Cost Plus

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Description

Kevin Carson:

"The culture of cost-plus is traditionally associated with the public utility, and (in the brilliant work of Seymour Melman) the military contractor. The firm is insulated from market competition, and has a guaranteed revenue source, so that it can set its prices on a cost-plus markup basis. There is, accordingly, no incentive to minimize costs. The higher the production cost is padded with waste and featherbedding, the higher the firm can set its prices. This is the cost-maximizing incentive structure that resulted in the Pentagon's notorious $600 toilet seats. But it prevails as well, in kind if not to quite the same degree, in the large firms in civilian oligopoly markets. The large corporation has a significant portion of its operating costs subsidized by the state, and typically operates with a superfluity of investment capital from retained earnings. It exists in a market of restricted competition in a state-fostered cartel. Not only is most competition in terms of brand image and minor variations in features rather than price, but even the competition in features is limited by the ability of oligopoly firms to collude in rationing technical improvements over time—with the help, of course, of government regulations in limiting the range of competition in product features and quality (remember that Paul Goodman quote about “fixed prices and slowly spooned-out improvements”?)." (http://c4ss.org/wp-content/uploads/2010/12/Political-Economy-of-Waste.pdf)


Source

Kevin Carson: The Political Economy of Waste