First we have the most fundamental example of a supply & demand curve. I’m going to borrow illustrations from wikipedia; here’s the illustration). The accompanying paragraph does a fair job of pointing out exactly what this graph illustrates.

If I have understood you correctly I think one of the misunderstandings you have is that you see the upwards angle of the supply curve in that illustration as proof that prices will always go up. But look closer at the graph and its meaning; it is the intersection between the supply and the demand curve that matters and unless that shifts then any further supply from the producer will only lead to oversupply (the orange area) that customers aren’t willing to buy – i.e. it will not lead to increased prices only a decrease in profit to the seller as they’re left with surplus stock (incurring costs but no profit) no-one wants at the current price.

Side-note: when this happens the producer will try a host of different approaches to reach the equilibrium price and quantity including but not limited to artificially raising demand (for example advertising or discounts) to evade further costs of storage, or simply destroy the surplus supply, or stop or reduce output for a limited period etc. – whichever practical solution costs the least to the producer.

Second we have shifts in the supply and/or demand curve which result in the movement of the intersection of the two (the price and quantity equilibrium). Wikipedia has several sections with different illustrations introducing shifts in the demand curve, shifts in the supply curve and so on but I won’t be using all of it. I’ll focus on the illustration that most closely resembles what I’m arguing, this one from the section on Supply curve shifts.

Now, remember the first illustration and the orange field representing oversupply. The launch industry does not produce such an oversupply because it would reduce profits (goes for every business) however the launch industry has over-capacity. They would like to use that over-capacity if it ends up increasing their overall profits.

So in the second illustration let us say that we are currently on the intersection P1Q1 with a launch industry (supply) that has
- very high fixed costs
- few sales compared to what they could produce (over-capacity)

At P2Q2 you have
- a lower price than P1Q1
- more sales than P1Q1 (less over-capacity than at P1Q1)

Now here’s the deal, if a company in the launch industry would have a greater total profit for a product at P2Q2 than at P1Q1 (through the increased sales) and if they see an opportunity to move to P2Q2 (because of customer interest at that price) then they will of course try very hard to make that possible to maximize their profits.

On the other hand if they don’t see greater total profit at P2Q2 they obviously won’t try to shift to it.

If you have very high fixed costs (costs that are there no matter how many or few products you supply) then producing only a few units means that the high costs have to be paid for by those few units and they are going to be very expensive. If you produce a lot of units you have more units to pay for the very high fixed costs and each of them can be cheaper.

A lot more detail could be added to this discussion but I’ve tried to get at the root miconceptions with this post instead of dissecting your post sentence by sentence. I hope it at least established some common ground upon which to base further disagreements ^_^

The architectures proposed there seem to align very well with what has been advocated on this blog and elsewhere.

Using a Delta II as a baseline vehicle for lunar sorties, no less.

The bonus, they have illustrations

Here’s a choice paragraph from said article:
“Sowers was optimistic that additional demand for the Atlas 5 from commercial orbital manned missions could benefit all users of the vehicle. “The launch vehicle industry is very highly invested in fixed costs,” he said. “If there’s a new big market we think we can get factors of two to four, nearly, in cost reduction by increasing launch rates by factors of two to four.””

That’s even better than I would have expected and gives LM/ULA much more room to manouver. Great to see them talking about this out in the open.

The approach of Ariane is, as far as I know, to try to make as much money with the commercial sector and make the difference (since you operate at some loss) up with government subsidies.

With EELV:s it’s trying to be “compete the companies and sell a launch to the government at a price that includes the profit” approach, except the companies are doing terrible and threaten to withraw so subsidies are needed.

In both cases it’s the fundamental political decision that some kind of space access is needed that makes it so different from many other areas.

“There is a glut of launch providers and little demand. If and when launch demand increases; for on orbit refueling or whatever, launch prices won’t go down, they will go up. Increased demand does not reduce prices, it increases them. Even if increased launch rates drive down marginal costs it doesn’t follow that a launch provider is going to charge less. In a market with rising demand he has every incentive to charge more and keep the difference as profit.”

I respect the technical expertise that Jon and other posters bring to this blog. It baffles me why the same posters are going through contortions to refute an axiom of economics that was pretty well settled in the nineteenth century. The only way you can get the outcome you argue for is to switch the supply and demand curves with one another. From what I am reading, all I can figure is that somehow you are conflating the cost dynamic of a particular launch provider with the dynamic of what same will charge a launch buyer. A launch provider is going to charge as much as the market will bear, no matter how low his own costs are.

The issue of bulk pricing is raised as an instance where more launches lower the price. While a valid example, it isn’t used appropriately. Bulk pricing exists in many industries; autos, airplanes, pencils, advertising, insurance. It does not demonstrate a reduction in pricing to the end buyer unless and only if you compare it to a competitor’s bulk price for the same package. Comparing the price of 10 Atlas launches to one Ariane launch proves nothing. You have to compare 10 Atlas launches to 10 Ariane launches to have a valid comparison. My guess is that a launch provider is going to charge nearly as much as his competitor in a bulk pricing arrangement. He would be stupid not to.

If this is the case, then having the feds as an anchor customer for a launcher could be a huge two-edged sword. The supplier would not be able to offer discounted launch services (for example, at the marginal cost of adding another launch) to attract new customers without damaging the revenue stream from the government.

Boeing voluntarily withdrew its Delta line from the com-sat launch business for very similar reasons.

It was more lucrative to sell fewer launches to NASA & DoD than chase the commercial market and compete on price.

If this is the case, then having the feds as an anchor customer for a launcher could be a huge two-edged sword. The supplier would not be able to offer discounted launch services (for example, at the marginal cost of adding another launch) to attract new customers without damaging the revenue stream from the government.

Anyway, if you assume the number of clients is fixed and if spaceflight gets cheaper it is possible they will not spend more money on it. If they spend the same amount or not much less, it is still possible to get a “virtuous cycle”, since a cheaper launch service gets a greater portion of the market.

Of course, it’s debatable that at current spending situation, the point becomes very quickly where even if you have all of the current commercial market you still launch too rarely to make an RLV profitable.

In 2005 there were 52 total launches worldwide. (Some of them contained multiple satellites.) A big portion were commercially competed.

http://planet4589.org/space/log/launchlog.txt

Market research would be fun.

With COTS, Bigelow, VSE, and even some suborbital tourism, some changes and synergies might happen.

Crude example:
If you buy ten comsat launches but there is a decrease in price because you just bought so many, you can perhaps launch one more, making it eleven. (Not another ten!) Say with a rough model, if the price drop is 1% per ordered launch, then 10 launches would save you about ten percent over the price, thus one launch. If you used fixed money, you could in fact launch eleven.
(If the satellites are not so “elastic”, it wouldn’t be plausible etc)

And since the launches now would be cheaper to other instances too (without any effort by them!), they could potentially buy more of them.

Now, there are instances like NASA that could do this buying of launch services to kinda “jumpstart” the industry. They could multiply US launch demand. Or increase the world’s significantly.
But that’s not explicitly in their charter, so it’s understandable.

Btw notable in this “fixed percentage” model is that the gains get smaller. In absolute dollars, as the price gets smaller, the savings by ordering many are less.

With 1% percentage cheapening rate it’d take 70 launches to drop the price per launch to half. (0.99^70 = about 0.5)

Anyway, these models have not that much to do with the real world when extrapolated so much. I could have choosen any other formula just as well.

We’re not even in the fixed vs marginal costs discussion yet…

What makes suborbital tourism such an interesting potential lever is that it brings a psychological multiplier into the mix. A commsat or remote sensor (or propellant tank for an orbital depot sitting on the ground doesn’t “know” or “care” that its peers are being launched. But it may turn out that lots of people watching the first flights of SS2 will say to themselves “I gotta try that.”