Tuesday, December 9, 2014


Today, the CBC published a work by Chris Hall who reports the Canadian federal government wants to give new powers to the Competition Bureau because Canadian politicians have told voters that voters suffer from geographic price discrimination.

Like their Australian brethren Canadians believe they pay more than Americans for the same products. Back in September, in DO YOU COME FROM A LAND DOWN UNDER WHERE PRICES GROW AND MEN PLUNDER?, I showed that Australians likely pay the same prices.

So, I decided to find out for myself. I looked at products made in Canada as well as products made elsewhere. Canadians pay much more for products made in Canada than they do for products made elsewhere.

Canadians pay much less for all kinds of cool products like the Microsoft Surface Pro 3, the iPad Air 2 and even a Fender Stratocaster!

Canadians pay much more for cars and tires.

Of course, my random selection of products cannot be construed as scientific.

Sadly, Chris Hall perpetuates the Ricadian myth that costs producers outlay to make things has anything to do with the prices they can fetch in actual sales by having written, "While higher labour costs, tariffs and the cost of transporting goods to Canada are some of the reasons goods can cost more here than in the U.S..." 

Heed my dictum: Costs have nothing to do with prices. Costs have everything to do with profitability.

Regular readers of Bizarro Theater will have learned by now the reality of prices. All prices get governed by the one, true, infrangible law for all of trade — the Law of Prices. The Law of Prices holds the winning bids of purchase and sale in the face of what is on offer sets the price. 

It's the actual buyers of things who set prices. Whether those prices are high enough so the sum of sales on those prices lets a seller at least break even is another matter.

The whole trick of business is producing so that one can adhere to the Axiom of Profit on given prices set by winning bidders. The Axiom of Profit holds the sum of sales on prices set by winning bidders must at least equal the cost of production, otherwise the seller goes to ruin.

Costs of Production arise in the production and manufacture of a thing. Producers incur expenses.

Sellers can reduce their offering prices when they acquire their products at lower-to-them prices. As long as the sum of their sales at least equals their outlays, such sellers offering alike products can remain in business. If their competitors cannot do so, in short order, their competitors go to ruin. The Axiom of Profit prevails.

Any right-minded thinker can envision a producer who incurs $10,000 in costs to produce collapsible pick-up truck racks. Lets say he produced 100 racks. The costs distributed over 100 racks is $100 for each rack.

Such a producer could offer one rack for $400. Let's say that no one buys one rack at $400. Reluctantly, the producer reduces the price to $300 a rack. Again, let's say no one buys at $300, worriedly, the producer reduces the price to $100.

At at $100, the producer sells one rack. He earned $100. Yet, his costs of production remained at $10,000. Owing to the great Axiom of Profit, he goes to ruin precisely because the sum of his sales did not equal his cost of production.

The producer needed to sell all 100 at $100 to stay in business. The producer could have sold 50 racks at $200 to stay in business.

It is winning bidders of purchase and sale in the face of what is on offer — in our example the customer who paid $100 — who set the price.

Costs relate with profit. Costs fall under the great Science of Profit. 

Costs are a factor of production. Costs and sales govern whether or not a producer can stay in business. If something cost more to produce, that means there is less profit and if costs exceed the sum of sales, in short order, the producer goes to ruin.

Prices relate with winning bids of purchase and sale. Prices fall under the great Science of Wealth. Prices arise from trade.

The idea that costs have anything to do with prices is laughable on its face and comes from a huge fallacy pushed by David Ricardo and perpetuated by Karl Marx.

Two producers could face the same material costs, but one producer renders a superior design. When both producers offer for purchase and sale their products to those with cash and credit, the one with the superior design could capture the lion's share of sales. If the inferior design producer fails capture enough sales to cover his cost of production, in short order that producer will go to ruin.

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