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Old 12-22-2004, 11:52 AM
  #49  
futureal
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Join Date: Aug 2001
Location: Del Mar, CA, USA
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Here's a quick explanation of why something like this could happen worldwide, as a result of the weak US dollar as previously mentioned.

Suppose, for a moment, that AMB makes only transponders. Suppose that 50% of their sales (which could actually be a realistic assumption) take place in the USA. Suppose also, for the moment, that their base currency is the Euro, and that last year, 1 US dollar was worth 1 Euro (not true, obviously, but stick with me).

At the end of a fiscal quarter, year, or whatever, any company selling in the US but working in another currency will need to perform an exchange back to their native currency. So, suppose that every month, AMB takes whatever profits (revenue minus operating and manufacturing costs) it gained in the US market, and exchanges them for Euros. Since we're going to say that 50% of their profit comes from the US, we'll further assume that the other 50% stays constant everywhere else.

Now, let's say that this year, the value of the US dollar has dropped against the Euro, such that a single dollar is now worth only 0.80 Euros, or in other words, $1.25 = 1 Euro.

Say that before this happened, AMB made a $10 profit on each transponder it sold.

So for the last period, they sold 100 transponders, and received $10 * 100 = $1000 profit, which translated to 1000 Euros.

Now, they sold the same 100 transponders, and received $10 * 100 = $1000 profit, but with the weak dollar, this translates to only 800 Euros, a 20% decrease.

Since the US market makes up 50% of their revenue in our model, that means that with everything else being equal, their profit has decreased by 10% ONLY because of the weak dollar.

OK, so that explains why prices go up in the US. But why raise prices worldwide?

It is assumed that when you raise the price of an item, the demand will drop by some amount. So if they sold 100 transponders at the old price, they probably assume they will only sell 75 at the new price. So raising the price by itself is probably not enough to increase revenue across the board.

In this case, since the US R/C economy is so large, changes in the dollar probably make a huge fiscal impact on AMB's revenue. To compensate, and maintain the same level of profitability they enjoyed before, they must increase their profit at *all* distribution points. Further, most companies probably have a relatively small profit margin... so that 10-20-whatever percent could actually have a huge negative impact on their business (not saying this is necessarily the case, just a possibility).

Anyway, those are some reasons why the price MAY have gone up. Who knows, they may have incurred some new production cost, or may have just decided to raise prices for the heck of it. The consumer may never know. But the lesson here is that prices going up does not always equate to "company evil."
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