I'm not convinced economy of scale applies the same way in this case. Cars (and mattresses, etc) are large and infrequent purchases dominated by preference. Dealerships make most of their money through sketchy financing and tricks.
There's a large class of financially illiterate people who routinely make massive mistakes like monthly income spend planning. Given an extra thousand per month, two hundred more on a car is both feasible and justifiable. Lifestyle creep.
I would agree if the topic was commodities like eggs or rice -- sure, I purchase by efficiency. And I'm not sure about the SV strat and dealerships. It could work in theory, but as of today dealerships are basically fungible and signal the same way as each other. I have no idea how a dealership could signal their lower marginal costs, especially survive in an industry with insane scaling costs.
Um, wouldn't that be increased demand? More customers with more money. That's the definition of more demand.
Economics 100 forecasts a price increase under those circumstances.
But seriously, no. I literally gave you examples of this strategy happening. Here's some more companies doing it: Venmo, Move Pass, YouTube, Google, Amazon (store), Facebook, Robinhood, Vanguard, need I continue?
Simple models are great to get the basics, but if they worked for most things in the world everything would have a O1 solution. Frankly the world is more complex and can't be explained in a 10 minute lecture. That's why we have experts in subjects and why basic knowledge is drastically different than expertise knowledge.
Also, this has nothing to do with operating at scale
Why would they. They just got more customers. They already have a surplus of supply. In fact, you could make the argument that they could reduce car prices because with more customers you can operate on smaller margins. This is literally operating at scale. But it is hard to say, I'm just pointing out that the exact opposite could happen.
> Netflix may raise their prices knowing everyone has a little extra cash to spend, and that people would rather pay a dollar or two more than cancel.
Or look at Netflix's strategy. It is to corner the market. The classic Silicon Valley strategy. Corner the market, hemorrhage money, and then make a profit. More customers works into their plan perfectly without raising prices. In fact, now they have more competition. If every streaming service raises prices then people will have less of them and pirate more (this is already starting to happen). Even a lot of companies outside SV run a loss in the beginning, until they reach scale.
TLDR: More customers doesn't mean prices go up. Frequently it means the opposite. Scale.