[MLUG] Anyone planning on getting a OLPC laptop?

[Jonathan King]

On 11/12/07, Mike Miller <mbmiller at taxa.epi.umn.edu> wrote:
> On Mon, 12 Nov 2007, Jonathan King wrote:
>
> > On 11/12/07, Pottinger, Hardy J. <PottingerHJ at umsystem.edu> wrote:
> >
> >> Just in case anyone missed it, $200 of the $400 asking price is
> >> tax-deductable. Perhaps that might affect the math bouncing around
> >> here?
> >
> > Not really. This just means you're buying 2 of them for $400. It's just
> > a gimmick.
>
> I think the correct answer was yes -- a tax deduction is a savings and
> someone who pays 30% of his income in taxes would save $60 because of the
> tax deduction.

Yeah, so what? The point is that it doesn't really matter that the
ratio of bought to donated laptops is.

> In what sense is it a gimmick?  It's a way to promote the program by
> encouraging small donations to the OLPC Foundation.

If they just sold these at the market clearing price in volume, they
would probably get more money for their foundation. I mean, it's not
like there's an essentially limited capability to stomp these out. If
they sell a million and make $100 on each one (charging $300 each to
us firstworlders) they have $100 million or enough money for 500,000
laptops for the children. If, by raising the nominal price to $400
(per pair) they sell fewer of them (and I'm sure they would), they
definitely run the risk of selling fewer than 500,000 of them, in
which case the kids come out behind. The tax savings is pretty much
irrelevant to the overall point, which is that there's no particularly
good reason to make this a yoked purchase and really no reason to
think this is magically the best price to charge (in the sense of
maximizing the first world profit to subsidize laptops down to zero
profit in the third world).

> > They should sell as many millions of these to first worlders as they can
> > to make sure that the unit cost gets low enough (and their profits high
> > enough) to save the world.
>
> How do you know that their approach isn't as good as yours?

In this particular case, we have guaranteed zero profit on all units
sold, so this approach cannot maximize the number of units sold. The
question is whether it might maximize the number of units donated per
pair of units sold. I am pretty sure it can't do this either.

In the abstract, I know it is very unlikely to be as good because a
fiat price is almost never as efficient as a market price.

In this case, if you insist on buy one/give one and wish to maximize
donations per pair purchased, it's clear that the *very* best approach
is to take bids on paris of units, and then have the foundation
calculate the award line after seeing all of the bids. Some generous
types will bid high, others will bid just at the cost of two. But
maximizing donated units per units sold is very silly. They should
want to maximize the total profit they make, and use that to buy the
units for the third world.

> You basically
> want them to start a laptop company that sells laptops to ordinary
> Americans, and others.  Why is that better than being a charitable
> nonprofit foundation?

You can be a not-for-profit corporation. By which I mean you can
guarantee that you have no profits at the end of the year by donating
extra laptops. Costs in the computer business are driven by VOLUME.
The more you buy, the less you pay per unit.

> I don't see any reason to believe that they won't be producing millions of
> these laptops.

In which case it is really silly not to try and maximize your profit
in the first world.

> They are negotiating with several governments.

Including China and Burma. I find this less than compelling.

> A few such
> agreements and an endowment or two and they'll be making many millions of
> these machines.

Or they just sell millions of them plus get the endowment and other
stuff. It's just possible they have some genius marketers who have
found out that their system maximizes the number of donated machines,
but I'm guessing that this is really unlikely.

jking