Re: Burt Rutans plans for a manned mission to Mars

henry@xxxxxxxxxxxxx (Henry Spencer) wrote:

:In article <ec19625q7kaci9gg03336k0t11cuduui3e@xxxxxxx>,
:Monte Davis <monte.davis@xxxxxxxxxxx> wrote:
:>>Hopefully lower launch will stimulate
:>>demand which will provide for economies of scale which will lower launch
:>>costs even more... You get the picture. Basic economics at work.
:>
:>The operative word here is "hopefully." As there's no clear example of
:>cost/demand elasticity in 49 years of space activity, all hopes that
:>it will kick in Real Soon Now are based on dubious analogies to other
:>forms of transportation.
:
:You seem to be asserting that spaceflight is inexplicable magic, whose
:economic properties can only be guessed at.
:
:Nonsense. It follows the same economic principles as any other human
:endeavor, e.g. any other form of transportation. Differences in the
:results follow from differences in the situation, not from inapplicability
:of the basic methods. The spaceflight situation *is* different, but that
:doesn't make the results incalculable, just different.

But it could still follow normal economic principles and have an
elasticity of demand that makes getting lower prices not work out to
produce more of it. Many agricultural goods fall into this category,
where after a certain point you LOSE money when more is produced
(producing twice as much drops the price to less than half what it
was).

There is always a 'sweet spot' on the elasticity curves where profit
maximizes. This is where free markets tend to wind up at. Produce
more of the good and try to keep your total profit the same and the
market doesn't clear (and you make less money).

Are there actual studies that indicate what the elasticity of demand
is for space transportation?

:There *are* ways of looking at this which go deeper than analogies and
:handwaving; you can, for example, study both actual and potential markets
:and project how they would be affected by lower cost. It's still somewhat
:iffy, but it's a lot more solid than reasoning by analogy.
:
:The best studies done to date, notably the CSTS work, say that reducing
:costs a *little* doesn't really improve things much. Demand grows only
:slightly, and so profit *drops*, until you get down below about $250/kg.

But does total profit EVER get back up to the point it is at when the
cost is what it is now?

:The crucial threshold is reached when a substantial payload can go up and
:come back for a few hundred thousand (reliably and safely, on a couple of
:months' notice), because that makes it practical for a company to explore
:a speculative market. Even at $250/kg, the reasonably-assured markets are
:not big enough; the big return is going to come from the success of a few
:of the more speculative markets. There are enough of them that it's
:virtually certain that some of them will succeed... but we can't tell
:which ones. So costs have to go low enough that people will experiment.

$250/kg isn't low enough for space travel for people to be practical.
That leaves ticket prices above the total income of most people. You
almost need yet another order of magnitude ($25/kg) before people
taking jaunts in space the way they take jaunts on airplanes becomes
practical.

--
"The reasonable man adapts himself to the world; the unreasonable
man persists in trying to adapt the world to himself. Therefore,
all progress depends on the unreasonable man."
--George Bernard Shaw
.

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