Market Pricing

Paper Summary:

This paper discusses that, like Kahn's Chicken Soup, no matter how the prices at wholesale and retail are artificially managed, in the end, consumers are going to determine how much demand there is, how much they are willing to pay to satisfy their demands, and if there are alternatives. The author extends the parable to examples from marketing airlines and power. The paper demonstrates that government "tinkering" with supply and demand through price caps may do no more than slow down the rise and fall of the price; it will not eliminate the demand completely.

From the Paper:

"What a dilemma! Kahn's was squawking to the government because it was actually taking a loss on its soup. It was producing less, so the loss would be lower. But it was afraid it would lose its loyal customers, so it couldn't stop making chicken soup completely, and anyway, that was its only business. Consumers wanted to eat more soup, so when they couldn't find any on supermarket shelves, they complained to their representatives and ,not only that, they began to bad-mouth Kahn's and actually say good things about their HMOs."

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