Fair Market Price (was Re: EC-1 fiasco....)

At 12:58 AM 11/6/00 -0800, Mike wrote: And other message took me to task for some "low ball" bid. But both Mike and Craig have expressed a misunderstanding that is important for people to avoid. The Market Price (MP) is defined between the set of all buyers for a product and the seller of the product. The "Worth" of something is defined by a successful transaction. When someone offers something for sale anywhere, whether it is on this list, at a garage sale, or at the supermarket, they can either "pre-price" it or simply ask for offers. No matter what prices are offered they are "fair" in the sense that this is what the buyer is willing to pay for the product. They may not be accepted by the seller, in which case there is no market and thus no determination of worth. Sellers have something that they think is "worth" $X Buyers see something that they this is "worth" $Y What are these people really thinking? That they would participate in a transaction where the price was acceptable to them. Now of course anything under $Y is acceptable to the buyer and anything over $X is acceptable to the seller, so if you graph it, it could be something like: Price -> Seller ............$X******************* Buyer ************$Y................ ^ +-- Sales price Price -> Seller ..............$X**************** Buyer ***********$Y................... ^ +-- No Sale is possible Price -> Seller ..........$X*************************** Buyer ***********************$Y.............. ^ +-- Mucho haggling is possible This is just an expression of price elasticity done in a slightly different way. Now one could make the argument that the "Fair" price, if a sale was possible, was one that right at the center between $X and $Y (assuming $X < $Y) which would give the seller a premium over their price and the buyer a discount under their price that was equal, but it doesn't really work out that way. In fact the situation is more like this: Price -> Seller ..........$X*************************** Buyer1 ********$Y.............|................ Buyer2 *************$Y........|................ Buyer3 *********************$Y|................ Buyer4 ******************$Y...|................ Buyer5 ************************$Y.............. ^ +-- "Fair" price Here there are multiple buyers and the "fair" price is mathematically defined as just over the price of the next highest buyer's limit. Did Buyer1 try to "low-ball" this seller? No they just had a lower price that they were willing to pay for the product. If the buyers are finite then the next time the seller sells one of these widgets the price will be _lower_ because the "best" buyer already has one. At the next level you add multiple sellers and multiple buyers and now you're doing differential equations to figure out prices :-) --Chuck