I"m afraid you have it completely wrong, Lee. A company with a product that's in demand responds the classic way, by raising prices as high as the market will bear.

Often, when you crunch the numbers, you find that maximum profit doesn't come at maximum volume, but a lower level where units sold * unit profit is a maximum. You risk getting less than maximum profit if you automatically respond by increasing production--in essence, when you do that, you become your own competitor, driving down your own prices by pumping up the supply side. It's usually better to limit production on a popular item to maximize profit, and wait until somebody copies the product before dropping your prices precipitously to undercut the competitor. It's always easier to do that if you've accumulated a large financial warchest during the early days of maximum profit.

Look at the pattern of iPhone sales. High demand, high prices; then a $200 price cut three months after introduction. Apple knows how to squeeze maximum profit at all points on a product lifecycle curve. Apple's running that show, not Adam Smith.

I'd go so far as to say that that situation, possessing a virtual monopoly or at least being on the fat side of a supply-n-demand equation, is the holy grail of business. Nobody in business wants to submit to a market that, in the classically simple-minded formulation, minimizes profit and in which the consumer always benefits at the expense of the seller. Business is about defeating the laws of the free-market to maximize profit, not playing nice and settling for a statistical average profit and marketshare.