Youâre making the same mistake in understanding my proposition that a lot of my economics professors made that I am discussing charitable âbundlingâ (although after discussing with my professor from U of C, he understood better than what I was proposing). I must not be writing clearly.
Just instead of thinking of âdonationsâ think dividends. Charities are simply occupying the same place that shareholders normally occupy. Thus, there is no reason it would be âtaking a lossâ any more than any other firm that has owners. The identity of an owner does not necessarily imply higher costs. Just as individuals trade ownership positions every day on the stock market, ownership could go to charities without jeopardizing performance.
I didnât really misunderstand your proposal, but I am sort of thinking âat the margin, why would a rational altruistic consumer buy from these firms.â
So basically you are saying
Charities/âphilanthropists should invest in companies and tell people they are doing this, and tell people what share of profits is going to the charity.
OK they already do invest in companies, but they should tend to invest in those companies that are altruistic-consumer-facing, perhaps.
People will be motivated to shop at these companies rather than at other companies
This seems kind of obviously true and reasonable, and to some extent it already happens (Bill Gates and Microsoft etc.) But maybe it should happen more and be publicized more. So maybe I mainly agree with you on this, and it seems like a good initiative.
But I think the âat the marginâ questions still should be considered.
From the POV of the rational altruistic consumer, it must be the case that by buying a product specifically from the GC firm, this leads more money to go to the charity in net[1].
Going back to the idealized models of microeconomics
With âperfect competitionâ or âmonopolistic competitionâ, firms are meant to enter (and introduce new products) until no âsuper-normalâ profits are left. In such worlds I am not sure if a consumer preferring to buy from a GC company actually leads that company to make more profit. At least in perfect competition, firms set their price at marginal cost, and entry occurs until all firms are pricing at their average cost, and thus making no profits. Nor, with average cost pricing, are they making any incremental profits from additional purchases.
Our âFair Trade paperâ basically makes the point that even if firms are pricing at cost, a firm that pays its workers/âsuppliers more could, under some conditions, charge less than this markup to consumers, making it rational for altruistic consumers to buy from it. Thatâs the âsynergyâ we talk about.
Of course the real world does not involve perfect competition ⌠and the condition above is basically âonly once we reach equilibriumâ. But I think these issues still need to be considered. Suppose we are in a world where firms sequentially rival for monopoly. Or maybe there is only room for 1 firm in a particular industry. How is it that a firm that donates from its profits to charity could dominate such an environment. (I think you make some good points in this direction, as does Paul Pecorino. I just think these points should be addressed, itâs not a complete âno-brainerâ.
I say âin netâ because, in case the equivalent product is more expensive at the GC firm, the amount going to the charity must exceed such a difference
Youâre making the same mistake in understanding my proposition that a lot of my economics professors made that I am discussing charitable âbundlingâ (although after discussing with my professor from U of C, he understood better than what I was proposing). I must not be writing clearly.
Just instead of thinking of âdonationsâ think dividends. Charities are simply occupying the same place that shareholders normally occupy. Thus, there is no reason it would be âtaking a lossâ any more than any other firm that has owners. The identity of an owner does not necessarily imply higher costs. Just as individuals trade ownership positions every day on the stock market, ownership could go to charities without jeopardizing performance.
I didnât really misunderstand your proposal, but I am sort of thinking âat the margin, why would a rational altruistic consumer buy from these firms.â
So basically you are saying
Charities/âphilanthropists should invest in companies and tell people they are doing this, and tell people what share of profits is going to the charity.
OK they already do invest in companies, but they should tend to invest in those companies that are altruistic-consumer-facing, perhaps.
People will be motivated to shop at these companies rather than at other companies
This seems kind of obviously true and reasonable, and to some extent it already happens (Bill Gates and Microsoft etc.) But maybe it should happen more and be publicized more. So maybe I mainly agree with you on this, and it seems like a good initiative.
But I think the âat the marginâ questions still should be considered.
From the POV of the rational altruistic consumer, it must be the case that by buying a product specifically from the GC firm, this leads more money to go to the charity in net[1].
Going back to the idealized models of microeconomics With âperfect competitionâ or âmonopolistic competitionâ, firms are meant to enter (and introduce new products) until no âsuper-normalâ profits are left. In such worlds I am not sure if a consumer preferring to buy from a GC company actually leads that company to make more profit. At least in perfect competition, firms set their price at marginal cost, and entry occurs until all firms are pricing at their average cost, and thus making no profits. Nor, with average cost pricing, are they making any incremental profits from additional purchases.
Our âFair Trade paperâ basically makes the point that even if firms are pricing at cost, a firm that pays its workers/âsuppliers more could, under some conditions, charge less than this markup to consumers, making it rational for altruistic consumers to buy from it. Thatâs the âsynergyâ we talk about.
Of course the real world does not involve perfect competition ⌠and the condition above is basically âonly once we reach equilibriumâ. But I think these issues still need to be considered. Suppose we are in a world where firms sequentially rival for monopoly. Or maybe there is only room for 1 firm in a particular industry. How is it that a firm that donates from its profits to charity could dominate such an environment. (I think you make some good points in this direction, as does Paul Pecorino. I just think these points should be addressed, itâs not a complete âno-brainerâ.
I say âin netâ because, in case the equivalent product is more expensive at the GC firm, the amount going to the charity must exceed such a difference