Illustrative model · Editorial draft awaiting naly’s review.
Start with a supplier selling one unit for 100. It costs 60 to provide. Gross profit is 40. A technical improvement cuts that cost by 40%, saving 24 per unit. That is the technical change. It is not yet the investment thesis.
The price response matters.
If the supplier retains the entire saving, gross profit per unit rises to 64. If competition passes the entire saving to customers, the price falls to 76 and gross profit per unit remains 40. The same technical improvement produces very different economics.
Passing half the saving through gives a price of 88 and a unit cost of 36. Gross profit is 52. With 20% more usage, total gross profit reaches 62.4, compared with the baseline of 40.
What the model assumes.
Unit costs fall uniformly. Pass-through and volume growth are independent inputs. There are no capacity constraints, fixed costs, taxes, financing costs, or additional capital requirements. These simplifications make the mechanism visible; they do not make the outcome a forecast.
Formula: price = 100 − 60 × cost reduction × pass-through. Unit cost = 60 × (1 − cost reduction). Total gross profit = (price − unit cost) × (1 + usage growth). Percentages enter as decimals.
What would change the view?
A claim that suppliers retain the gains needs evidence of durable scarcity, switching costs, or differentiation. Faster price cuts, easier switching, or rising capital requirements would weaken that argument. Higher usage alone would not establish pricing power.
The unresolved question is how long any supplier can retain a saving. That calls for customer behavior, realized prices, and capacity evidence—not just a better technical benchmark.
Test the mechanism.
Set pass-through to 100% and growth to zero. Gross profit stays at 40 even as the technology gets cheaper. Then change usage. The result separates the benefit of cost reduction from the benefit of demand growth.
Open the cost-sensitivity tool →Sources and status.
This sample derives entirely from the stated hypothetical assumptions. It uses no external dataset and makes no claim about an actual security. It demonstrates the intended structure of future research; it is not a published investment thesis.