Overpriced suspension parts??

JDM-JUNKIE

What I'm saying is this: If you make a one-of kit in sponsorship of a competition car and then decide to sell it to the general population in low quantities- the full costs of the project shouldn't be placed on the public buyers. Part of that sponsorship should include eating some of the sunk costs that go into R&D. Otherwise it's more like the public who actually are paying the inflated cost of this kit end up being the real sponsors. Think about it-

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DEpointfive0

It's the exact same outcome at the end. Trust me, I'm a cost analyst for a pharmaceutical company, lol

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JDM-JUNKIE

Oh? Then you may enjoy reading the following passage, especially the second example

"A common example of a sunk cost for a business is the promotion of a brand name. This type of marketing incurs costs that cannot normally be recovered. It is not typically possible to later "demote" one's brand names in exchange for cash. A second example is R&D costs. Once spent, such costs are sunk and should have no effect on future pricing decisions. So a pharmaceutical company’s attempt to justify high prices because of the need to recoup R&D expenses is fallacious. The company will charge market prices whether R&D had cost one dollar or one million dollars.[8] However, R&D costs, and the ability to recoup those costs, are a factor in deciding whether to spend the money on R&D." -Klein and Bauman (2010) The Cartoon Introduction to Economics Volume One: Microeconomics 24-26.

This was my point from earier this afternoon I briefly made during my lunch. Brand promotion i.e. a car sponsorship and R&D costs are sunk costs! Despite what your gut may tell you it's a common fallacy for managers to attempt to reclaim these costs by passing them on to the consumer.

R&D is seen as an investment in the firm, or a means to obtain competitive advantage. It's not something to pass on as a tax or to be recouped by higher consumer costs. A perfect example in the automotive world is the Lexus LFA, R&D costs on that project were truly "astonomical" yet the company sold each and every model at a LOSS- The company still benefited from having developed new technologies and manufacturing processes in-house.

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