Bounding Problems

In countless games, the parameters, once set, never vary. There are only a given number of spaces on the chessboard. American football always uses an elliptical spheroid built to strict specifications. All NBA basketball rims are the same diameter, ten feet in the air.

Markets seem different. They don’t have instruction manuals. At first glance, it would seem you could do anything you want in them.

Still, they have rules. Not understanding them can sink a project.

In addition to DeLorean not understanding the value of horsepower (see the last post), they also failed to appreciate the Demand Frontier they faced in 1981. As A shows us, DeLorean thought they could exceed that limit by nearly two standard deviations, despite no one else beating it by half that much.

In this and many other markets, Product Market Demand Curves form. Always flatter than the overall Demand Frontier they build, they describe the product price limits as quantities sold increase. These curves set boundaries producers must consider before they enter any market. Ignoring them can have disastrous consequences.

How do Product Market Demand Curves compare to their Learning Curves? Look to the next post for answers.

#markets #demand #pricing #boundary #innovation #business