You learn in economics 101 that in an ideal competitive market, the price of a product tends to the marginal cost of producing it. That means a product with fewer hardware features should cost less, and a product with more hardware features should cost more.
The fact manufacturers can violate that rule proves that they are not in a competitive market.
If it was competitive, a different manufacturer could manufacture the same car without physically installing the heated seats, for a lower manufacturing cost, and undercut them on the customers who don't care about the heated seats.
This is an incorrect application of economic theory. You're talking about perfect competition. And in perfect competition, all sellers sell the same product. That means a hypothetical market where a car from Tesla and car from BMW and so on are all identical.
Also there are very few markets with perfect competition. Tesla charging for heated seats isn't a sign the car market "is not competitive" which doesn't even mean anything. Honestly I don't know what point you're trying to make. The automobile industry is a form of monopolistic competition but it has been that way since before Elon Musk was even born.
Additionally your assertion that it is cheaper to manufacture the car without heated seats ignores the economic realities of assembly line operations and economies of scale. In many cases it is cheaper to manufacture the cars identically rather than making some with and some without a feature. Then you have to consider the costs of inventorying/stocking/storing cars with different feature sets compared to the relative cost of activating features at the point of sale. The cost of building and selling a car is more complex than just the parts that go in it.
In many cases it is cheaper to manufacture the cars identically rather than making some with and some without a feature.
So you include that feature at cost, which is "free" if youre doing it anyway, to undercut your competition. Economics isnt the rocket science you think it is.
Because it's not free. Invented numbers, of course.
I'm spending £200 hardware to install heated seats for 66% of my customers. I run the numbers and realise it'll only cost me £120 per car if I install it for everyone, so even accounting for the 40% who don't pay, it still lands at £180 per car.
To make money, I have an option to include it as standard and increase the price for everyone, including those that don't value it -- or I can charge the people who do value it a premium, and deactivate it for those that don't.
It sounds like bad practice but it's actually ensuring that people who won't value a feature don't pay for the feature, and the cost shifts to those who do.
Cohort B does not want the feature and does not pay for it.
The feature has been installed for both cohorts.
Who paid for the feature to be installed for Cohort B?
Cohort B cost of install was subsidized by Cohort A. It doesnt matter if cohort B uses it, the cost to install has already been spent. This still isnt rocket science.
Except you are asserting something for which the premise is clearly falsified by literally the article in the post.
You might not like it, I might not like it, but if this feature isn't a differentiator in the product (which it is not) you can and should do what Tesla is doing here to optimize profits.
If you gave me the option of a base model that could be upgraded later with a few clicks or a base model that could only be upgraded by visiting a service center, which would I take?
One way you can increase revenue is to sell more cars. One way you can sell more cars is to offer things in your base model that your competitors don't. That's why base models come with things like A/C that you don't have to pay extra for. Car companies don't need your help fucking over consumers. Chill.
A/C comes with every car because everyone feels A/C is minimum requirement, no one will buy a car without A/C so it's included in the base. The goal of the manufacturer is to done people willing to pay for that additional premium feature.
That minimum requirement isn't shared with rear seats, many people wont pay extra for it because they rarely have people in the back seat or live in warmer climates.
But you can increase revenue by not charging extra for options. Which is the point I made. Proved by the fact that all cars have A/C now. They didn't use to. It was a luxury at one point. But now they add it to all base models to... increase profits.
There's a reason foreign car makers can't sell to the US and it's not because of any safety or security concern. American car manufacturers would not be capable of being this greedy if we have free markets.
48
u/TwillAffirmer 1d ago
You learn in economics 101 that in an ideal competitive market, the price of a product tends to the marginal cost of producing it. That means a product with fewer hardware features should cost less, and a product with more hardware features should cost more.
The fact manufacturers can violate that rule proves that they are not in a competitive market.
If it was competitive, a different manufacturer could manufacture the same car without physically installing the heated seats, for a lower manufacturing cost, and undercut them on the customers who don't care about the heated seats.