What Holds Up Prices?
Price formation often seems steeped in mystery. “Seeing what the market will bear” is a mantra for many, but why would we want to leave prices to chance if we could avoid it?
What supported the prices for 2013 electric cars? As shown below, we could make a statistically significant (9.3E-09) estimate of prices using a surface running through the 18 electric car models (as green spheres) that made up the market that year. That surface reflects that after buyers paid about $6,500 to enter the market, the Price went up $102 for every horsepower and $172 for every added mile of range (P-Values, 0.00038, 4.19E-07, respectively). Models priced above the surface may be overpriced, those below may be under-priced, or some other significant Features may be at work.
The diagram & the market math behind it demonstrates the first 2 adages of the Law of Value and Demand, which are:
- Product Features (as horsepower, range) determine Value
- Value determines Price
The green region is Value Space. How does it relate to Demand? Read the next post for an answer.
#prices#value
