"That's what business does"

Originally posted by normbenign
And if the company has already found the "sweet spot"?

Then they pay extra taxes themselves and the price does not change.

Originally posted by Kunsoo
That's a bit of a facile look at economics. It makes common sense, but the point is that you can only push costs on the consumer if the consumer is willing to pay them. When California passed its first cigarette tax by ballot, which was a quarter, everyone assumed it would be passed on to the consumer. Turns out, that the increase in price led to a decline ...[text shortened]... hink corporations oppose taxes so vehemently? Because they care so much about their consumers?

"you can only push costs on the consumer if the consumer is willing to pay them."

Again supply and demand. If costs such as taxes can't be passed on directly, other measures may be available to reduce costs, quality or service.

The notion that businesses big and small can absorb taxes without consideration is absurd. One way or the other the consumer pays.

"Why do you think corporations oppose taxes so vehemently? Because they care so much about their consumers?"

Why of course. Without them business would not exist. Opposition to taxes, is simple. It is an outside adverse factor in doing business. It costs the business not only the tax, but the time and manpower to comply, and to figure out how to pass on the costs.

Originally posted by AThousandYoung
Then they pay extra taxes themselves and the price does not change.

Out of their profits?

Originally posted by Kunsoo
Not with airlines however. The prices fluctuate on a dime. That's why this example is so pertinent.

Perhaps that's why so many airlines have gone under over the years.

Originally posted by normbenign
Out of their profits?

That's the idea

Of course, profit margins fluctuate. Only under the most (Platonically) ideal and rigorous conditions (under the model called “perfect competition” ) are profits "necessarily" driven to zero in the long run. [Profits as quasi-rents, that is—not the rate of return to the capital that is a cost to the firm.]

With that said, whether the firm can directly pass on the costs of an excise tax (for example) depends on price elasticity of demand. If demand is perfectly elastic, then none of it can be passed on; if demand is perfectly inelastic, then all of it can be passed on. In between those two poles is a whole possible range. [Cigarettes were/are an example of very (though not perfect) inelastic demand, where excise taxes were pretty easily passed on to consumers.]

I think that no matter how a firm wishes to pass on the costs to the consumer, they are limited in doing so. Assuming non-deceit (i.e., that the firm is unable to deceive the consumer for very long about, say, the quality changes in the product or customer service), it will eventually, I believe, still devolve to elasticity of demand.

Really, then, there is no general answer—except maybe, sometimes yeas but sometimes no, and sometimes firms go out of business, and sometimes firms are able to still make profits, and some firms can and some firms can’t. There are only empirical answers.

Markets actually work pretty well in the airline business. Strange example of a market failure if one would seek one.

Originally posted by normbenign
"you can only push costs on the consumer if the consumer is willing to pay them."

Again supply and demand. If costs such as taxes can't be passed on directly, other measures may be available to reduce costs, quality or service.

The notion that businesses big and small can absorb taxes without consideration is absurd. One way or the other the con ...[text shortened]... y the tax, but the time and manpower to comply, and to figure out how to pass on the costs.

They absorb them by reducing internal costs, perhaps including share dividends. That's what happened with tobacco in California.

http://www.cnn.com/2011/TRAVEL/08/08/faa.taxes.airfares/index.html