Are most britains up for ending prohibition of drug?

[Mise]

No you would not, because SOMEONE would always sell it for less, if they could make some sort of a profit. Everyone will buy it from the cheapest seller.

This is how economics works. If you think for some reason the market in drugs would be different from every other comodity then give your reasons.

It's different because the demand doesn't depend on the price. It doesn't matter how low the price is, there will still be a fixed quantity that you can never sell more than.

And what you said in your first sentence isn't true. I don't know how better to demonstrate that than with the example in the previous posts.

 

[Samson]

It's different because the demand doesn't depend on the price. It doesn't matter how low the price is, there will still be a fixed quantity that you can never sell more than.

There are many examples of products than have inelastic demand. As long as supply is elastic then the cost should come down to close to the cost of production. I can think of the example of asprin. This has a very low cost to the consumer.

No you would not, because SOMEONE would always sell it for less, if they could make some sort of a profit. Everyone will buy it from the cheapest seller.

And what you said in your first sentence isn't true. I don't know how better to demonstrate that than with the example in the previous posts.

I guess you mean this;

Originally Posted by Samson
Yes, but if you came along and started selling it at 100,000 £/kg you would make the 2,000,000 £/day more than you made before (because before you made none).
Whereas if I sold at £500,000 I could have made £33,333,333 instead...

I do not know where we are going wrong with not understanding each other. I shall try and reapeat myself but being a bit more clear.

Let us say;

Cost of production is 100 £/Kg
Resnoble profit + cost of transport etc. is 50 £/Kg.
Demand is 200 Kg/day

Situation 1;

Seller A sells for 500,000 £/Kg
Seller B sells for 100,000 £/Kg

now seller A gets all the custom and makes a large profit. However this is an unstable situation, as seller C can come in with a lower price, get all the custom and make a profit.

Situation 2;

Seller A sells for 500,000 £/Kg
Seller B sells for 150 £/Kg
Seller C sells for 150 £/Kg

now sellers B and C get equal share of the market (A obviously gets none). This is also a stable situation, as noone is going to come in with a lower price as they cannot make a resnoble profit.

Does this make more sence?

 

[Mise]

What's stopping someone else from coming in with a price of 150 £/kg?

 

[Samson]

What's stopping someone else from coming in with a price of 150 £/kg?

Nothing, but it does not really change the market as far as the consumers are concerned. It will reduce the market share of A and B. Hopefully they would still be able to make some profit.

 

[Mise]

Nothing, but it does not really change the market as far as the consumers are concerned. It will reduce the market share of A and B. Hopefully they would still be able to make some profit.

Right, so if you add more and more retailers, the price stays the same, which is what I said...

So when drugs become illegal, drug-dealer A becomes Seller A, drug-dealer B becomes Seller B, drug-dealer C becomes Seller C, and all the new retailers will become Sellers D, E, F, G, etc, selling at the same price as B and C (A of course now out of business).

 

[Samson]

Right, so if you add more and more retailers, the price stays the same, which is what I said...

So when drugs become illegal, drug-dealer A becomes Seller A, drug-dealer B becomes Seller B, drug-dealer C becomes Seller C, and all the new retailers will become Sellers D, E, F, G, etc, selling at the same price as B and C (A of course now out of business).

I assume you mean "when drugs become legal"

Sounds reasnoble, as long as you accept that the price that all these are selling at is only a bit more than the cost of production (ie. about 1/5000 th of the pre-legalisation cost).

 

[Mise]

I assume you mean "when drugs become legal"

Sounds reasnoble, as long as you accept that the price that all these are selling at is only a bit more than the cost of production (ie. about 1/5000 th of the pre-legalisation cost).

That just doesn't follow...

Why wouldn't drug dealers follow the same logic that you presented above?

The fact is, they HAVE followed that exact same logic, and have come to a fixed price, i.e. the street price.

 

[Samson]

That just doesn't follow...

Why wouldn't drug dealers follow the same logic that you presented above?

The fact is, they HAVE followed that exact same logic, and have come to a fixed price, i.e. the street price.

I am sorry, but I really feel I am bashing my head against the wall. BECAUSE IF YOU SELL AT ANY MORE THAN THE COST OF PRODUCTION + RESNOBLE PROFIT THEN SOMEONE WILL OUTCOMPETE YOU.

I thought that was the logic I have been presenting for the last page or so. I belive the street price to follow this logic, hence it has come down so much in recent years, with an increase in suppply (as far as marajuana is concerned, from production in this country by hydoponics).

Please, if you cannot get this point try and put in some examples or something to demonstarte how you can have a stable situation with a price way above the cost of production.

 

[Mise]

What's that got to do with what I said? Which part of this discussion warrants bashing your head against the wall?

1. We've agreed that the drug dealers will sell at a fixed price, dictated by your logic. (i.e. competition drives prices down.)

2. Now we're legalising it, and allowing Tesco's or Spar to compete with the drug dealers.

3. We've agreed (in post #44) that any additional retailer will not affect the price of the drug.

4. So, we've agreed that the price of drugs will not decrease at all, assuming the cost of production remains the same. The only reason cost of production will fall is due to any possible economies of scale, and the reduced risk involved. I fail to see how this will reduce the price by 1/5000, as you have insisted without proof.

 

[Kayak]

What's that got to do with what I said? Which part of this discussion warrants bashing your head against the wall?

1. We've agreed that the drug dealers will sell at a fixed price, dictated by your logic. (i.e. competition drives prices down.)

2. Now we're legalising it, and allowing Tesco's or Spar to compete with the drug dealers.

3. We've agreed (in post #44) that any additional retailer will not affect the price of the drug.

This is where you go wrong. Additional retailers do affect the price. They will lower their price to gain market share. The others will lower their price to keep it.

4. So, we've agreed that the price of drugs will not decrease at all, assuming the cost of production remains the same. The only reason cost of production will fall is due to any possible economies of scale, and the reduced risk involved. I fail to see how this will reduce the price by 1/5000, as you have insisted without proof.

We have assumed that the cost to producers will fall both due to economies of scale and due to the removal of legal barriers.

 

[Samson]

What's that got to do with what I said? Which part of this discussion warrants bashing your head against the wall?

It just seems to me that I keep repeating the same thing. I am not blaming you, it is probably my fault for not explaining it properly.

1. We've agreed that the drug dealers will sell at a fixed price, dictated by your logic. (i.e. competition drives prices down.)

2. Now we're legalising it, and allowing Tesco's or Spar to compete with the drug dealers.

3. We've agreed (in post #44) that any additional retailer will not affect the price of the drug.

Ah, this is where we have the error. It will not affect the price much if the price is allready at the production + resnoble profit point (I state that the 150 £/Kg is this in my example in post #42). If it is higher than this point the additional retailer will come into the market at a lower price, get all the customers and make a large profit (as pointed out in posts 38, 40, 48).

4. So, we've agreed that the price of drugs will not decrease at all, assuming the cost of production remains the same. The only reason cost of production will fall is due to any possible economies of scale, and the reduced risk involved. I fail to see how this will reduce the price by 1/5000, as you have insisted without proof.

I have come up with the 1/5000 out of thin air. I mean the production + resnoble profit price.

 

[Mise]

This is where you go wrong. Additional retailers do affect the price. They will lower their price to gain market share. The others will lower their price to keep it.

Why would they? If they did that they would probably lower profits. Lets say there are 2 companies, each with a 50% market share, selling at a price of 100 per unit. 2 more companies enter the market, selling at the current market price of 100 per unit. Each company now has a 25% market share. Company A decides to halve his price, and sells at 50 per unit. How much does Company A increase its market share by? If it doubles, he's broken even. If it less-than-doubles, he loses money. If it more than doubles, he's made money. Any guesses?

We have assumed that the cost to producers will fall both due to economies of scale and due to the removal of legal barriers.

Well unless you can put some numbers to that it's anyone's guess.

 

[Kayak]

Why would they? If they did that they would probably lower profits. Lets say there are 2 companies, each with a 50% market share, selling at a price of 100 per unit. 2 more companies enter the market, selling at the current market price of 100 per unit. Each company now has a 25% market share. Company A decides to halve his price, and sells at 50 per unit. How much does Company A increase its market share by? If it doubles, he's broken even. If it less-than-doubles, he loses money. If it more than doubles, he's made money. Any guesses?

That's why business' go under. Remember halving the price is extream. What if it were only 10% say. There are way too many variables to list. The market for drugs is no different than any other market really.

Well unless you can put some numbers to that it's anyone's guess.

You can't put numbers to it but remember economics is a science of assumption.

 

[Samson]

Why would they? If they did that they would probably lower profits. Lets say there are 2 companies, each with a 50% market share, selling at a price of 100 per unit. 2 more companies enter the market, selling at the current market price of 100 per unit. Each company now has a 25% market share. Company A decides to halve his price, and sells at 50 per unit. How much does Company A increase its market share by? If it doubles, he's broken even. If it less-than-doubles, he loses money. If it more than doubles, he's made money. Any guesses?

Whoever has the lowest cost will have (about) 100% of the market share. Therefore the only one who makes any money will be the one who sells for the lowest possible price. Any situation where the current market price is significantly higher than the production cost will result in people joining the market at lower cost. This is particuly true when all you need to produce the product is a field, not a factory.

Well unless you can put some numbers to that it's anyone's guess.

We have lots of examples of agricultural products. These drugs (I am particully taking about heroin) are not that different. In my examples I think I have assumed a cost of 1000 times that of wheat. I do not think this is too low.

 

[Mise]

That's why business' go under. Remember halving the price is extream. What if it were only 10% say. There are way too many variables to list. The market for drugs is no different than any other market really.

Then the market share would need to increase by (more than) 10% for it to be worthwhile (profitable). Generally this only happens if dropping prices leads to an overall increase in demand. E.g. if the price of televisions fell, would more people buy TVs? Yes, probably, but if the price of bread fell, would more people buy milk? Doubtful, since bread is a necessity that people buy regardless of price*. We've already assumed that dropping the price of drugs won't lead to an uptake in drug usage amongst the general population, so at best, the company will increase market share by 10%. Hence it wouldn't ever be profitable to lower prices, if it doesn't increase demand (which it doesn't in this case).

You can't put numbers to it but remember economics is a science of assumption.

So you're assuming that (a) there are economies of scale (as opposed to diseconomies of scale), and (b) the risk involved in trafficking drugs is so great that the dealers need to add a significant amount to their prices to discount for this. I guess one way of finding this out would be to look at similar places where drugs are legal and seeing if it's any cheaper there than here. E.g. Holland, where marijuana is (almost) legal. Are the prices in Holland significantly lower?

*- In fact, in extreme cases, increasing the price of bread leads to an increase in demand for bread amongst the very poor, since very poor people can't afford to buy anything other than bread if the price increases.

 

[Mise]

Whoever has the lowest cost will have (about) 100% of the market share. Therefore the only one who makes any money will be the one who sells for the lowest possible price. Any situation where the current market price is significantly higher than the production cost will result in people joining the market at lower cost. This is particuly true when all you need to produce the product is a field, not a factory.

That still doesn't mean that they will increase profits though, because the cost of producing each additional unit minus the revenue gained by selling each additional unit is not (necessarily) zero. EDIT: I can see where this is going, so I'll ask - why didn't they do "that" in the first place?

We have lots of examples of agricultural products. These drugs (I am particully taking about heroin) are not that different. In my examples I think I have assumed a cost of 1000 times that of wheat. I do not think this is too low.

It's not a typical agricultural product though, because there's no demand curve.

 

[Samson]

That still doesn't mean that they will increase profits though, because the cost of producing each additional unit minus the revenue gained by selling each additional unit is not (necessarily) zero. EDIT: I can see where this is going, so I'll ask - why didn't they do "that" in the first place?

They may not increase profits. In fact am major reason for moveing towards legalisation is that we reduce profits for the current sellers. The fact remains that whoever sells the drug for the lowest cost will get all the custom, so they are the only ones to make a profit. If there are 100 sellers at 5000 £/Kg and I can make a profit at 150 £/Kg then I am going to get the whole market and still make more than I am now (because now I am not selling any).

It's not a typical agricultural product though, because there's no demand curve.

We are talking about production cost, so the demand curve is irrelavent. I could point out that the demand curve for food if pretty flat, but that is also irrelavent.

The main reason why heroin production is so different to other agricultural products is that it is much more labour intensive (I cannot imagine how you could mechanise the scraping of poppy sap from heads, but I expect someone will figure it out). At the moment it is so expensive that I am quite sure that the cost of production would be less than 0.1% of the current street price.