w

viagrandad
viagrandad

He came up with a decent Shkreli pasta to boot:

What the fuck did you just fucking say about me, you little bitch? I’ll have you know I graduated top of my class in econopharmacology, and I’ve been involved in numerous secret hedge fund acquisitions of orphan drugs, and I have over 300 confirmed kills. I am trained in gorilla warfare and I’m the top CRISPR/Cas9 genetic engineer in charge of reviving Harambe. You are nothing to me but just another experiment. I will wipe you the fuck out with de novo mutations the likes of which has never been seen before on this Earth, mark my fucking words. You think you can get away with saying that shit to me over the Internet? Think again, fucker. As we speak I am contacting my secret network of clandestine BSL-4 operators across the USA and your IP is being traced right now so you better prepare for a glioblastoma cell line in your spinal column expressing ebola proteins and five kinds of new kidney disease your clueless nephrologist hasn't even read about in med school. You’re fucking dead, kid. I can be anywhere, anytime, and I can kill you in over seven hundred ways, and that’s just with micropipettes and shit from sigma-aldrich. Not only am I extensively trained in biological warfare, but I have access to big pharma's entire pipeline and I will use it to its full extent to wipe your miserable ass off the face of the continent, you little shit. If only you could have known what unholy retribution your little “clever” comment was about to bring down upon you, maybe you would have held your fucking tongue. But you couldn’t, you didn’t, and now you’re paying the price, you goddamn idiot. I will shit fury all over you and you will drown in it. You’re fucking dead, kiddo.

Burnblaze
Burnblaze

Eventually you get to a point where in order to keep costs down you hurt the customer and the worker.

See: sweatshops, food that contains cellulose (aka sawdust) or other poisonous food additives, outsourcing labor, unpaid overtime, ECT.

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