Help Your Partner; Help Yourself

Together we stand, divided we fall;
come on now, people, let’s get on the ball and work together.
Canned Heat, Let’s Work Together

Upper Demand Frontiers form in every market outside of commodities. You can prove this by plotting shares for all S&P 500 companies on the horizontal axis against their sales prices on the vertical (best seen in log-log space). For any given day, you’ll find an Upper Demand Frontier takes shape.

Frontiers limit sales. How do you work around them?

Hypernomics enables us to see how interconnected markets work. In (A), the Boeing 787 Business Jet was, for a period, pushed up against its Demand Frontier (the dashed blue line). One of its compatible engines, the GE Genx-1B, found itself in a like condition, hard up against its Demand Frontier (in B, the dashed orange line). What to do?

If GE, whose engines make up about a quarter of the B787 cost, finds their Learning Curve (recurring costs, as the solid orange line) below their price limit, they could drop their prices and make more profits. That would enable Boeing to lower their B787 business jet price and do the same. Knowing your partner’s place in the market is key to making them and you more profits.

#hypernomics #profits #markets #partner

Economic Entanglement

Inventors need manufacturers who require operators. The fate of each depends largely on the others. If just one player fails, an entire enterprise could sink; this is economic entanglement.

Such arrangements are highly intermeshed. Revenue to the inventor, 2, is a cost to the manufacturer, who pays license, technical development, and royalty fees to gain access to technology, 1. After a manufacturer finishes development and begins production, it wins sales, and their revenue from that, 3, is a cost to operators who buy it.

An operator may agree to pay for part of the manufacturer’s development costs to be among the first to gain access to the latest tech. Once it begins to receive and use the new products, it earns revenue from its users, 4.

Key to the success of such operations is satisfactory financial metrics, 5 and 6, as determined by each participant’s performance and Return On Investment (ROI) parameters to which the parties agree, 1. In this case, under the Manufacturer Costs & Loan, we see their build costs have ballooned to 200% of their original prediction, which might sink the program, if not for exercising a significant portion (87.3%) of an available USG grant.

#innovation #entrepreneurship #economicentanglement #partnerships