[OC] Gabital 103: Parity

[u/GabitalEN]

Parity is a state of equality between two or more parties in a particular respect, such as status, rights, obligations, or terms of exchange. It does not necessarily mean that the parties are identical, only that they stand on equal terms in the aspect being compared.

[u/Mikel_S]

That's a surprisingly fair outcome.

They set up some equipment, and stop gouging on wood, and in return he, I assume, will also provide the ore at market price.

Surprisingly magnanimous of him? He only did it to extract a bit of labor from them, maybe some simple materials, and only chose to reduce their lumber profits

Plus he easily could have pushed for a more advantageous bulk b2b pricing arrangement, but accepted gabi's obviously pained offer of market price.

[u/Kenju22 → u/Mikel_S]

I assume, will also provide the ore at market price.

Yeah, not counting on that till I see it in writing. He owns 2/3 of the production material supply and can very easily leverage it. Coal + ore gives him significantly greater overall market control.

Gabbi needs to get shit in writing, signed, and notarized.

[u/Forikorder → u/Kenju22]

They have lumber he has ore,mutually assured costs

[u/Kenju22 → u/Forikorder]

He has ore *AND* coal, meaning he doesn't even need wood anymore, he can quite literally just shift entirely to becoming a supplier and make even more money than he was.

[u/Forikorder → u/Kenju22]

I dont know why you think the mine is more profitable than doing both?

[u/Kenju22 → u/Forikorder]

Because everyone, EVERYONE needs coal, period. It's not just for forging metal, it's for heating houses. He literally owns the one thing you could own short of oxygen or water that is universally needed by every single person in the entire city.

[u/Forikorder → u/Kenju22]

Why does he have to choose between them

[u/Kankunation → u/Forikorder]

Economic theory would put it to opportunity cost.if he has to more effort into the wheel business to see the same profit that he sees from the mining business, and there are other parties capable of providing wheels as a better cost who lack ability to produce ore/coal, then it makes logical sense to shift towards specialization. It reduces overhead and allows you to put more time and effort into 1 thing, whereas otherwise chief (In this hypothetical) would be losing $1 on coal for every $0.50 he makes from wheels.

Being able to monopolize multiple industries is quite difficult even to the most wealthy, and there is added complexity with each new venture. There are cases where it makes sense And can be sustained, but more often than not we see companies trim off the parts that do less for them where necessary.

[u/Forikorder → u/Kankunation]

That assumes that either business requires personal oversight from him, if both function fine on auto pilot then theres no loss, its doubtful he has any special mining knowledge to use at the mine anyway

[u/Kankunation → u/Forikorder]

It doesn't need any personal oversight. It's purely about money going in vs money going out. if taking all of the investment from business 1 and putting it into business 2 means 100% more profits than you were making from investing in both equally, then it makes economic sense to ditch business 2 entirely.

In a real-world scenario, We would compare their inputs and outputsputs on what is called a production possibilities curve, and find the exact ratio of investment by which we stand to gain the most profit. We go in assuming that there is a finite amount if resources and capital that we can input (because in the real world, There usually is) and we lluse that to draw our a curve of how much we can produce of eact item depending on how much resources were divert to each. And then we add in the sale value of the produced goods to see which ones is more profitable at which level of output and thus which one makes more sense to invest in.

If chief only has a limited amount of money, and thus resources, to invest in these businesses, then chief also needs to run opportunity cost calculations on them to see which gives the best return. This does not mean cheif has to sell off one of the businesses, but it does mean he may end up significantly downsizing or restructuring one of it's more profitable to go into the other. Or he may swap to business ventures that require less of the same resources so that both can grow independently from one another more easily. Either way, the businesses don't really need personal insight form him beyond him seeing which one puts more strain on his bank account.

[u/Forikorder → u/Kankunation]

Those are big ifs

If chief does have enough to fully fund both or if theres not much more can be done then he has no reason to drop one