Of Profits and Growth

I run a company. So I could be called a capitalist. However I am also a consumer. So I play on both sides of the court. There is one core question that has started playing in my minds ever since I started my company. What is a fair margin that I should charge on my products and services?

There are some auxiliary questions here. Will the customer have any idea of the margin that I take and if not then what is the issue about the margin if the customer is happy with the final price? Even if the customer is aware of the margin and he is happy with the price that is being paid why bother? If I offer the lowest price in the market then what is the issue with the margins? The market I am talking about is not a mature market in its steady state stage but rather a growing market with transient trends. But then most markets are not mature markets and some of the arguments should hold true in such cases too.

By free market theory the market should ultimately fine tune the margins until all players start charging the same margins. But we don’t have a perfect market, we don’t have information symmetry, we don’t even have educated consumers - so there is a scope for exploitation in terms of margins. And capitalists, being opportunists, will keep overcharging consistently without any kind of formal or informal agreement between them. In spite of the absence of a price cartel or a centralized decision, capitalists will charge high margins to a limit where small players start controlling the margins by lowering the prices but not as much as to crash the market. Here the customer does not have too much of a control because the demand

Now the question is whether there is anything as a fair margin from the business owners perspective. If I run a business I should expect to get some return on investment on the money I put in. If there is no competition and there is infinite (or at least a huge) demand for my product I should theoretically be able to sell at any margin I like. But from a third party perspective I should charge a margin corresponding to the value I create to the end consumer. This should include a reasonable margin for growth of the company. So suppose you reach upon a fair margin. What does that make me - a fair capitalist. Consumers would want me rather than an exploiting capitalist to meet their needs. The society would expect me to cater to more and more people. This demand to serve more would put a requirement to grow more, and for high growth rates you need high margins. So how you work that out.

Now you figure out. I am still confused