Going to add a slightly devil's advocate view here.
I used to be the conference directory for a college club sport (specifically, paintball).
Part of my job was to find paintball fields to host college events. It's important at to say that the organization that funded these events was 501(c)(3) aka "non-profit" and we therefore were trying to minimize costs.
Something we ran into was this scenario:
- Fields knew we were college focused and a non-profit
- They would generally, out of the goodness of their hearts, charge us at cost or even below cost for our events
- This would sometimes mean turning away hosting events or players with better margin. You could argue that the fields received great free advertising by hosting events so it wasn't a net loss for them.
- That being said, we sometimes saw events coming back the next year saying "it wasn't worth it to host your event"
- This was a problem given that there were only limited fields AND I had a full time job at the time so, ideally, we would use the same field every year
- I would therefore add 10% to whatever cost the fields proposed to us as a "tip"/"return fee" to make sure they were happy
Now, you could argue that my job was to make sure that we always received the lowest possible price given our constraints on field safety, size and location.
I would argue that was ignoring the long term cost to the organization (and my time) to having to keep finding fields that would host us if we tried to minimize cost.
I mention this b/c companies maxing out profit to whatever the customer can bear feels like an excellent short term strategy. If by doing so, they drive customers into debt and then bankruptcy etc, this seems like a net loss to everyone on the longer timescale.
To finalize and maybe clarify: these discussion always seem to end up in a "well, companies maximize profits!" while ignoring the negative long term implications of that strategy.
In labor economics, they refer to that slightly higher price (compared to the minimum clearing price) as an "efficiency wage" - it describes the same thing you describe above. Only note that this is a profit maximizing behavior - as companies pay out efficiency wages to avoid turnover costs or an unproductive workforce.
> It's important at to say that the organization that funded these events was 501(c)(3) aka "non-profit" and we therefore were trying to minimize costs.
Were they actually a charitable organization, or a non-profit? Because those are not the same.
The Firefighters Association at my fire department held a 501(c)(3) for years, but were not inherently meant to be (because although we didn't solicit outside donations, and did do community service/donations, we also used association funds to do things like member events).
Quoth the IRS, Publication 557:
Purposes deemed to be eligible:
- Religious
- Charitable
- Scientific
- Testing for public safety
- Literary
- Educational
- Fostering of national or international amateur sports, and
I used to be the conference directory for a college club sport (specifically, paintball).
Part of my job was to find paintball fields to host college events. It's important at to say that the organization that funded these events was 501(c)(3) aka "non-profit" and we therefore were trying to minimize costs.
Something we ran into was this scenario:
- Fields knew we were college focused and a non-profit
- They would generally, out of the goodness of their hearts, charge us at cost or even below cost for our events
- This would sometimes mean turning away hosting events or players with better margin. You could argue that the fields received great free advertising by hosting events so it wasn't a net loss for them.
- That being said, we sometimes saw events coming back the next year saying "it wasn't worth it to host your event"
- This was a problem given that there were only limited fields AND I had a full time job at the time so, ideally, we would use the same field every year
- I would therefore add 10% to whatever cost the fields proposed to us as a "tip"/"return fee" to make sure they were happy
Now, you could argue that my job was to make sure that we always received the lowest possible price given our constraints on field safety, size and location.
I would argue that was ignoring the long term cost to the organization (and my time) to having to keep finding fields that would host us if we tried to minimize cost.
I mention this b/c companies maxing out profit to whatever the customer can bear feels like an excellent short term strategy. If by doing so, they drive customers into debt and then bankruptcy etc, this seems like a net loss to everyone on the longer timescale.
To finalize and maybe clarify: these discussion always seem to end up in a "well, companies maximize profits!" while ignoring the negative long term implications of that strategy.