The market answer to that is, the seller underpriced their services to begin with, regardless of the personal motivation for increasing the price.
To clarify, the market would likely not allow this specific work to be sold at this price normally. But the buyer wasn't just buying specific work they were buying specific work to be completed by a specific date. The work in isolation does not have this value but the work completed by a certain day does. Companies use this rationale all the time charging more for expedited services.
It's especially common in construction and manufacturing where costs double or even triple when expedited delivery is required.
"Everything is worth what its purchaser will pay for it." That includes labor. The business was free to try and renegotiate their contract with their customer. They were free to delay the release and offer a discount. They were free to turn down the 125k and the 250k payment on principle and deal with the consequences. They found the most economical solution that met their needs was to pay $250,000 to have the work done on time. Was this poster engaging in rent seeking behavior? Absolutely. But that is a consequence of the market and one companies exploit to their own benefit all the time.
> They found the most economical solution that met their needs was to pay $250,000 to have the work done on time.
I'd be inclined to believe that if there were some other providers but as it is told working with OP was the only solution. And OP's first offer was 125 000. Two screams later it's 250 000 ? It has nothing to do with economical theory or free market interpretation.
First, he owed no-one anything. He could set the price to 1 billion for all he cared. His former employees could take it or leave it.
Second, you speak as if his claims were irrational. The way I see it, however, you would set for 125k (probably much less judging from what you write) while he, the sentimental fool, scooped up double the money. Therefore, your decisions, which you personally claim are rational, would have left you with half the money the "irrational" player would get. Seems to me, the "irrational" is actually the rational one, as he netted more profits. Economy and market are not math games in a vacuum, and players are not formless ideas.
> Second, you speak as if his claims were irrational. The way I see it, however, you would set for 125k (probably much less judging from what you write) while he, the sentimental fool, scooped up double the money. Therefore, your decisions, which you personally claim are rational,
The way I see it you are putting words in my mouth and I am definitely not interested in having a discussion like that.
I never insinuated OP was a sentimental fool or wrong to raise the price. I am calling bullshit on the free market and econ 101 as an explanation of why the price got doubled and call it like it is: it's payback from OP because they were dicks to him first, everything else is pedantry and useless justifications.
edit: if anything, OP could be considered a fool since he obviously gave an under the market quote as his first proposal. Had he started with 250K from the beginning he would have gotten more since there likely would have been screams anyway and he would have risen the price all the same.
No one said the free market is "why" the price got doubled. Emo drama ended up being the mechanism of price discovery here. But the market accepted this price. It was not a swindle. It was free trade.
And yes. I completely agree with your edit and said as much elsewhere. Their acceptance of 250K showed that the OP under-priced their services at 125K.
And yes. Free markets produce monopolies. Especially when time is important. As I said above, the critical good here was not the delivery but the delivery within a certain time.
I find this explanation (from top comment) more in line with how the world spins:
> If they left under bad terms because the business was a bunch of dicks, expect to pay 10x market rate. If this is truly "fix this or the business is out of business" - then it shouldn't be a tough decision to make.
So, “being a dick” has more to do with price raising than any free market justification (which I am okay with, just don't try to convince me it's the only thing at play. The offer would have been 250k from the beginning then. Or 500K to get 250K, whatever.).
This is such a silly and mundane bit of pedantry you're harping on here. Of course there are emotional factors in price discovery-- it happens all the time, and is a completely natural and rational part of the free market.
Any small or independent contractor in any business will eventually have a blacklist, or a list of troublesome customers who get charged extra. Most of my contractors charge me less because they like me (and I pay on time). My HVAC contractor charges a particular customer double just because the customer is a rich entitled asshole; the contractor has decided that it's only worth dealing with the man's unpleasantness if there's more money to be made. Apparently the man has been blacklisted by other HVAC companies, so he might be in a tight spot, but whatever the reason, he ends up paying a lot more money for the same service.
This is a completely market-based mechanism: the troublesome customer has limited options (in this case, maybe only one option), and is thus obviously disadvantaged in negotiating price. Regardless of the myriad motivations involved in price discovery, it all leads to the same place: if the price wasn't worth the service the customer was to receive, they would not have paid it.
Honestly, this isn't mysterious or profound. It's economics 101.
Not even that. It's payback, that's all it is. There's no need to call for a more elaborate explanation for what was at play here. Not that I disagree with it. It's humane nature.
> My HVAC contractor charges a particular customer double just because the customer is a rich entitled asshole;
Like you say. No need to even know about market dynamics to (wisely) choose that option. Because the other guy is an asshole.
This is literally the definition of price discovery in a free market. If the price was not worth the service the company was to receive, they would not have paid it.
The fact that they did pay it clearly indicates that the first price was far below what the "market" would bear.
"The market" has nothing to do with that because one single trade isn't a market; if you and I exchange 1g of gold for $1000 that doesn't say "gold is fairly priced at $1000/gram". If many people exchange gold for money, each with different information and desires, over time the gold will go to the people who pay more, sellers will generally trend their sale price down because higher prices won't get buyers, buyers will trend their buying price up because lower offers won't get accepted, and a range of "price gold is being traded at" values emerge, the spread of those values highest to lowest narrows and hones in on, and tracks a dynamic "price of gold" where it's "fairly traded" - not fair in some Deity decreed way, but fair in that if you trade at close to that price, you aren't buying unusually high or selling unusually low, you're getting no better or worse deal than anyone else, so it's not unfair in your favour or unfair against you, so if it's not unfair then it must be fair - you couldn't get a significantly better trade with anyone else.
Anything distorting those conditions - e.g. there's only one seller, only one buyer, a time constraint, a skill constraint, an information disadvantage, will distort the pricing as well. One trade isn't enough information for a market to exist or to settle on a fair price. I agree there that the market has nothing to do with it.
But I disagree with your implication of "the fair price is the one paid" is somehow unfair in an ethical sense. (I also think OP is in no way obliged to be "fair" in any ethical sense to the company, but that's another matter). The company got a $10M contract for $250k, versus losing the contract, is that unfair? If that really was the pivotal factor between losing the contract and not, the company ought to benefit by spending right up to the point where the contract becomes a money loser, to not lose it. Would it be unfair for the company to get an $8M contract by paying $2M? Or a $2M contract by paying $8M? Is OP obliged to help the company make as much profit on the contract as they can, by charging them less for his services?
> Anything distorting those conditions - e.g. there's only one seller, only one buyer, a time constraint, a skill constraint, an information disadvantage, will distort the pricing as well. One trade isn't enough information for a market to exist or to settle on a fair price. I agree there that the market has nothing to do with it.
This is non-sense. Those conditions specifically define a market and make it distinct from any other. To say a market with any of these constraints is "distorted" is to say all markets are distorted and render the term meaningless.
Also, I never said this one trade signified a market. My point was that this is a consequence of free markets. You can make any single trade "irrelevant" by choosing arbitrary criteria by which to separate it from its market. The company could have certainly hired another engineer in hopes they could complete the work in time while running the risk of blowing the deadline. But it was freely and fairly worth at least 250k to them to guarantee the job could be done correctly and on time.
This kind of thing is such a common part of the free market, that there is a whole aspect of contract law that pertains to ensuring companies don't get into this position. It's why contracting completed work is so important. Leaving things partly done leaves you vulnerable to others eating right up to the tiniest margin of your profit.
Time was a factor. Negotiations in such a situation waste time. Doubling the price associated the cost of wasted time with additional negotiation in a tangible way. In clarifying the situation, thread parent was really helping that former employer. Had that clarification not occurred, the contract might might have been signed too late.
