Comment by spockz
1 day ago
That is actually quite nice. I’ve been toying with the idea of mandating this 10% maximum margin for products and services on every for-profit company.
Trouble is, how do you prevent them making stacks of companies compounding the 10% profits. And is 10% sufficient to build up a buffer for when hard times hit?
This thinking has been triggered by fuel producers and sellers making sky rocket profits because of the increased oil prices. The same as the overheated graphics cards.
You hit on what, in my opinion, is the actual core issue with this type of thinking -- it doesn't compose.
To make a poor analogy to physics: if you measure something which changes when you change unit/frame of reference -- it's not a well-defined thing.
The best policies have the same effect regardless of the legal structure (within the policy) superimposed on the actual action.
Medium policies can be optimized/gamed (perspective) -- but are designed to be adversarial, in that the gamed outcome is at least OK but potentially in fact the desired one (for example -- if you tax land, then not paying the tax means not using up land, which may be a desired policy goal). These can cause issues, though -- common law is an adversarial system, and "justice" can usually be translated to "access to lawyers," imo.
The connection with the above is that while the solution used is probably not universal -- sometimes, the optimal solution is, so the adversarial policy is just an approximation of "good policy".
Bad policies not only don't compose -- but then bureaucrats go on and insert discretion to try to make them compose. On the surface, this often looks like common sense -- but the result is insiders can keep doing the Bad Thing, but you can't do anything which isn't the Way Things Are Done -- because you need approval, and it Looks Bad.
/rant
This is a bad idea if your industry is CapEx heavy and you have a lot of bets that don't pay off.
The drug industry is like this; the profits on a single drug sale are insane, even counting the R&D costs for that particular drug. However, those profits are offset by the losses incurred on all the other drug ideas that hadn't panned out despite the hundreds of millions of dollars invested in them.
The record and publishing industries are similar. As Steve Jobs once said, the main job of a music label isn't selling records, it's not even marketing or promotion, it's identifying artists with potential to be great hits amongst the thousands of wannabes. The revenue that labels get, and it's a lot of revenue, mostly goes towards recouping the costs of failed bets.
Absolutely and costco has other interesting business model mechanics that make that margin feasible. Membership fees of course but other things as well. Like the fact they are all warehouses they don't have intermediate warehousing or unpacking like say Target does.