I actually proposed the same scenario on the last page, except I used $20 for a final price, same idea though.
I was summarily dismissed.
Yeah but your scenario is temporary, mine is permanent. If the market for fridges drops to $20 overnight, yeah they'll sell off what they have for $20, but they're not going to keep making them if they cost $300 to make. If the production costs drop to $20 permanently, the sale price WILL drop permanently, probably to around $25 eventually.
Who is "us" ? Do you mean every fridge manufacturer would all instantly have access to this technology at the same time? Probably not. I guess one of the main points I am trying to make is that all buyers and sellers are autonomous. From an academic perspective, they don't usually take autonomy into it at all.
It's also the academic perspective to assume there is this perpetual undercutting going on, which is ridiculous. Like I said earlier, if this were true, everyones profit margins would be below 1%. Companies can (and do) go into business and sell nothing but products twice as expensive as the competition, with nothing better quality wise, and get by just fine. Marketing alone can create a demand for an inferior product over a superior one.
Profit margins will only go so low because if they're below 1%, your business is probably losing money due to the fixed costs. The vast majority of products are sold with a profit margin under 15%, meaning the sale price is closely related to the production cost, much more so than consumer willingness to pay.
It's true some companies can get away with huge margins (usually because of a brand name), but these are exceptional cases. $200 Diesel Jeans probably don't cost any more to make than $40 Levi's, but this is a rare case and not many people buy $200 Diesel jeans anyway.