Re: OT Hot paper

["George Scithers" owlswickpress@xxxxxxxx]

So why is GE not making these new flourescent screw-in-the-socet
light bulbs?

G H Scithers
----- Original Message -----
From: "Harry Binswanger" 
To: 
Sent: Sunday, March 02, 2008 1:45 AM
Subject: Re: OT Hot paper
Patricia wrote:
Nothing new about that: It's called planned obsolescence.
Years ago, an economist friend explained to me how "planned
obsolescence" is a myth. The myth is based on the confusion of
sales with profits. Companies seek to maximize profits, not
sales.

Here's the example he gave me (as best I recall it).
Suppose GE could make a light bulb that lasts 20 times longer.
The myth holds that they could, and that it wouldn't cost them
any (or hardly any) more to do so, but they withhold the
superbulb in order to get people to buy replacement bulbs more
often.
So the average customer is spending, let's say, $1 on a bulb
every year, when, but, for the greed of GE, he could be buying
bulbs that would last TWENTY years. Wouldn't GE relish getting
from this customer $1 a year, instead of $1 every 20 years
(i.e., 5 cents a year)?
What this scenario overlooks, is that GE could charge more for
the longer-lasting bulb. Say they charged $10 for a bulb that
lasts 20 years, cutting Joe Consumer's annual light bulb outlay
in half (down to 50 cents per year on average). What happens to
GE's profits? They go through the roof. Suppose both the
regular and the super bulb cost 90 cents to make. When they
sell the regular bulb they make 10 cents ($1.00 - $.90), when
they sell the superbulb they make $10.00 - $.90 = $9.10. They'd
have to sell 91 regular bulbs to make the same profit they make
from selling 1 superbulb. More realistically, say the superbulb
costs them $2.00 to make (vs. $.90 for the regular bulb). In
that case, GE's profit per sale is still an amazing
$8.00--instead of 10 cents! What would you rather have--10
cents a year or 800 cents every twenty years? It's an average
of 10 cents vs. 40 cents per year.
So everyone wins--the consumer's average annual outlays drop
from $1 to 50 cents, and GE's profits of GE, per sale, go up
from 10 cents per customer per year to 40 cents per customer
per year, even when the superbulb costs more than double to
manufacture.
This is not a trick with numbers--as you can verify by changing
the costs, the prices, etc. The principle is: when the value of
a product could be increased without a corresponding increase
in costs of production, raising the price will benefit both
customer and producer. Yes, sales receipts go down, but who
cares as long as profits go up? The myth of planned
obsolescence confuses sales revenues with profits and/or
forgets that a more valuable product can be sold for more.



Harry Binswanger
hb@xxxxxxxx