Why is MRP (maximum retail price) so offensive to economic common sense?
Because it is based on the long discarded labour theory of value which underpins Marxism, communism, socialism.
The MRP idea is based on a COST+ model. It assumes that given the cost of production (which is known) the manufacturer is able to determine what the retail price of the good should be.
Now that well may be the case with a few large products like houses or cars, but even there the manufacturer does NOT control the price. It is ALWAYS us, the people, who control the price – through our demand.
Value is ALWAYS in the eyes of the beholder, NEVER in the eyes of the manufacturer.
The price is set by the MARKET never by the manufacturer.
The manufacturer NEVER knows whether his product will be demanded and what the consumer will pay. He is grateful that his product is demanded at all! In gratitude he offers his prayers to God (it is rare for any manufacturer/ trader to be godless; almost all temples and churches were made by businessmen; almost all visitors to godmen are by businessmen).
Instead of protecting the consumer (the market), MRP harms the consumer. His option of taking his custom elsewhere is dramatically limited by this SOCIALIST intervention in the market.
Manufacturers are also harmed, for they SIMPLY CANNOT set the correct price for their product since they never get the true signal about its worth to the consumer. They get a distorted signal. If they set the price too high, the consumer will run away. If they set the price too low, the wholesaler or retailer will run away. They are put into DEEP TROUBLE by this ridiculous intervention.
In the proper market the manufacturer sells a the HIGHEST price he can obtain from the wholesaler who does the same with the retailer. Each of them aims to sell at the HIGHEST price possible to the consumer.
But the consumer is KING.
He may decide that the price is too high and not even touch the product.
Then everyone is forced to lower their prices. The retailer will demand a lower price from the wholesaler and the wholesaler from the manufacturer.
The TRUE price signal is crucial to the functioning of a healthy economy.
MRP must be removed, being a major socialist intervention into India's economy.
Remember that the is not ONE retailer in the market. There are thousands of retailers, each facing a different cost structure and different customer base. He must be FREE to set the maximum price his market will take, under his cost circumstances. The existence of MRP is one reason why villages in India can't develop: since it is not possible to sell goods in villages at the MRP.
It is ILLEGAL to sell above MRP, so village retailers simply don't sell the product.
Villagers are therefore FORCED to go to towns to buy their goods. thereby harming the village economy.
And I can go on and on. There are countless HARMS caused by this ridiculous intervention.
Imagine the cost on the manufacturer to keep updating the price (and replace the product), OR expect to set a very high price in anticipation of inflation.
Imagine inflation of 10 per cent (not uncommon in India). The existence of MRP makes it MANDATORY to over-price the product.
And so on.
The most skewed and RIDICULOUS system ever invented by man.
Only in India.
Indeed, MRP is UNIQUE to India.
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