Is High Price a Rip – off?

Prices perform a number of important functions in a market economy like ours. By market economy I mean a situation where products are sold to buyers who pay the price asked by sellers.

The first function of a price is to recover the costs a supplier incurs in producing the products. If the sale price does not at least recover costs, the supplier must either find a lower cost way of providing the good or not produce it, either at all or in lesser quantity. Charging a high price, where high means a price greater than other alternatives available to buyers, is a very risky strategy. The supplier risks losing potential customers to other suppliers and not recovering their costs. In our examples above, it could mean a very small line outside the dressing room door or empty seats at a concert or in a stadium.

A price greater than other alternatives available to buyers, is a very risky strategy. The supplier risks losing potential customers to other suppliers and not recovering their costs. In our examples above, it could mean a very small line outside the dressing room door or empty seats at a concert or in a stadium.a price greater than other alternatives available to buyers, is a very risky strategy. The supplier risks losing potential customers to other suppliers and not recovering their costs. In our examples above, it could mean a very small line outside the dressing room door or empty seats at a concert or in a stadium.