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 Post Posted: Sun Jan 30, 2011 5:39 pm 
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Market advocates are forever going on about how competition is a good thing because will lead to lower prices; they never seem to take this to the logical conclusion that it will also result in smaller profits.

Wait a minute, profits and profit margins aren't the same thing.

I'll agree with you that a company that consistently maintains a large profit margin could be seen as being potentially fishy. But profit margins refer to a percentage of revenue - they're relative. Profits are absolute. It's entirely possible to have a low profit margin and rake in profits hand over fist - in particular by dealing in large volumes and increasing productivity.

That's also the idea behind competition lowering prices. A simple example would be that Company a tries to increase it's productivity (say by investing in automation) so that it can make it's product more cheaply than Company B, lower the price, sell more of them than Company B (because they're cheaper) and still rake in the money at the same profit margin. It's the very reason, for example, that new technological gadgets always start out hideously expensive but then fall in price fairly rapidly. Compare the cost of netbook computers or blue-ray players from five years ago to today...drastic differences. Or alternatively, the prices stay the same, but the capabilities increase markedly. Such as the way that current standard desktop computers have roughly the same processor power of the high-end high-performance servers of five years ago.

Of course, I'm sure someone will say that any company that tries to lower its costs and increase productivity by automating is just trying to profit on the backs of the people it replaces with machines...so maybe you can't win.

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 Post Posted: Sun Jan 30, 2011 6:04 pm 
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Grillick wrote:
drachefly wrote:
In other cases, patents or trademarks are acquired and sat on. That is illegal, but it's hard to enforce.

The first half of the second sentence in the above is false...


Somewhere I read something wrong then. Good to know.

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 Post Posted: Mon Jan 31, 2011 2:46 am 
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Yes, I did mean profit margins, not gross profit. If you manage to rake in loads of cash just because your overall revenues are so huge, then you can have a slim margin but large overall profits. In Hong Kong, the property developers, utilities, and transportation companies routinely post obscene profit margins of 30% or more. Sometimes 70%.

You know HSBC? HSBC stands for Hong Kong & Shanghai Banking Corporation, or used to, sort of in the way that KFC no longer stands for Kentucky Fried Chicken. Anyway, a little known fact is that despite this bank's enormous worldwide operations, in a normal year, approximately 30% of its profits comes from Hong Kong, a single city of 7 million people. Hong Kong brings in more than the rest of the Asia-Pacific region put together. In 2008, the year the economy tanked, HSBC made huge losses in the US subprime mortgage market, and as a result, that year Hong Kong composed roughly 60% of its profit. That is how insane our cartelized property market is. They make that much money a) making huge loans to developers to build little concrete boxes, and b) lending people mortgages to buy the aforementioned little concrete boxes.

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 Post Posted: Tue Feb 01, 2011 2:23 am 
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An interesting quote I happened upon during my virtual travels:

Thomas v Collins, 323 U.S. 516 (1945) wrote:
The very purpose of the First Amendment is to foreclose public authority from assuming a guardianship of the public mind. ... In this field every person must be his own watchman for the truth, because the forefathers did not trust any government to separate the truth from the false for us.

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 Post Posted: Tue Feb 01, 2011 12:45 pm 
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So how do large corporations manage to pay their executives, senior management, and even rank-and-file traders (in finance) such huge salaries and bonuses without there being anything fishy going on, competition wise? At some point, doesn't the upward pressure on honcho pay due to the need to retain talent meet with any downward pressure to constrain costs? Surely a competitive business would need to keep its costs down. Why is it that when a corporation wants to save money, only the low-ranking employees' salaries are ever subjected to cuts and caps?

Obviously, low-ranking employees are a lot more replaceable, but can that explain it all? Are American executives and investment bankers really that much more productive than Canadian, European or Japanese executives and investment bankers that they deserve such generous pay? And why do they get paid huge sums to leave even when they have been abject failures?

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 Post Posted: Tue Feb 01, 2011 2:16 pm 
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And why do they get paid huge sums to leave even when they have been abject failures?

Anyone who has ever gone through a messy divorce can tell you the answer to this one...sometimes it really is worth it to pay them off on the condition that you never have to hear from them again.

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 Post Posted: Tue Feb 01, 2011 10:56 pm 
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Is that market failure or just extortion?

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 Post Posted: Wed Feb 02, 2011 9:46 am 
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OldCrow wrote:
Anyone who has ever gone through a messy divorce can tell you the answer to this one...sometimes it really is worth it to pay them off on the condition that you never have to hear from them again.

Marriages and CEO contracts are very different.

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 Post Posted: Wed Feb 02, 2011 3:00 pm 
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That's true, most CEO's who promise you'll never hear from them again keep their promise.

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 Post Posted: Thu Feb 03, 2011 4:37 am 
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Yah huh. Like failed business executives never pop up a couple of years later running for political office on the grounds that their business experience gives them superior economic management skills. See: Fiorina, Carly.

And if your CEO needs to be bribed to go away, that means he's not merely an employee whose pay is tied to his performance. He's an overlord whose role in the corporation is essentially political. The severance package is a political deal, not an economic one.

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 Post Posted: Fri Feb 04, 2011 11:39 pm 
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Kea wrote:
So how do large corporations manage to pay their executives, senior management, and even rank-and-file traders (in finance) such huge salaries and bonuses without there being anything fishy going on, competition wise? At some point, doesn't the upward pressure on honcho pay due to the need to retain talent meet with any downward pressure to constrain costs? Surely a competitive business would need to keep its costs down. Why is it that when a corporation wants to save money, only the low-ranking employees' salaries are ever subjected to cuts and caps?

Obviously, low-ranking employees are a lot more replaceable, but can that explain it all? Are American executives and investment bankers really that much more productive than Canadian, European or Japanese executives and investment bankers that they deserve such generous pay? And why do they get paid huge sums to leave even when they have been abject failures?

In America, there is no such thing as job security. Not for the blue-collar or the white-collar, and not even for many executives.

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