[HN Gopher] A classic Silicon Valley tactic - losing money to cr...
___________________________________________________________________
A classic Silicon Valley tactic - losing money to crush rivals -
under scrutiny
Author : nabla9
Score : 160 points
Date : 2021-07-07 14:04 UTC (8 hours ago)
(HTM) web link (www.washingtonpost.com)
(TXT) w3m dump (www.washingtonpost.com)
| throwawaycuriou wrote:
| Related charting and analysis of this going awry:
| https://wolfstreet.com/2021/07/05/todays-unicorns-have-bigge...
|
| Did we learn the wrong lesson from Amazon?
| exabrial wrote:
| It's nothing more than borrowing a tactic from Standard Oil
| Company and Rockefeller.
|
| While markets generally don't respond healthily to regulations,
| it really ought to be illegal to offer goods/services for less
| than cost amortized over a certain period (maybe two years?).
| This would prevent a lot of monopoly formation, but probably have
| some unfortunate consequences for investment in markets that have
| slower yields.
| bordercases wrote:
| It would have a negative impact on the pricing bundles that
| individual shops have as well, depending on how strictly you
| would interpret such a law. Consumers would lose out on good
| deals relative to their own preferences, and suppliers would
| lose revenue.
|
| https://en.wikipedia.org/wiki/Loss_leader
| tschellenbach wrote:
| One of the main reasons why USA based companies win against EU
| based startups.
| nosianu wrote:
| Only a part. In Europe you could not even become big, each
| country is too much its own market. It sis much much harder, or
| even impossible, to build a large company for all or even only
| for many European countries compared to building one for the
| entire US.
|
| I worked for a German IT (software) startup in Germany and also
| in the US, for that startup and before that for another large
| German company. We found that getting started in Germany was
| easier compared to the US, where the "winner takes all"
| mentality was also visible on the side of potential customers,
| so entrance into the market was hard(er). In Germany getting
| initial customers for unproven stuff was pretty easy in
| comparison.
|
| The problem is the switch from initial customers to scale. What
| made it easy to get started made it hard to achieve scale. When
| you get to a certain size and "fame" you get a big share of the
| entire US market. In Germany, but I think I can extrapolate to
| Europe, from what I experienced, the buyer side does not have a
| similar tendency to favor large already-winners and get them to
| become (European) champions.
|
| It's maybe not exactly completely valid examples, but I like
| them as illustrations: coffee machines or phones. In Germany
| (never mind Europe) even within the same company I found
| completely different phone systems and desk phones in different
| buildings (same with many other small parts). In the US, where
| I was sent to many big companies, I saw much less variety. Same
| with coffee machines, where every single department often has a
| different machine. In the US, more of the same wherever I went.
|
| I'd be interested what you guy think about my coffee machine
| and phone (and phone system) observations, if you have relevant
| experience. I saw this as a sign how _buyer_ forces in the
| different countries (EU as a country) supports more but much
| smaller variety vs. fewer but large winners, but wasn 't sure
| with my small sample.
| autokad wrote:
| i disagree. The US has arguably a better, larger, and cohesive
| economy.
|
| Also EU talent comes to the US because EU companies just dont
| value their tech workers as much. EU has to pay tech workers
| more, or else it will loose in tech, 100%.
|
| Lastly, there's regulation and taxes that makes it hard for
| businesses to develop.
| exporectomy wrote:
| Isn't this also a criticism of open source software? The final
| paragraph says if you do it yourself, it's OK, but concerning if
| Facebook does it. So all the open source software mainly built by
| big tech companies is also predatory pricing? Where do you draw
| the line?
| gimmeThaBeet wrote:
| I see what you're saying, but then I also don't share the
| author's viewpoint. That may have a little to do with it.
|
| It is an interesting thought. What if you, as a company, create
| some open source that eliminates or genuinely competes with
| other companies?
|
| When a large company has the resources to foot the bill on some
| project, and just give it away as open source because it is not
| a core product, is that just as bad as any of the article
| cases? Some FB, Google, Amazon, MS et al. tool could be
| someone's entire business.
|
| Is it fair, open source or not, to release software for free,
| because you make money elsewhere such that you don't care about
| monetizing it? Is harming a competitors admissible if you
| literally never intend to directly profit off the endeavor?
|
| Imo, this line of thinking really challenges the point of the
| article, I don't know where you draw that line. I feel it would
| be interesting to evaluate a real example, though admittedly I
| can't think of one on the spot.
| DoctorOW wrote:
| Open source naturally allows for competition. Look at Chrome,
| Google employed all these predatory practices to get Chrome to
| the market share it is today, but a significant amount of that
| market share is split between Chromium forked competitors.
| native_samples wrote:
| Which Chromium based competitors have significant market
| share?
| DoctorOW wrote:
| Chromium Edge is more popular than Firefox is.
|
| Source: https://caniuse.com/usage-table
| nbs_tar wrote:
| the interplay between this pricing practice, and the proposed
| partial or wholesale bans on large tech cos making acquisitions
| is where it gets interesting. copy acquire kill just
| becomes...copy, undercut on pricing and kill. this pricing
| practice will become even more prevalent, and is much harder to
| regulate.
| justbored123 wrote:
| Interesting, from the wiki:
|
| Predatory pricing is a pricing strategy, using the method of
| undercutting on a larger scale, where a dominant firm in an
| industry will deliberately reduce its prices of a product or
| service to loss-making levels in the short-term.
|
| The aim is that existing or potential competitors within the
| industry will be forced to leave the market.
|
| https://en.wikipedia.org/wiki/Predatory_pricing
| theptip wrote:
| Important to distinguish two types of loss-leader; this is a
| strategy that non-dominant companies in competitive markets use
| too, and all startups are in a sense running a loss leader
| until they get to break-even.
|
| A loss-leader is not necessarily anticompetitive. It's when you
| combine it with a dominant market position that the problems
| emerge.
|
| My understanding is that EU antitrust law is more concerned
| with preserving competition as a benefit in itself for the
| consumer, whereas the US doesn't think lack of competition in
| itself harms consumers, and requires you to show evidence of
| other harms before enforcing antitrust laws. The case of
| predatory pricing is a good example of where the US model tends
| to fail, and it seems like we are currently re-examining this
| regulatory philosophy.
| dantheman wrote:
| Does it fail though? It's all about timelines, you might be
| able to get an advantage for a short while but not normally
| for long.
| theptip wrote:
| Is the question is whether predatory pricing either works
| or harms consumers?
|
| I think it's quite widely understood by economists and
| legislators that it can work; the Wikipedia article up-
| thread gets fairly technical, e.g. https://en.wikipedia.org
| /wiki/Predatory_pricing#Long_term_co.... You can absolutely
| loss-lead a competitor out of business if you have a bigger
| pile of cash, and then raise prices higher.
|
| Perhaps facetiously, I'd suggest the question can be more
| succinctly answered by saying if it didn't work, then large
| companies probably wouldn't do it.
|
| Or is the question about whether or not this is a failure
| of regulatory framework?
| dantheman wrote:
| It's understood that it "can" work - but we don't see it
| actually working / harming in the medium/long term. It's
| the same way cornering the market "can" work, but doesn't
| really happen.
| ukoki wrote:
| It fails with complementary products, like when you give
| away a browser for free to boost your search engine
| business.
| mc32 wrote:
| I think that is classic Standard Oil.
|
| It seems start-ups are different. When they do this they are
| not dominant. They are up and coming and attempting to leverage
| scale before competitors come and take their lunch (Uber,
| AB&B). At some point they cross the threshold and do become the
| dominant player, however, often not yet profitably. So the
| question is how to gauge that so as not to kill innovation but
| also to ensure other competitors aren't drowned.
| lostcolony wrote:
| Sure, but better laws to prevent it prevent everyone from
| doing it.
|
| Debt financing to expand is one thing; debt financing to
| expand when you currently aren't making a profit, and you
| don't have a business model to make a profit after expansion
| except "choke out competitors so you have a monopoly and can
| raise prices to profitable levels" is anti-consumer.
| dantheman wrote:
| If you look at the Standard Oil case it doesn't make much
| sense - they lowered costs dramatically, greatly improved the
| world, and by the time they were broken up had already lost a
| huge amount of market share and were trending down.
|
| What exactly was the benefit that happened after the break
| up?
| mullingitover wrote:
| This can occasionally backfire spectacularly. Consider the
| story of Herbert Henry Dow[1]:
|
| > With his new company and new technology, Dow produced bromine
| very cheaply, and began selling it in the United States for 36
| cents per pound. At the time, the German government supported a
| bromine cartel, Bromkonvention, which had a near-monopoly on
| the supply of bromine, which they sold in the US for 49 cents
| per pound. The Germans had made it clear that they would dump
| the market with cheap bromine if Dow attempted to sell his
| product abroad. In 1904 Dow defied the cartel by beginning to
| export his bromine at its cheaper price to England. A few
| months later, an angry Bromkonvention representative visited
| Dow in his office and reminded him to cease exporting his
| bromine.
|
| > Unafraid, Dow continued exporting to England and Japan. The
| German cartel retaliated by dumping the US market with bromine
| at 15 cents a pound in an effort to put him out of business.
| Unable to compete with this predatory pricing in the U.S., Dow
| instructed his agents to buy up hundreds of thousands of pounds
| of the German bromine locally at the low price. The Dow company
| repackaged the bromine and exported it to Europe, selling it
| even to German companies at 27 cents a pound. The cartel,
| having expected Dow to go out of business, was unable to
| comprehend what was driving the enormous demand for bromine in
| the U.S., and where all the cheap imported bromine dumping
| their market was coming from. They suspected their own members
| of violating their price-fixing agreement and selling in
| Germany below the cartel's fixed cost. The cartel continued to
| slash prices on their bromine in the U.S., first to 12 cents a
| pound, and then to 10.5 cents per pound. The cartel finally
| caught on to Dow's tactic and realized that they could not keep
| selling below cost, they then increased their prices worldwide.
|
| [1] https://en.wikipedia.org/wiki/Herbert_Henry_Dow
| neonate wrote:
| https://archive.is/fWslc
| djohnston wrote:
| Seems like the sort of scrutiny that would produce a well-
| intentioned law that will end up propping incumbents. Excited to
| be proven wrong though.
| mrandish wrote:
| I share your concern. In this era of cronyism and regulatory
| capture, the stated intentions of legislative efforts rarely
| seem to survive through the law-making process, no matter how
| laudable their origins. They get weakened, undermined, loop-
| holed or otherwise subverted. Even the recent "Right to Repair"
| efforts appear to specifically exclude things like mobile
| devices, PCs and consoles.
|
| Seeing so many bills launched which appear to be so positive
| yet end up being either irrelevant or perversely damaging, has
| left me deeply skeptical anytime I hear another legislator
| announce some bill. The more I agree with the intent, the more
| I now just fear disappointment. The system is corrupt. Both
| major parties play these games and there is no longer a party I
| can rely on to be consistently better. Even when one party
| appears less bad, it's usually just that they promise things I
| find more agreeable, yet don't actually deliver when in power.
| bee_rider wrote:
| The issue seems, to me, that we're picking between propping up
| the incumbent (by preventing anti-competitive pricing) and
| propping up the competitor (with VC funds). Neither of these is
| a neutral choice, really. Competitors should win when they have
| a fundamental advantage like a technology jump -- switching
| because one company can temporarily price below the cost of
| providing service is not much of an improvement.
| minikites wrote:
| What is your solution? Should we just keep doing nothing?
| markzzerella wrote:
| Stop using or supporting these people in every way you can,
| and help others that are less technically inclined do the
| same.
| beiller wrote:
| That could work. Market forces will play it out, investors
| will get burned and be more hesitant to pour more gasoline on
| the fire. The business model as it stands appears to not work
| long term (maybe). What company has had long term success
| with this model (operate at massive losses until no
| competition left)? But short term the investors have been
| dumping their money directly into consumers' pockets via
| cheap uber rides or uber eats subsidized by VC so whats not
| to love?
| andrekandre wrote:
| investors will get burned and be more hesitant to pour more
| gasoline on the fire
|
| that defintely makes sense, but from what i hear we are in
| a glut of cheap capital in recent times, so this might not
| be so effective deterrent What company has
| had long term success with this model
|
| im not sure it needs to be long term sustained, as long as
| short term damage is severe enough, the player can just
| harvest the market share from the competition... when it
| heats back up again, just use that financial might again to
| clamp things down... it would be a huge deterrent to
| further investors/entrepreneurs
| stavros wrote:
| What does "cheap capital" mean? $1 is worth $1, how can
| it be cheap or expensive in terms of itself?
| Shikadi wrote:
| Interest rates are zero
| [deleted]
| bogwog wrote:
| > Market forces will play it out
|
| The problem with anti-competitive practices is that they're
| immune to market forces.
| dragonwriter wrote:
| > The problem with anti-competitive practices is that
| they're immune to market forces.
|
| No, they aren't, in general.
|
| They are self-limiting, though, where the _actor_ isn 't
| insulated from idealized market forces by market
| position. In that case, they are incentivized by the same
| _real_ market forces which protect them.
| jonfw wrote:
| Amazon, Uber, and Tesla have done pretty well by a similar
| model. They went a long time and spent a LOT of money
| before they turned reliable profits
| lostcolony wrote:
| Umm, is Uber profitable?
|
| Amazon is (and even in the past, was basically at a
| rounding error to zero on margin, since they were plowing
| so much money into R&D), and Tesla has had the past
| couple quarters be profitable (though amusingly more on
| bets on Bitcoin than actual car sales), both essentially
| creating a new market, and while not actually
| undercutting the competition. But I thought Uber was
| 'expecting' to be profitable by the end of the year?
| While basically making it so cab companies have a hard
| time competing, since they, you know, obey the rules
| (albeit ones they created to, themselves, maintain a
| monopoly), and have to turn a profit.
| nickik wrote:
| > Tesla has had the past couple quarters be profitable
|
| They have been profitable for almost 1.5 years.
|
| > (though amusingly more on bets on Bitcoin than actual
| car sales)
|
| That is simply false.
| lostcolony wrote:
| Yeah, I wasn't commenting on how long Tesla has been
| profitable, just that currently they are. But it's been
| due to emission offsets and bitcoin. And given they don't
| make a profit on their cars...they've made more from
| bitcoin than on car sales.
|
| https://www.autoweek.com/news/green-cars/a36266393/tesla-
| mad...
|
| https://www.motorbiscuit.com/tesla-loses-money-on-every-
| sing...
| nickik wrote:
| Why are people so obsessed with picking some parts Tesla
| revenue and claim that what makes it profitable. What
| makes them profitable is all the ways that make revenue
| and all the ways they spend money.
|
| Bitcoin was relevant for 1 Quarter. And trading in fuel
| credits has been a thing in the automotive industry for
| decades and are simply a normal part of the business.
|
| You might as well point to specific spending and say
| 'they are only not more profitable because of XY'.
|
| They have a ~20% unit margin excluding credits so clearly
| they are making a massive amount of money selling cars.
| If they weren't selling credits they would likely spend
| differently and still show moderate profitability. Their
| goal is not maximum profitability but maximum growth
| while showing consistent profitability.
| lostcolony wrote:
| So as a note, this whole tangent is built on my -aside-
| "and, amusingly, they made more money from Bitcoin than
| car sales". An interesting aside, that is a point both in
| favor and against Tesla with respect to the original
| post, but ultimately not that relevant with the core
| proposition I was making that Tesla is not like Uber, and
| could reasonably be argued to not be the kind of company
| that is kept afloat solely by VCs, to the detriment of
| would-be competitors, unlike Uber.
|
| And, as you mention, emission credits are something all
| competitors can take advantage of. Bitcoin kind of is
| too, though speculative investments outside of the
| business the company is in strikes me as just as
| problematic as debt/equity funding an unprofitable
| company. But not the point I was trying to make. I
| actually was putting them in the "reliable profit"
| category, unlike Uber. Though if being profitable
| requires governmental incentives and speculation on
| crypto, maybe not so much.
| maverick-iceman wrote:
| > Why are people so obsessed with picking some parts
| Tesla revenue
|
| Because people (for the most part) aren't fools,
| especially on here.
|
| People see a 600B dollar company and expect it to feel
| its presence in their lives each and every day.
|
| They expect to use the thing, or their employer to use
| the thing or their supplier to use the thing on a daily
| basis like it happens with Exxon, Amazon, Microsoft,
| Google, Facebook, Netflix, Salesforce, Oracle, IBM...
|
| They all earned their significance by touching so many
| lives and making people lives a tad better and less
| complicated for their users, and the rise to riches of
| their founders has happened in lockstep or almost
| lockstep with the changes and the improvement they were
| making in people's lives.
|
| With Tesla you have a 600B company and Porsches (which
| are a rarity on their own) are still more common then
| them on our roads.
|
| People are suspicious about unjustifed enrichment, always
| been, always will be.
|
| "What have you done for me to deserve that amount of
| money? What have you done for society to deserve that
| amount of money?"
|
| Such question will always come up. Musk has been able to
| answer to such question up to now with:
|
| 1) "Give me time!" and
|
| 2) "Wait, neat things are a-comin" as well as
|
| 3) "Population wide morale boost given by the prospect of
| amazing future is the real product"
|
| People are more and more asking questions though, and he
| keeps answering with postponements and future deadlines,
| while Teslas are still less common than Porsches
| lotsofpulp wrote:
| Tesla delivers twice as many cars as Porsche.
|
| https://ir.tesla.com/press-release/tesla-q4-2020-vehicle-
| pro...
|
| https://newsroom.porsche.com/en/company/annual-
| sustainabilit...
|
| And Porsche is stagnant compared to Tesla:
|
| https://www.statista.com/statistics/502208/tesla-
| quarterly-v...
|
| https://www.statista.com/statistics/263854/sales-
| development...
|
| >With Tesla you have a 600B company and Porsches (which
| are a rarity on their own) are still more common then
| them on our roads.
|
| I have seen far more Teslas than Porsches up and down the
| west coast.
| maverick-iceman wrote:
| And , in fact...what's Porsche's marketcap? N/A
|
| They are private but the approximation can be extracted
| from Ferrari: 45.5B
|
| Now, where does the remaining 555B come from?
| lotsofpulp wrote:
| Porsche is not private, it is a subsidiary of Volkswagen
| which is a publicly traded company. Porsche has 3B euro
| of profit per year, per Wikipedia, and I would guess it
| is worth far less than $46B if it were to be sold today
| since they seem to have stagnated.
|
| I do not know what Ferrari has to do with Porsche.
|
| If your question is why is the outstanding number of
| shares of Tesla multiplied by the most recent share price
| of Tesla equal to $x, then there are multiple answers.
|
| The simplest is because someone decided they wanted to
| buy the most recent share of Tesla at $y. The slightly
| more complicated one is that that person decided that
| buying that share was a better use of their money than
| whatever other alternative they had. The most complicated
| answer is going to be that many actors in the market are
| betting Tesla is going to "grow" by market share or new
| technologies over some nebulous amount of time, and that
| given all the investment options, people are allocating
| that amount to Tesla compared to others.
| maverick-iceman wrote:
| All fair game. By the same token, those who have not been
| bitten by the Tesla bug have all the rights to point at
| the highest beneficiary of Tesla shares appreciation
| which is the CEO who goes by Musk Reeve Lyndon Elon and
| ask him:
|
| "Hey chap, what are you doing for the consumer? Meaning
| those who buy products, not those who buy stocks. What's
| the concrete quality of life value your company is
| producing in exchange for all that wealth? How does it
| compare against Amazon, Google, Microsoft, Daimler, Ford,
| Porsche?"
|
| And if enough people ask the question and the response is
| unsatisfactory and there are not enough people to defend
| him , then he'd be expropriated. You can see pockets of
| the population which are more and more asking the
| question. Especially here on HN, one of them was the one
| which started the discussion. Game recognizes game after
| all.
|
| And again, just like Tesla market cap is fair game, and
| Musk wealth is fair game... so is people asking questions
| and the expropriation if the answer is unsatisfactory.
|
| The only rule to the game is that there are no rules and
| that everything is fair game... never explain, never
| complain, for this sort of things have always happened
| and it goes with the territory really. It already
| happened with J.D Rockefeller, and nearly happened again
| with William Henry Gates III.
|
| At least those chaps produced lots quality of life,
| people went after them due to the hedonistic treadmill
| effect and the inability of Standard Oil and Microsoft to
| keep the pace of quality of life improvement after the
| initial burst which happens when a new tech such as
| Petroleum oil or the Chip emerges for the first time.
|
| Musk Reeve Lyndon Elon has yet to produce some tangible
| quality of life which is not to the benefit of Musk Reeve
| Lyndon Elon, or one of his cousins.
|
| Tesla most successful product is the common stock of the
| company, it's also the most pitched and promoted by the
| CEO. Not even close.
| bee_rider wrote:
| You misunderstand. Uber plans to be profitable within a
| year... but didn't say which year they'll be profitable
| within.
| ch4s3 wrote:
| Well, Amazon could have taken profits earlier but was
| investing back into the business instead, so I'd argue
| its quite different. Tesla makes cars with relatively new
| tech, which has super high fixed costs in an industry
| littered with high profile failures.
|
| Uber is maybe the canonical example of what's being
| discussed.
| treis wrote:
| >Well, Amazon could have taken profits earlier but was
| investing back into the business instead, so I'd argue
| its quite different.
|
| Their free cash flow didn't really take off until AWS
| came along. A couple billion a year vs 100 billion in
| profit for Walmart. They were definitely trading cash for
| market share. The only reason to do that is if they can
| later use that market share to make even more cash.
| pydry wrote:
| There's already a law against predatory pricing. It just has a
| high burden of proof, isn't enforced, and the FTC's own website
| expresses skepticism that such a thing could ever _really_
| happen:
|
| https://www.ftc.gov/tips-advice/competition-guidance/guide-a...
| vlovich123 wrote:
| That's frustrating.
| https://www.bloomberg.com/news/articles/2020-07-29/amazon-
| em...
| tablespoon wrote:
| > Seems like the sort of scrutiny that would produce a well-
| intentioned law that will end up propping incumbents. Excited
| to be proven wrong though.
|
| Maybe by itself, but it could be coupled with other laws
| designed to knock those incumbents down (e.g. by breaking them
| up), resulting in a better-structured and fairer market.
|
| IMHO, the biggest tech giant should have their peripheral
| businesses broken off (e.g. separate Facebook and Instagram),
| and their main businesses should be further split to create
| well-matched peer competitors (e.g. Facebook Red, Facebook
| Blue, and Facebook Green).
| mensetmanusman wrote:
| This is what China did to destroy the solar panel manufacturing
| in the U.S. as well. Some of my colleagues now were kicked out of
| that industry because US politicians didn't respond to the
| tactic.
|
| Also, China is using this tactic now on critical speciality
| materials related to the global polymer supply chain.
| barrkel wrote:
| This is one of SV's main competitive advantages vs not just the
| rest of the US, but the rest of the world: the amount of
| available financial capital to pour into scaling up quickly,
| which of course happens at a loss - sales generally lag costs and
| especially fixed costs.
|
| If you include human capital, it's almost all of SV's competitive
| advantage: co-location of the people and the money to scale up.
| bogwog wrote:
| Isn't it a misnomer to call an anti-competitive practice a
| "competitive advantage"?
| skybrian wrote:
| It seems that "competitive" and "anti-competitive" mean about
| the same thing and it's a matter of perspective. It depends
| on which companies you support.
| lostcolony wrote:
| Debt to scale up is one thing; operating for years
| operating/selling at a loss leading to ever increasing debt to
| choke out competitors and maintain a monopoly, fueling it with
| the expectation of a market valuation that will offset those
| losses, itself fueled by choking out those competitors, and all
| reliant on either getting out before it comes crashing down, or
| jacking up prices to profitable levels once there are no
| competitors left, is something else.
| tunesmith wrote:
| See: the music streaming industry
| DougN7 wrote:
| Isn't that what Amazon did early on? If so, looks like it
| worked.
| maverick-iceman wrote:
| Amazon scaled up leveraging their monster positive FCF
| 2002-2015 . They didn't need equity raises.
|
| Amazon is brought up often with regards to this, but
| somehow I've always encountered this argument when it was
| made as a rebuttal to a critique towards the business
| technique used by the Celebrity CEO at the helm of a
| particular car manufacturer (as well as battery
| manufacturer and solar panels manufacturer, oh and
| flamethrower manufacturer)
| lotsofpulp wrote:
| Amazon's primary advantage, initially, was that you could
| save ~7% sales tax in most states by purchasing from them.
| They also probably had a good deal on shipping at the time
| since they were the only ones doing it at such a large
| scale.
|
| If you look at AMZN net income graph, they never really
| lost a ton of money.
| hoppyhoppy2 wrote:
| I don't think they're arguing that it doesn't work for the
| company doing it. I think they're arguing along the the
| lines that it's unfair or unethical (anticompetitive) and
| comes with costs for the broader society.
| lostcolony wrote:
| Yep. Of course companies do it when they can; it works
| for them. It's the effect on other companies, on actual
| market competition, and ultimately the consumer, that is
| a problem.
|
| Heck, Amazon is a fun example; they've long used their
| monopoly power to dictate to publishers, and are
| currently seeking to leverage their monopoly, Kindle
| Unlimited, etc, to help drive self-publishing on their
| platform, to cut out Publishers entirely. I'm not saying
| that removal of publishers is innately a bad thing, I
| -am- saying that making Amazon the largest publisher and
| the largest distributor of books in the world probably
| is. And they've achieved it not by simply being the best,
| but also via predatory pricing, and using money from AWS
| to cover costs in their retail arm to help gain market
| share, at the expense of smaller retailers who don't have
| a massively profitable cloud service to offset their
| losses with.
| lotsofpulp wrote:
| > And they've achieved it not by simply being the best,
| but also via predatory pricing, and using money from AWS
| to cover costs in their retail arm to help gain market
| share, at the expense of smaller retailers who don't have
| a massively profitable cloud service to offset their
| losses with.
|
| Source? Their financials do not indicate that they were
| or are subsidizing losses in their retail business with
| AWS.
|
| https://dazeinfo.com/2019/11/06/amazon-net-income-by-
| year-gr...
|
| AWS income did not even ramp up until a few years after
| it came out in 2006.
|
| Their main competitive advantage was having a decent
| website and shipping operation early on when other
| retailers did not, and being able to sell goods to
| customers in most states without charging sales tax until
| the 2010s for most states.
| lostcolony wrote:
| Fair, I'm overstating it. They basically kept wall street
| happy with their profit in AWS, while having
| comparatively little realized profit in retail, allowing
| them to keep margins in retail extremely thin. I'm
| explicitly thinking of 2010-2015ish, when I recall seeing
| news articles about it, but I'm way too lazy to go find
| them. Either way, I completely agree that they're now in
| such a dominant position they don't have to have
| predatory pricing to still capture a huge part of the
| market.
| lotsofpulp wrote:
| Retail margins are already extremely thin at ~2%.
| However, the public markets allowed AMZN to maintain at
| 0% or even slightly negative because the market
| (correctly) believed the group of people at Amazon were
| doing something innovative.
|
| The market could have chosen Walmart, or Target or Home
| Depot too, but they did not (correctly) because the
| chances of the people working at those companies coming
| out with something like AWS is insufficient.
|
| Amazon is a poor company to use as an example for one
| that dumps their product at below cost in hopes of
| gaining market share.
| hoppyhoppy2 wrote:
| In fairness to the parent commenter, Amazon never had a
| net profitable year until 2004. Most new non-Silicon
| Valley retailers can't operate for _ten years_ with
| yearly losses. Certainly not most smaller retailers.
| spaced-out wrote:
| That's because investors know those small retailers have
| no ability to scale. If Amazon did what most retailers do
| when they have a good quarter, throw their investors some
| dividends and only employ the people they need to keep
| things running, then investors would never have valued as
| high as they were/are.
| lotsofpulp wrote:
| They certainly can. They choose not to. Amazon, at the
| time, chose to invest in their warehouse operations, they
| chose to lose a little money in the short term and build
| out their operations to go head to head with Walmart and
| the other retailers. And they chose to invest in
| developing their website and e-commerce when online
| shopping was not a sure thing.
|
| You bet big, you win big. Of course, now it is just a
| side show since retail is playing for pennies, but they
| certainly were not "dumping" back then just to kill the
| competition, and then planning to raise prices. They
| clearly innovated and brought online shopping to the
| fore.
| ideamotor wrote:
| For example companies like door dash that run at a loss
| while forcing restaurants to take in less profits
| (because restaurants must pay door dash and can't raise
| prices just for door dash users). It's a ponzi scheme of
| investors. The real business for many SV companies is
| keeping the investor money flowing in.
| ddtrafficking wrote:
| And on top of that some of these companies work by
| exploiting labor while not being held accountable for
| that.
|
| I recently learned from a doordash courier that he and
| other Bangladeshi men had paid tens of thousands of
| dollars to a human trafficking organization to work
| doordash in exchange for getting to the United States. Of
| course he didn't have this money, it was debt to the
| organization, and he has to pay it out of his DoorDash
| wages, plus interest, to the organization. He lived in an
| apartment with dozens of other men in the same situation.
| He had a gps tracker around his ankle and everything.
|
| How are you supposed to compete with a company that uses
| modern slavery in order to deliver your meal for $5 or
| less?
| lotsofpulp wrote:
| > because restaurants must pay door dash and can't raise
| prices just for door dash users
|
| All the restaurants I know charge higher prices if you
| order online than if you call directly or go in person. I
| do not use food delivery apps, but I assume prices are
| similarly inflated there since people willing to purchase
| online or via app are amenable to paying more.
|
| It is absolutely crazy to me the amount of premium people
| are willing to pay just to not have to pick up the phone
| or drive 5 min.
| Jeff_Brown wrote:
| > It is absolutely crazy to me the amount of premium
| people are willing to pay just to not have to pick up the
| phone or drive 5 min.
|
| Crazy and awesome. It means people value their time
| highly, and can afford to buy it back.
| lotsofpulp wrote:
| I hope. I suspect many or probably most cannot afford to
| buy their time back though, based on who I mostly see
| using online food ordering and delivery.
| taurath wrote:
| It's crazy expensive when you aren't getting a discount,
| and even with many discounts. Tech money doesn't really
| care about the amounts though. Whenever a food delivery
| app recruiter calls me up I tell them I don't think
| delivering burritos to other programmers is much value to
| the world.
| r00fus wrote:
| Yes. Why not scrutinize their business as well?
| woofie11 wrote:
| It works brilliantly. It's called dumping. It created major
| businesses like Standard Oil, prior to antitrust laws.
| Indeed, it's #1 on Wikipedia's list of anticompetitive
| strategies:
|
| https://en.wikipedia.org/wiki/Anti-
| competitive_practices#Typ...
|
| I have mixed feelings about some of the big money SV
| strategies. Antitrust concerns aside:
|
| - They do allow some types of long-term transformative
| businesses, which would otherwise be impossible.
|
| - They don't allow many forms of sustainable businesses to
| exist. If you and I have the same idea and ability to
| execute, whichever of us raises more money (and in an ideal
| free market, this means whichever of us is willing to
| accept less favorable terms) wins. This drains value from
| entrepreneurs to capital. Perhaps it speeds things up a
| little bit, but it's a net lose. It also leads to
| businesses with unsustainable debt and burn rates, and many
| viable business models crash-and-burn.
| toss1 wrote:
| It also eliminates a key benefit of capitalism:
| competition.
|
| It is probably what allows Amazon to continue to exit as
| such a cesspool of fraudulent reviews counterfeit goods,
| shady sellers, and painfully bad search functionality. A
| near competitor could have pushed them to improve, but
| their moat is now too big except for certain niches, so
| we're stuck.
| native_samples wrote:
| Is Amazon the best example of this? Their retail arm was
| never long term loss making in the way e.g. Twitter was,
| if I recall correctly, but rather more like break even
| because all profits were ploughed into growth. I don't
| know how much money Amazon raised but back when Bezos
| started out there weren't the same kinds of insane sums
| being tossed about by VCs.
|
| Also Amazon's moat isn't really its website, which is
| mediocre at best, but its backend systems like
| fulfillment. Plus brand recognition, size, general
| efficiency etc.
| CheezeIt wrote:
| Amazon raised $54 million in its IPO in 1997.
| zozbot234 wrote:
| > This drains value from entrepreneurs to capital.
|
| ISTM that it's draining value from entrepreneurs to the
| _early adopters_ (on the consumption side) that make up
| the first-mover 's market, and that the investors are
| just providing capital at competitive conditions, so
| they're not capturing any rent. Of course later-stage
| consumers can be seen as losers, if only because they
| must ultimately defray the increased cost of the initial
| excess-capacity building that results from imperfect
| competition.
|
| There's nothing that suggests this is unique to the tech
| sector, BTW. It ought to apply whenever scale is
| sufficiently large and first-mover advantages
| sufficiently high.
| taurath wrote:
| It basically describes most of the biggest companies
| coming out of tech.
|
| Imagine thinking that an individual or a group of normal
| people can be competitive in an economy like this.
| Jeff_Brown wrote:
| > whichever of us raises more money (and in an ideal free
| market, this means whichever of us is willing to accept
| less favorable terms) wins
|
| I went through an entire economics PhD program, and had
| never before now heard of this founders' race to the
| bottom of investment terms. What a remarkable insight. Is
| there already a name for it?
| woofie11 wrote:
| It's my own insight.
|
| I have about a half-dozen similarly remarkable insights
| each week. If you're interested in writing an econ paper
| about it, I'm glad to let you take first authorship.
|
| We can call it the "Founders Race to the Bottom" or the
| "Brown Effect." :) If it goes viral, you'll be famous.
|
| I've made that offer before on similar insights, and so
| far, no one has taken me up on it. And a few of them were
| really insightful.
|
| Who knows? Perhaps you'll get a Nobel Prize for it. Econ
| give them out for less. Some of those insights were, er,
| less than deep.
|
| The real insight behind this came in the Wealth of
| Nations. Adam Smith walks through this exact logic
| market-by-market, and for example, his section on rents
| leads to a similar degeneracy, where rents rise to match
| what the market can bare, and working people are driven
| to poverty by spending all excess income on rent. It's a
| great read.
|
| This is very directly applying exactly his logic, just to
| a modern market.
| [deleted]
| dantheman wrote:
| I question if that actually happens. Most companies don't
| actually have that large a moat.
| abriosi wrote:
| I bet every bootstrapped startup is feeling this on their
| skin.
|
| I know we do and we are operating in Europe.
|
| I can only imagine that in the US is worse.
| lostcolony wrote:
| Long term it probably doesn't very often. That's cold
| comfort for the businesses that perhaps had better utility
| and better profit models, but couldn't compete because they
| couldn't debt finance as well. Likewise it's cold comfort
| for the consumer during the period when the company is able
| to jack up prices. And it's cold comfort for the retail
| investor who loses money should the company go under
| because it was unsustainable but had grown such market
| share it was included in index funds and things.
|
| It's not necessarily a permanent thing; little related to
| industry is. But the seemingly permanent cases are telling
| (Walmart being a great example). But even the impermanent
| ones; 20 years, say, of suboptimal outcomes for everyone
| except the already rich (the VCs), and the founders playing
| a flawed system well, is a reason to re-examine the system.
|
| Fundamentally being able to continually debt finance
| something that has no profitability, and possibly no path
| to profitability, or which leverages market inequalities to
| expand (again, Walmart; profits from one area enable
| predatory pricing in another to choke out competition, then
| you can raise prices, and repeat the cycle elsewhere),
| breaks a lot of the assumptions a 'free market' rests on.
|
| Or more succinctly, the practice is what enables digging
| the moat. The size of the moat is entirely controlled by
| how much financing you can get. We're seeing a lot of
| companies focusing on building moats rather than competing
| fairly.
| nradov wrote:
| That is implausible in the general case. If a business
| actually had a better profit model then they would be
| able to attract financing. Capital is about as cheap now
| as it has ever been.
| lumost wrote:
| Many profitable business models do not survive
| competition with unprofitable ones without becoming
| unprofitable.
|
| If WeWork subsidizes all office space with ~50 billion
| dollars, all other profitable landlords will need to
| lower prices to compete. To the investor the only viable
| business is the one that grows so large as to not have
| any unprofitable competition.
| nradov wrote:
| Other landlords can borrow money the same way that WeWork
| borrowed money. There is literally a whole specialized
| financial services industry which arranges such financing
| for landlords.
| microtherion wrote:
| Yes, but in order to attract tenants, they would have to
| offer lease terms competitive with WeWork and thus lock
| themselves into a similarly unprofitable business model.
| native_samples wrote:
| I don't think most landlords have the option of
| convincing Masayashi Son to write an infeasibly large
| cheque on the grounds that that remind him of what he
| used to be like, and/or that they are making a "tech"
| company.
| lotsofpulp wrote:
| WeWork is not a landlord, and actual landlords would
| never give away their land / space so cheaply to WeWork
| such that WeWork could afford those losses. I do not see
| what kind of moat WeWork could ever have to justify being
| locked into it, which means they would always end up
| being a useless middleman if they tried to monopolize and
| raise prices. And even if they succeeded, then the
| landlord would just raise the price it charges WeWork.
| lostcolony wrote:
| Do you really think a VC is going to say "This small 3
| person startup has a better profit model than that
| 'startup' with 10k people, hundreds of millions in raised
| funds, that is still operating at a loss. I'm going to
| invest so heavily into them that they can operate at an
| equal loss with that big player, AND scale enough to
| catch up, and then it becomes who has the biggest war
| chest to burn to outlast the competitor, so that in the
| end their profit model can keep them afloat"?
| SpicyLemonZest wrote:
| Yes, this happens all the time. There are very few VC-
| funded startups that don't face VC-funded competition.
| lostcolony wrote:
| That wasn't my claim. My claim was that the thing the VCs
| are backing is not simply a better profit model. "You can
| do X for 10% less than the incumbent? Nothing else to
| distinguish you? And all we have to do is risk half a
| billion dollars over the next 5 years to compete on an
| even footing with what they've already spent?" - who is
| signing up for that?
| lumost wrote:
| at 0% interest rates a lot of dumb investment ideas that
| could eventually earn money become surprisingly practical
| as long as the pitch that the firm could _eventually_
| become net profitable is even remotely viable.
|
| 0% interest effectively means there is no time cost to
| money - As a large LP you could probably hold open a
| money burning position in a firm for decades as long as
| each year it looked like you would turn a profit within N
| years (conveniently far enough away that its beyond the
| funds horizon). At 5% interest N years gets a lot closer.
| lotsofpulp wrote:
| > Likewise it's cold comfort for the consumer during the
| period when the company is able to jack up prices.
|
| You mention Walmart as a good example, but their net
| income figures for the past few decades indicate that
| they have not been able to jack up prices.
| gentleman11 wrote:
| Before sv did it, Walmart was famous for operating at a loss for
| years to kill local competitors who tried to spring up
| clairity wrote:
| except walmart didn't operate at a loss in most cases. they
| figured out early on that they could operate profitably on the
| float between when they took delivery and sold items (usually a
| few days) and when they paid their suppliers for them (weeks,
| sometimes months, later). in effect, these were continual
| short-term zero-interest loans that, combined with predatory
| labor pay rates with socialized costs, often exceeded operating
| needs, so stores often generated profit entirely from finance
| rather than operations, and thus could offer cut-throat prices.
| it's become a classic business case study in cash flow
| management taught in business schools and employed quite
| sucessfully by other mega-retailers like carrefour in france.
| deregulateMed wrote:
| I wonder if mom and pop shops were not as economical.
|
| I study consumer prices and I've found mom and pop shops are
| significantly more expensive than the big chains. I'm talking
| like 2x more expensive.
|
| This is in suburbia where there are lots of competition.
| azinman2 wrote:
| Part of that is because anti-trust law used to prevent
| discounts based upon scale, and that stop being enforced
| decades ago.
| JumpCrisscross wrote:
| > _anti-trust law used to prevent discounts based upon
| scale_
|
| Do you have a source for this?
| azinman2 wrote:
| It's called the Robinson-Patman act.
|
| The legislative purpose was to amend the inadequate
| Clayton Act so as ". .. to curb and prohibit all devices
| by which large buyers gained discriminatory preferences
| over smaller ones by virtue of their greater purchasing
| power." [1]
|
| It's now interpreted based upon cost of manufacturing, so
| the FTC has this Q&A [2]:
|
| > Q: I operate two stores that sell compact discs. My
| business is being ruined by giant discount chains that
| sell their products for less than my wholesale cost. What
| can I do?
|
| A: Discount chains may be able to buy compact discs at a
| lower wholesale price because it costs the manufacturer
| less, on a per-unit basis, to deal with large-volume
| customers. If so, the manufacturer may have a "cost
| justification" defense to the differential pricing and
| the policy would not violate the Robinson-Patman Act.
|
| Note as [1] describes, this act was done in reaction to
| chains causing much distress. The nature of manufacturing
| changed, and as the notion from the 60s/70s that consumer
| pricing was the most important trait in anti-trust law,
| so enforcement stopped and now we have chains everywhere.
|
| [1] https://scholarship.law.stjohns.edu/cgi/viewcontent.c
| gi?arti...
|
| [2] https://www.ftc.gov/tips-advice/competition-
| guidance/guide-a...
| Ericson2314 wrote:
| I think both are true.
|
| Anti-trust is a funny thing because one hand it is clearly
| needed for power dynamics, but on the other hand orthodox
| econ with its increasing price curves underestimates how many
| sorts of monopolies are in fact "natural".
|
| Put another way, anti-trust looks very different if one
| doesn't believe competition is a stable outcome in the long
| term.
|
| In the specific Walmart/Amazon case, I would like to see a
| nationalized warehouse network run by the postal service.
| Warehousing-distribution of goods is just "content-addressed
| post".
| camjohnson26 wrote:
| Every economy has information networks like roads,
| broadband, shipping services, etc, and government's role in
| the economy should be to keep those networks fair and
| efficient. Free market competition is the best way to
| handle price discovery, but it becomes a problem when one
| company can take over the full information network.
|
| Most of the massive companies today have successfully
| captured an entire network or a huge part of one, Facebook
| with the social graph, Microsoft with OS, Amazon with AWS
| and online shopping, Apple with mobile devices. Any
| antitrust legislation should focus on opening up those
| networks, but without introducing the inefficiencies that
| show up any time government takes something over because of
| misaligned incentives.
| native_samples wrote:
| It seems very unlikely that a government run warehouse
| network would have invested into Kiva Robotics like Amazon
| did. Their warehouse tech is a big part of their
| competitive advantage.
| autokad wrote:
| Its my understanding that walmart sells at discount prices, not
| sells at a loss. they have scale that local competitors do not.
| there's a huge difference
| cyberbanjo wrote:
| Many retail stores price certain items at a loss, called
| loss-leaders.
| slim wrote:
| Loss leaders does not mean you are selling at loss. Small
| businesses do use loss leaders to generate leads. It costs
| less than marketing. It just means you price a product
| under the price of the market (you don't even need to lose
| money on it) to attract customers who will hopefully buy
| other products.
| sushid wrote:
| Loss leader literally definitionally means that you're
| selling that good or service at a loss. Yes, you hope you
| recoup the losses by selling more goods and services but
| you do lose money on that good/service.
| 6gvONxR4sf7o wrote:
| Amazon too, right?
| throwawayboise wrote:
| My own observations of this are that it only works in smaller
| areas where there isn't enough critical mass to support a lot
| of choice in markets.
|
| Where I live, we have WalMart, Target, other national "big box"
| retailers, three different supermarket chains, and a pretty
| wide variety of locally-owned small specialty retailers.
|
| Could a town of 10,000 support this kind of diversity in
| retail? No. So there, WalMart wins. Before WalMaret, there was
| more local retail, but they were barely making a living.
| darkwizard42 wrote:
| This is the playbook that works for ridesharing as well
| (which seems to be an oft-cited example of this)... in a
| larger city the density of riders and drivers is sufficiently
| high the market is able to support a 2-company system. In
| smaller markets, it quickly tilts into one of companies
| because no driver will stay on a platform without demand
| (long wait times for a ride), and no rider will use a
| platform without sufficient supply (high ETAs).
| [deleted]
| api wrote:
| In raw materials and manufacturing this is called "dumping" and
| is often illegal because it can have absolutely disastrous
| effects on supply chains. A well financed competitor can sell
| something below cost, crush all its competition, and then raise
| prices to whatever it pleases.
| pitaj wrote:
| Do you have any contemporary examples of this happening?
|
| Seems like something that would be really easy to take
| advantage of by buying the material sold cheap and selling it
| later at a profit.
| briffle wrote:
| China did this with Rare Earth Minerals, and put most other
| mines out of business:
|
| https://www.energy.gov/sites/prod/files/2020/04/f73/Critical.
| ..
| shagie wrote:
| There are numerous allegations from different countries
| claiming that another country is dumping some product on the
| market.
|
| The one I can find most recently is:
| https://www.bloomberg.com/news/articles/2021-06-24/china-
| sue...
|
| > China filed a lawsuit at the World Trade Organization over
| Australian anti-dumping and anti-subsidy measures on Chinese
| exports of railway wheels, wind towers and stainless steel
| sinks, the Ministry of Commerce said Thursday in Beijing.
| This would be the third recent WTO case between the two
| countries, after Australia sued over Chinese tariffs on wine
| and barley.
|
| Prior to that (three weeks ago), it was China dumping steel
| alleged by Japan.
| aardvarkr wrote:
| Here's one - China flooded the global market with cheap solar
| panels that undercut everyone else in an effort funded by the
| govt. It made building massive solar projects cheaper but it
| decimated the domestic solar production around the globe
| because they couldn't compete.
| rmah wrote:
| Except... that's just the first part. Where's the second
| part where they "do whatever they want" (I assume this
| meant raise prices)? Even after winning, they haven't done
| this. Why?
| dmwallin wrote:
| The goals of a nation-state are not the same as those of
| a corporation. Having a monopoly on a strategically
| important industry is valuable in and of itself,
| especially when viewed from a geopolitical perspective.
| Just look at what's currently going on in semiconductors.
| magicalhippo wrote:
| I know EU deals with anti-dumping[1]. As of 2019 there were
| anti-dumping measures for 67 products from 10 countries as
| mentioned in the annex of the annual TDI report[2].
|
| In section 3.1.4 of the annex, they go into some detail
| regarding a dumping claim on electric bicycles from China.
|
| [1]: https://ec.europa.eu/trade/policy/accessing-
| markets/trade-de...
|
| [2]: https://trade.ec.europa.eu/doclib/html/157811.htm
| disgruntledphd2 wrote:
| Yeah, it feels like this _should_ be illegal when done to
| expand into new markets by a profitable business.
|
| Framing the law would be tricky though, as one doesn't want to
| criminalise high-growth (read: VC-funded) startups.
| liotier wrote:
| How are VC-funded startups different from "expand into new
| markets by a profitable business" ?
| Grimm1 wrote:
| Because a startup isn't profitable often for years even
| while in growth before it hits the inflection point.
|
| Taking this ability away without being careful means you'll
| likely further entrench incumbents at the expense of those
| new companies.
| ahtihn wrote:
| I think marginal unit costs should not be allowed to be
| higher than the sale price in general, with maybe some
| exception (liquidation of existing stock with no further
| production or explicit temporary promotions).
|
| For example a company like Uber should not be allowed to
| sell rides for less than what they pay the driver for the
| ride.
| Leherenn wrote:
| I think it is the case in some European countries like
| France.
| disgruntledphd2 wrote:
| I agree with you in principle, but framing the law would
| be tricky.
| mountainb wrote:
| It's not. VC is often a cut out for institutional investors
| who are also major shareholders in BigTech or are literally
| BigTech itself.
|
| These kinds of laws are fundamentally political in nature,
| as there is no real 'neutral' ground.
| MattGaiser wrote:
| > and then raise prices to whatever it pleases.
|
| I know that there is lots of theory on this, but has any
| company really ever gotten to this point?
| cezary wrote:
| Google Maps started charging developers once it was the
| dominant digital map, the fees killed MapFrappe:
| http://mapfrappe.com/
| reaperducer wrote:
| In the tech space, or outside?
|
| Trade wars between nations happen all the time because of
| dumping. Timber, aluminum, soybeans, and all kinds of other
| commodities.
|
| Tech companies have largely gotten a pass on normal business
| practices and codes of conduct this century because they're
| shiny and new. But as the industry ages, it will have to
| learn to work within the boundaries or ordinary civilization.
| sofixa wrote:
| Depends a bit on your definitions, but Google did it with
| Photos.
| NovemberWhiskey wrote:
| We should be careful with definitions here.
|
| Dumping, in the context of international trade, is very
| specifically a _price discrimination_ rather than just an
| absolute price concept: it 's where you export for cheaper than
| you sell domestically.
| mc32 wrote:
| But it's also not just exchange rate. Other things come into
| consideration like local cost difference, PPP and so on. You
| can't expect a coke to cost the same (relative to USD) in the
| US as in Azerbaijan for example.
| deedub wrote:
| Doesn't Walmart do something similar when they open a store in
| a new area?
| moftz wrote:
| You don't necessarily have to engage in predatory pricing if
| you can sell in such volume that you can get better prices
| than a mom and pop as well as offering a one stop shop for
| most consumers. You don't even need to raise prices once the
| competition is gone simply because you are already making a
| decent profit.
| gruez wrote:
| I thought walmart just had lower prices, period, rather than
| having lower prices when they enter and then jacking them up.
| jonathankoren wrote:
| Walmart was repeatedly found guilty of predatory pricing,
| along with entering consent decrees to forbid predatory
| pricing throughout the 1990s.
|
| Arkansas https://www.washingtonpost.com/archive/business/19
| 93/10/13/w...
|
| Wisconsin https://ilsr.org/walmart-settles-predatory-
| pricing-charge/
| JohnWhigham wrote:
| Walmart is the original modern big company to do exactly
| this. And now they're now seen as the "good guy" when
| compared to Amazon. Ain't life funny?
| jbay808 wrote:
| Just to expand on this, it's the sort of thing that _sounds_
| like it shouldn 't work, because the competition can just wait
| you out and raise prices down the road too. But it can, because
| relative advantage is stateful and path-dependent. If you lay
| off skilled workers, cancel contracts, close factories, lose
| customer mindshare, and so on, that damage can be very hard to
| reverse even when favourable conditions eventually reappear.
| BeFlatXIII wrote:
| You've just described why I am so cynical about the magic of
| free market competition. Often, the competition has
| absolutely nothing to do with the price, features, and
| quality of the product being offered. It's competition on the
| business side of things that artificially removes a better
| competitor from the market because they couldn't keep their
| supplier contracts locked in.
| cjcole wrote:
| What allows this tactic to work is the size asymmetry between
| very large companies and smaller companies. It is much less
| effective against similarly sized companies. Very large
| companies have much more buffer (reserves of capital, talent,
| etc.) to draw from. The very large company can absorb
| layoffs, cancelations, closures, and mindshare losses longer
| than a much smaller and very likely leaner company can.
|
| Defining what does and does not constitute predatory behavior
| is difficult to define clearly and concisely.
|
| One potential mitigation, given the above, would be to
| routinely break up companies above a certain size. To make it
| perfectly typical, ordinary, and automatic to do so. To shift
| the burden of proof from the government needing to establish
| monopoly status to the giant company needing to demonstrate
| that the consumer benefits due to economies of scale derived
| from its size outweigh the negative externalities due to its
| size and subsequent disproportionate power and influence.
|
| Economies of scale leading to lower consumer prices are a
| positive good. The negative externalities of huge companies
| due to their size and outsized power and influence aren't
| given as much consideration as they are less quantifiable,
| but they are real and should be taken into account.
| moftz wrote:
| Forcing companies to break up can have the unintentional
| effect of creating cartels where the previously joined
| companies of similar size work together to push out smaller
| companies with price fixing. If there is only so much
| business to be done and there's no realistic way for you to
| cover a majority of the industry, you can make more money
| pushing out any of the competition that won't keep prices
| fixed.
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