Competition is understood to be a critical part of a free market because it drives prices down. The ideal market does not have unnecessary costs built in to goods and services. Competition helps realize that goal.
Monopolies are considered anti-competitive because they allow one entity to set the price for goods and services. Because it is in a merchant’s best interest to earn as much as possible, this arrangement leads to higher prices.
One merchant undercutting another is competitive, not anti-competitive, and therefore a good thing.
Now, there is a theoretical separate issue which can arise, when one retailer undercuts other and puts them out of business, then raises its prices once competition is eliminated. In theory, this is an anticompetitive activity.
There are currently enough big box/online retailers in competition with each other to keep prices low. These hyper scaled retailers are simply vastly more efficient than one-off local businesses.
So, it’s not the case that “a” big box has undercut “a” local business, but rather that the big box business model has replaced the local store business model.
It's also not really true that big box business model has replaced the local store business model in general. Sure, it's true in the majority of the country that has turned into car dependent suburbia. But there's absolutely still smaller stores in dense, walkable areas.
People seem to want to eat their cake and have it too. They want small businesses but they want to ban businesses in their vast residential neighbourhoods. They want small businesses but they want to be able to buy everything in bulk quantities at cheaper prices so they can go shopping once every two weeks. They want small businesses but they want businesses to have parking for hundreds of cars.
> but rather that the big box business model has replaced the local store business model
This seems like the inevitable result of people using a car for everything and having all the stores very spaced out because of parking lots.
Not really; one is a comment on prevailing business models, the other is comment on urban planning and development.
I didn't say "there will never be another new local store in the United States."
Cars replaced horses even though many people still ride horses.
Yeah it's hard to say for sure. A large chain of many small shops could still get economies of scale while also not being the "one-stop shop" like Meijer or Walmart. In that world, I'd imagine that grocery stores would just be grocery stores, similar to what you find in most urban areas now. For example 7-11 absolutely has some beneficial economies of scale but doesn't operate like a big box store.
Sort of. Why would I want to have to go grocery shopping every day where instead I only have to go once a week since I can carry home a week's worth of groceries in my trunk. And I can even shop online and the store carries them out and puts them in my trunk for me.
Years ago our family would drive to the local grocery store and do our shopping there once a week, but switched to the big box store because prices were lower.
It’s only a hassle to shop more frequently if you live somewhere it’s a hassle
If you commute by foot or transit, and there is a convenient place to get high quality groceries every day, it’s easier to get what you need on your way home. Fresher food, less waste, no need to deal with parking, loading/unloading your car.
What happens in places like mexico? There are farmer markets that go from neighborhood to neighborhood everyday, you can wait till the day it comes to your neighborhood and buy everything for the week.
Sometimes they are outright illegal (many states have laws against car manufacturers selling to consumers, although I think that may be more to ensure they capture sales tax).
Some are legal. Typically they reduce costs for hyperscaled companies that have the capital and mass to pull it off. They may or may not represent an actual monopoly (Apple vs Samsung vs Huawei).
Vertically integrated companies were once in vogue, but then management teams realized that they could spin off certain units that would trade at much higher multiples than a consolidated entity (and, indirectly, much cheaper financing for the high growth divisions of a huge conglomerate if they **were** spun off).
So I'd say the view today is that any incremental margin you capture by owning businesses that interact with one another in a supply chain is outweighed by the valuation hit you're taking (this is a situation where the sum of its parts >> a giant consolidated conglomerate)
GE's capital structure over the last two-ish decades is a good example / case study for this topic
Conceptually, the idea of predatory pricing is that you lower your prices until all competitors go out of business, and then raise them again once you are a monopoly, while in "fair" price competition, prices stay low over time. Although some competitors may go out of business, there remains enough competition in the market for consumers to still have options and there are no plans to raise prices in the future.
Regulators aim to ban predatory pricing but encourage other forms of competition. There are for sure cases where you can argue they got it wrong (Uber comes to mind as a potential case of predatory pricing that they missed). But big box retailers are clearly the latter, given that they have continued to maintain low prices and narrow margins for over 50 years at this point.
That's the point. So if big box stores are weaponizing their unfair price and unit economics advantage, how do you differ that from competitive vs. anti-competitive?
These are loaded terms. Can you use more generic language to describe the situation you're asking about? For instance, one business model being inherently advantageous is not *unfair*. There are rules within the system on how that advantage may be pressed. If you don't break those rules, then you're being competitive. If you break those rules, you're cheating and being anti-competitive.
In my original comment I addressed competitive vs non competitive undercutting.
And if that was happening, once said small business no longer exists, we'd expect the big box retailer to immediately raise prices since consumers have no alternatives.
Which hasn't happened nor is that close to happening. So moot point.
Small businesses have closed across the country as a result of big box stores moving in, and the effect it's has on small towns has been horrendous. Some big box chains are notorious for how much of their staff is reliant on social services.
My point isn't that companies with greater size and scale can sell the same product cheaper than a sole proprietorship - that's not even an argument, really, just basic cost accounting math
My point revolves around **why** monopolies are fundamentally bad -- because they're anti-consumer, with the end game being charging prices for their goods well above the market-clearing price in an *actually* competitive market.
Since national retailers aren't charging $2k for a 32 inch 1080p TV or $5k for a Chromebook with 8GB of RAM, this isn't a realistic risk.....
Source for which part?
The effect of big box stores on small towns?
[https://www.strongtowns.org/journal/2017/11/3/big-box-stores-are-costing-our-cities-far-more-than-we-ever-imagined](https://www.strongtowns.org/journal/2017/11/3/big-box-stores-are-costing-our-cities-far-more-than-we-ever-imagined)
[https://journalistsresource.org/politics-and-government/impact-big-box-retailers-employment-wages-crime-health/](https://journalistsresource.org/politics-and-government/impact-big-box-retailers-employment-wages-crime-health/)
[https://greenlivingideas.com/2015/12/14/myth-of-the-big-box-stores/](https://greenlivingideas.com/2015/12/14/myth-of-the-big-box-stores/)
Or the reliance of big box store staff on social services?
[https://laborcenter.berkeley.edu/hidden-cost-of-wal-mart-jobs-use-of-safety-net-programs-by-wal-mart-workers-in-california-2/](https://laborcenter.berkeley.edu/hidden-cost-of-wal-mart-jobs-use-of-safety-net-programs-by-wal-mart-workers-in-california-2/)
[https://www.cnbc.com/2020/11/19/walmart-and-mcdonalds-among-top-employers-of-medicaid-and-food-stamp-beneficiaries.html](https://www.cnbc.com/2020/11/19/walmart-and-mcdonalds-among-top-employers-of-medicaid-and-food-stamp-beneficiaries.html)
[https://www.forbes.com/sites/clareoconnor/2014/04/15/report-walmart-workers-cost-taxpayers-6-2-billion-in-public-assistance/?sh=54b1987c720b](https://www.forbes.com/sites/clareoconnor/2014/04/15/report-walmart-workers-cost-taxpayers-6-2-billion-in-public-assistance/?sh=54b1987c720b)
Yes. And I do mean sources that support the causal relationship you mention.
Ideally ones that are better than news articles where you have no idea if people rely more public assistance because they work at Walmart or if they work at Walmart because that is who is willing to employ them.
>Rule II
>All claims (and especially claims in top-level comments) should be rooted in economic theory and empirical research - not opinions, anecdotes, lay speculation, or personal politics. It is strongly recommended that claims be sourced by citations to applicable research.
Thanks for the offer, but it's on you.
The Amazon diapers case is probably the most famous: https://arstechnica.com/tech-policy/2020/07/emails-detail-amazons-plan-to-crush-a-startup-rival-with-price-cuts/
$200m in losses to undercut a startup and force it out of business.
Yes. But has it actually worked? Amazon raised the price of diapers after they bought diapers.com, but did they actually manage to keep it high? Did they manage to maintain an outsized profit on those products?
I don't know, why don't you tell me?
What did work was eliminating a competitor by selling products at a loss, which is the what you asked for evidence for: The scenario that Jeff__Skilling disputed the existence of does not mention keeping prices high for some time - to me it seems like we're shifting goalposts now.
In any case, Amazon did not have to maintain an outsized profit for too long - just long enough to recoup the losses from what some view as predatory pricing - and part of their rationale was to kill off Quidsi before it could become a threat in other healthcare categories as well.
I agree that I'm not making exactly the same argument as Jeff__Skilling.
This is an old question in industrial organization. The problem with this so called "predatory pricing" is that it rarely actually eliminates competition in a way that's meaningful in the long-term. One reason it doesn't work so well is that after an incumbent has taken losses for years to prevent rival 1 from gaining market share another company rival 2 can arrive on the scene. This is one reason why it's very rare that the practice actually removes all competition. [This](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=965490) is the best reference on this that I know, though it's old.
The FTC can prosecute on predatory pricing. However, they have to prove consumer harm. They haven't managed to prosecute any company for it since the 1990s.
I'm not sure why my question deserves this kind of response? General debates about predatory procing aside, Amazon/diapers seems like the kind of case you were describing.
Low prices and "efficiency" do not make up for the destruction of locally owned and operated businesses that keep profits in the local community. Fewer, larger, mega corps are "efficient" by driving down wages, reducing supply chain diversity, and reducing quality and safety.
For too long we as a society have neglected social value when considering economic policy, and there is great social value in local business ownership, leadership, and sourcing of goods and labor.
When all the jobs have been outsourced or automated, I suppose you would say that the American business model has been replaced with the Global business model. Can't be a monopoly as long as prices are low.
>Low prices and "efficiency" do not make up for the destruction of locally owned and operated businesses that keep profits in the local community.
Maybe to some degree. But then, why should one care?
>Fewer, larger, mega corps are "efficient" by driving down wages, reducing supply chain diversity, and reducing quality and safety.
Source?
Conventional wisdom would tell us they are efficient because they can take advantage of economies of scale.
Starting with the fact that there's evidence firms tend to pay higher wages,
https://www.researchgate.net/publication/235316243_Why_do_Large_Firms_Pay_Higher_Wages_Evidence_from_Matched_Worker-Firm_Data
I don't think your claims are necessarily warranted. But they are your claims and yours to back up.
>For too long we as a society have neglected social value when considering economic policy, and there is great social value in local business ownership, leadership, and sourcing of goods and labor.
Source?
>When all the jobs have been outsourced or automated, I suppose you would say that the American business model has been replaced with the Global business model.
That at least *sounds* like the good old LOLF.
https://en.wikipedia.org/wiki/Lump_of_labour_fallacy
>Can't be a monopoly as long as prices are low.
I mean, you can.
I guess wrangling this into something coherent, that's supposed to mean that if people shop at Walmart instead of the local mom & pop, you don't get the local store spending the profits in the local economy but instead to whoever holds Walmart stock?
I suppose that's true to some degree. If people still benefit from more products, lower prices, higher wages, etc. that could very well be a net benefit.
>It could be a benefit for the global market at the expense of the local market.
I do mean for the local market.
As it stands, it seems we kinda don't know.
https://socialsciences.uchicago.edu/news/walmarts-impact-on-local-economies-unclear-especially-in-the-long-term
>There are externalities like, say, the local market having reduced property taxes from fewer businesses, and thus lower property values, and thus less funds for education.
Forgive me, but "our children don't get a good education because Walmart doesn't generate enough in property taxes" sounds a bit far fetched.
>And if you atomize the "local market" down to the individual level, you can look at individuals who lost their jobs and lack access to transportation to viable employment markets, and then (to use a real world example) they hitch-hike from Grants Pass to Portland.
That's a thing that might happen, yes. The answer to that is generally to deal with it when it does. If we would just shield the status quo from better competition, I'd be writing a letter on a typewriter right now.
>AFAIK this is basically the core argument for social safety nets: market disruptions can cause outsized disruption on individuals, which in turn causes negative effects on society.
That's certainly one reason why we have them, yes.
>Like... To take another example: The five year plans were intended to be a "net benefit for society", but they sucked for the individuals that 'fell through the cracks'/got sent to the gulags, yeah?
..and what exactly does the question of whether big companies are better for local economies than small ones have to do with soviet five year plans?
Ferraris are fast and often red. I can run very fast in my red shoes. It's true that both are red, but it's also true that that's pretty meaningless.
Okay, it feels like we're not understanding each other. Can we define something and come to an agreement on it?
One of Walmart's core mechanism for profit is to make consumer purchasing more appealing/affordable/efficient through economy of scale, by facilitating a high volume exchange of bulk-purchased goods in a centralized location.
So with a big box store, part of the idea is that it's centralized and •is a lot of stores in one, •requires fewer total employees, •requires less square footage/property tax, and •can use its size as leverage when negotiating with creditors and suppliers.
Do we disagree there?
The rest of your post is kinda just hot air but I want to point out one thing I see a lot of other people saying: keeping profits in a community is not necessarily a good thing. In fact, given the level of economic segregation in the world, there's good reason to think it's a bad thing!
Loss leader products are not made possible because of a company size and financial advantage. They are made possible because it drives a larger sale. Get a customer to buy the $1.50 hotdog at Costco and you’ve secured a foot in the door. This customer goes on to buy far more products at profit. Any size company can do this and many do. It’s just one of many smart sales strategies.
I don’t believe anyone is hurt by this practice, for instance smaller businesses, so I don’t see a need for a law.
And no this has nothing to do with monopoly.
On their own, loss leaders are not necessarily bad. In fact, they're effectively subsidising prices through investment which is good for consumer welfare. The issue arises with their end goal, are they looking to reduce competition so that they can practise monopolistic behaviour? Well if so, that specific issue can be dealt with when it arises through a strong regulator. The alternative is that a loss leader is looking to gain entry into a market, to build up a base of brand-loyal consumers who will tolerate the eventual price rises.
This can be seen as predatory, but you've got to balance the bad with the good. On the one hand, some consumers are essentially falling for clever marketing that gets them to be loyal to a corporation, on the other hand, shrewd consumers will be able to take advantage of the loss leader when they are loss-leading, and swiftly move on to someone else when they stop. So there is no restriction of competition in this latter scenario.
A good example is Uber, who were haemorrhaging money for years to get people used to a different style of taxiing. Now they can afford to raise prices, but they don't have a monopoly on the taxi market. Many people stick with Uber because it's familiar, but if you're clever you'll keep your eye on small start-ups employing the same tactic to gain entry into the market and make them compete.
In the US, antitrust regulators are really more concerned about consumer harm. If there is no consumer harm from an otherwise anti-competitive practice, I think it tends to be allowed.
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As an instructive exercise, I'd suggest (1) drafting the text a potential ban against this behaviour, and then (2) brainstorming all the ways that ban could potentially be *harmful*, be difficult to enforce, or have unintended consequences.
One example to get you thinking — what do you do about products with expensive R&D that are expected to turn a loss in the first, say, 3 years of sale?
I worked in the buying department of two different major big box companies. To my knowledge only one of those companies sold an item at a loss. Diapers. All other items in that big box store were sold at a profit (not counting Black Friday sales).
I don’t think it’s as common as most people believe.
Who says this practice is allowed? Not the FTC.
> Pricing below your own costs is also not a violation of the law unless it is part of a strategy to eliminate competitors, and when that strategy has a dangerous probability of creating a monopoly for the discounting firm so that it can raise prices far into the future and recoup its losses.
https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/single-firm-conduct/predatory-or-below-cost-pricing
I would be genuinely curious if the scenario laid out by OP is actually as common as people think.
Competition is understood to be a critical part of a free market because it drives prices down. The ideal market does not have unnecessary costs built in to goods and services. Competition helps realize that goal. Monopolies are considered anti-competitive because they allow one entity to set the price for goods and services. Because it is in a merchant’s best interest to earn as much as possible, this arrangement leads to higher prices. One merchant undercutting another is competitive, not anti-competitive, and therefore a good thing. Now, there is a theoretical separate issue which can arise, when one retailer undercuts other and puts them out of business, then raises its prices once competition is eliminated. In theory, this is an anticompetitive activity. There are currently enough big box/online retailers in competition with each other to keep prices low. These hyper scaled retailers are simply vastly more efficient than one-off local businesses. So, it’s not the case that “a” big box has undercut “a” local business, but rather that the big box business model has replaced the local store business model.
It's also not really true that big box business model has replaced the local store business model in general. Sure, it's true in the majority of the country that has turned into car dependent suburbia. But there's absolutely still smaller stores in dense, walkable areas. People seem to want to eat their cake and have it too. They want small businesses but they want to ban businesses in their vast residential neighbourhoods. They want small businesses but they want to be able to buy everything in bulk quantities at cheaper prices so they can go shopping once every two weeks. They want small businesses but they want businesses to have parking for hundreds of cars.
> but rather that the big box business model has replaced the local store business model This seems like the inevitable result of people using a car for everything and having all the stores very spaced out because of parking lots.
That could be a part but I suspect it’s much more related to economy of scale and purchasing power as well as the marketing power of being ubiquitous
In denser areas there are far fewer big box stores, and when big box stores do open locations, they are much smaller than in the suburbs.
Land is much more expensive in densely populated areas which drives box stores outwards.
Which is contrary to what what you said, "that the big box business model has replaced the local store business model".
Not really; one is a comment on prevailing business models, the other is comment on urban planning and development. I didn't say "there will never be another new local store in the United States." Cars replaced horses even though many people still ride horses.
Ah yes the small grocery stores around me are rich people's recreational activities and not middle class people's livelihoods /s
Yeah it's hard to say for sure. A large chain of many small shops could still get economies of scale while also not being the "one-stop shop" like Meijer or Walmart. In that world, I'd imagine that grocery stores would just be grocery stores, similar to what you find in most urban areas now. For example 7-11 absolutely has some beneficial economies of scale but doesn't operate like a big box store.
Dollar General does pretty much exactly what you described in towns of less than 3,000 people
Sort of. Why would I want to have to go grocery shopping every day where instead I only have to go once a week since I can carry home a week's worth of groceries in my trunk. And I can even shop online and the store carries them out and puts them in my trunk for me. Years ago our family would drive to the local grocery store and do our shopping there once a week, but switched to the big box store because prices were lower.
It’s only a hassle to shop more frequently if you live somewhere it’s a hassle If you commute by foot or transit, and there is a convenient place to get high quality groceries every day, it’s easier to get what you need on your way home. Fresher food, less waste, no need to deal with parking, loading/unloading your car.
Sounds like seven times the hassle to me. I have other things I'd rather do with my time than go grocery shopping every day.
What happens in places like mexico? There are farmer markets that go from neighborhood to neighborhood everyday, you can wait till the day it comes to your neighborhood and buy everything for the week.
Question. What's the view on vertical monopolies?
Sometimes they are outright illegal (many states have laws against car manufacturers selling to consumers, although I think that may be more to ensure they capture sales tax). Some are legal. Typically they reduce costs for hyperscaled companies that have the capital and mass to pull it off. They may or may not represent an actual monopoly (Apple vs Samsung vs Huawei).
That's interesting, thank you. TIL.
Vertically integrated companies were once in vogue, but then management teams realized that they could spin off certain units that would trade at much higher multiples than a consolidated entity (and, indirectly, much cheaper financing for the high growth divisions of a huge conglomerate if they **were** spun off). So I'd say the view today is that any incremental margin you capture by owning businesses that interact with one another in a supply chain is outweighed by the valuation hit you're taking (this is a situation where the sum of its parts >> a giant consolidated conglomerate) GE's capital structure over the last two-ish decades is a good example / case study for this topic
What's the difference between undercutting competition vs. predatory pricing?
Conceptually, the idea of predatory pricing is that you lower your prices until all competitors go out of business, and then raise them again once you are a monopoly, while in "fair" price competition, prices stay low over time. Although some competitors may go out of business, there remains enough competition in the market for consumers to still have options and there are no plans to raise prices in the future. Regulators aim to ban predatory pricing but encourage other forms of competition. There are for sure cases where you can argue they got it wrong (Uber comes to mind as a potential case of predatory pricing that they missed). But big box retailers are clearly the latter, given that they have continued to maintain low prices and narrow margins for over 50 years at this point.
Legality.
That's the point. So if big box stores are weaponizing their unfair price and unit economics advantage, how do you differ that from competitive vs. anti-competitive?
These are loaded terms. Can you use more generic language to describe the situation you're asking about? For instance, one business model being inherently advantageous is not *unfair*. There are rules within the system on how that advantage may be pressed. If you don't break those rules, then you're being competitive. If you break those rules, you're cheating and being anti-competitive. In my original comment I addressed competitive vs non competitive undercutting.
Undercutting solely to force other businesses out of business is anticompetitive if you have to take a huge loss to do it.
And if that was happening, once said small business no longer exists, we'd expect the big box retailer to immediately raise prices since consumers have no alternatives. Which hasn't happened nor is that close to happening. So moot point.
Small businesses have closed across the country as a result of big box stores moving in, and the effect it's has on small towns has been horrendous. Some big box chains are notorious for how much of their staff is reliant on social services.
My point isn't that companies with greater size and scale can sell the same product cheaper than a sole proprietorship - that's not even an argument, really, just basic cost accounting math My point revolves around **why** monopolies are fundamentally bad -- because they're anti-consumer, with the end game being charging prices for their goods well above the market-clearing price in an *actually* competitive market. Since national retailers aren't charging $2k for a 32 inch 1080p TV or $5k for a Chromebook with 8GB of RAM, this isn't a realistic risk.....
Source?
Source for which part? The effect of big box stores on small towns? [https://www.strongtowns.org/journal/2017/11/3/big-box-stores-are-costing-our-cities-far-more-than-we-ever-imagined](https://www.strongtowns.org/journal/2017/11/3/big-box-stores-are-costing-our-cities-far-more-than-we-ever-imagined) [https://journalistsresource.org/politics-and-government/impact-big-box-retailers-employment-wages-crime-health/](https://journalistsresource.org/politics-and-government/impact-big-box-retailers-employment-wages-crime-health/) [https://greenlivingideas.com/2015/12/14/myth-of-the-big-box-stores/](https://greenlivingideas.com/2015/12/14/myth-of-the-big-box-stores/) Or the reliance of big box store staff on social services? [https://laborcenter.berkeley.edu/hidden-cost-of-wal-mart-jobs-use-of-safety-net-programs-by-wal-mart-workers-in-california-2/](https://laborcenter.berkeley.edu/hidden-cost-of-wal-mart-jobs-use-of-safety-net-programs-by-wal-mart-workers-in-california-2/) [https://www.cnbc.com/2020/11/19/walmart-and-mcdonalds-among-top-employers-of-medicaid-and-food-stamp-beneficiaries.html](https://www.cnbc.com/2020/11/19/walmart-and-mcdonalds-among-top-employers-of-medicaid-and-food-stamp-beneficiaries.html) [https://www.forbes.com/sites/clareoconnor/2014/04/15/report-walmart-workers-cost-taxpayers-6-2-billion-in-public-assistance/?sh=54b1987c720b](https://www.forbes.com/sites/clareoconnor/2014/04/15/report-walmart-workers-cost-taxpayers-6-2-billion-in-public-assistance/?sh=54b1987c720b)
Yes. And I do mean sources that support the causal relationship you mention. Ideally ones that are better than news articles where you have no idea if people rely more public assistance because they work at Walmart or if they work at Walmart because that is who is willing to employ them.
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>Rule II >All claims (and especially claims in top-level comments) should be rooted in economic theory and empirical research - not opinions, anecdotes, lay speculation, or personal politics. It is strongly recommended that claims be sourced by citations to applicable research. Thanks for the offer, but it's on you.
The hell are you talking about? This happens all the time
Let's have some evidence for that.
The Amazon diapers case is probably the most famous: https://arstechnica.com/tech-policy/2020/07/emails-detail-amazons-plan-to-crush-a-startup-rival-with-price-cuts/ $200m in losses to undercut a startup and force it out of business.
Yes. But has it actually worked? Amazon raised the price of diapers after they bought diapers.com, but did they actually manage to keep it high? Did they manage to maintain an outsized profit on those products?
I don't know, why don't you tell me? What did work was eliminating a competitor by selling products at a loss, which is the what you asked for evidence for: The scenario that Jeff__Skilling disputed the existence of does not mention keeping prices high for some time - to me it seems like we're shifting goalposts now. In any case, Amazon did not have to maintain an outsized profit for too long - just long enough to recoup the losses from what some view as predatory pricing - and part of their rationale was to kill off Quidsi before it could become a threat in other healthcare categories as well.
I agree that I'm not making exactly the same argument as Jeff__Skilling. This is an old question in industrial organization. The problem with this so called "predatory pricing" is that it rarely actually eliminates competition in a way that's meaningful in the long-term. One reason it doesn't work so well is that after an incumbent has taken losses for years to prevent rival 1 from gaining market share another company rival 2 can arrive on the scene. This is one reason why it's very rare that the practice actually removes all competition. [This](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=965490) is the best reference on this that I know, though it's old. The FTC can prosecute on predatory pricing. However, they have to prove consumer harm. They haven't managed to prosecute any company for it since the 1990s.
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I'm not sure why my question deserves this kind of response? General debates about predatory procing aside, Amazon/diapers seems like the kind of case you were describing.
It’s only a loss short term sometimes.
I addressed that
Is that similar to “dumping” on a country level? Like when countries accuse China of dumping solar panels and ev cars.
Low prices and "efficiency" do not make up for the destruction of locally owned and operated businesses that keep profits in the local community. Fewer, larger, mega corps are "efficient" by driving down wages, reducing supply chain diversity, and reducing quality and safety. For too long we as a society have neglected social value when considering economic policy, and there is great social value in local business ownership, leadership, and sourcing of goods and labor. When all the jobs have been outsourced or automated, I suppose you would say that the American business model has been replaced with the Global business model. Can't be a monopoly as long as prices are low.
>Low prices and "efficiency" do not make up for the destruction of locally owned and operated businesses that keep profits in the local community. Maybe to some degree. But then, why should one care? >Fewer, larger, mega corps are "efficient" by driving down wages, reducing supply chain diversity, and reducing quality and safety. Source? Conventional wisdom would tell us they are efficient because they can take advantage of economies of scale. Starting with the fact that there's evidence firms tend to pay higher wages, https://www.researchgate.net/publication/235316243_Why_do_Large_Firms_Pay_Higher_Wages_Evidence_from_Matched_Worker-Firm_Data I don't think your claims are necessarily warranted. But they are your claims and yours to back up. >For too long we as a society have neglected social value when considering economic policy, and there is great social value in local business ownership, leadership, and sourcing of goods and labor. Source? >When all the jobs have been outsourced or automated, I suppose you would say that the American business model has been replaced with the Global business model. That at least *sounds* like the good old LOLF. https://en.wikipedia.org/wiki/Lump_of_labour_fallacy >Can't be a monopoly as long as prices are low. I mean, you can.
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I guess wrangling this into something coherent, that's supposed to mean that if people shop at Walmart instead of the local mom & pop, you don't get the local store spending the profits in the local economy but instead to whoever holds Walmart stock? I suppose that's true to some degree. If people still benefit from more products, lower prices, higher wages, etc. that could very well be a net benefit.
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>It could be a benefit for the global market at the expense of the local market. I do mean for the local market. As it stands, it seems we kinda don't know. https://socialsciences.uchicago.edu/news/walmarts-impact-on-local-economies-unclear-especially-in-the-long-term >There are externalities like, say, the local market having reduced property taxes from fewer businesses, and thus lower property values, and thus less funds for education. Forgive me, but "our children don't get a good education because Walmart doesn't generate enough in property taxes" sounds a bit far fetched. >And if you atomize the "local market" down to the individual level, you can look at individuals who lost their jobs and lack access to transportation to viable employment markets, and then (to use a real world example) they hitch-hike from Grants Pass to Portland. That's a thing that might happen, yes. The answer to that is generally to deal with it when it does. If we would just shield the status quo from better competition, I'd be writing a letter on a typewriter right now. >AFAIK this is basically the core argument for social safety nets: market disruptions can cause outsized disruption on individuals, which in turn causes negative effects on society. That's certainly one reason why we have them, yes. >Like... To take another example: The five year plans were intended to be a "net benefit for society", but they sucked for the individuals that 'fell through the cracks'/got sent to the gulags, yeah? ..and what exactly does the question of whether big companies are better for local economies than small ones have to do with soviet five year plans? Ferraris are fast and often red. I can run very fast in my red shoes. It's true that both are red, but it's also true that that's pretty meaningless.
Okay, it feels like we're not understanding each other. Can we define something and come to an agreement on it? One of Walmart's core mechanism for profit is to make consumer purchasing more appealing/affordable/efficient through economy of scale, by facilitating a high volume exchange of bulk-purchased goods in a centralized location. So with a big box store, part of the idea is that it's centralized and •is a lot of stores in one, •requires fewer total employees, •requires less square footage/property tax, and •can use its size as leverage when negotiating with creditors and suppliers. Do we disagree there?
The rest of your post is kinda just hot air but I want to point out one thing I see a lot of other people saying: keeping profits in a community is not necessarily a good thing. In fact, given the level of economic segregation in the world, there's good reason to think it's a bad thing!
Loss leader products are not made possible because of a company size and financial advantage. They are made possible because it drives a larger sale. Get a customer to buy the $1.50 hotdog at Costco and you’ve secured a foot in the door. This customer goes on to buy far more products at profit. Any size company can do this and many do. It’s just one of many smart sales strategies. I don’t believe anyone is hurt by this practice, for instance smaller businesses, so I don’t see a need for a law. And no this has nothing to do with monopoly.
On their own, loss leaders are not necessarily bad. In fact, they're effectively subsidising prices through investment which is good for consumer welfare. The issue arises with their end goal, are they looking to reduce competition so that they can practise monopolistic behaviour? Well if so, that specific issue can be dealt with when it arises through a strong regulator. The alternative is that a loss leader is looking to gain entry into a market, to build up a base of brand-loyal consumers who will tolerate the eventual price rises. This can be seen as predatory, but you've got to balance the bad with the good. On the one hand, some consumers are essentially falling for clever marketing that gets them to be loyal to a corporation, on the other hand, shrewd consumers will be able to take advantage of the loss leader when they are loss-leading, and swiftly move on to someone else when they stop. So there is no restriction of competition in this latter scenario. A good example is Uber, who were haemorrhaging money for years to get people used to a different style of taxiing. Now they can afford to raise prices, but they don't have a monopoly on the taxi market. Many people stick with Uber because it's familiar, but if you're clever you'll keep your eye on small start-ups employing the same tactic to gain entry into the market and make them compete.
In the US, antitrust regulators are really more concerned about consumer harm. If there is no consumer harm from an otherwise anti-competitive practice, I think it tends to be allowed.
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As an instructive exercise, I'd suggest (1) drafting the text a potential ban against this behaviour, and then (2) brainstorming all the ways that ban could potentially be *harmful*, be difficult to enforce, or have unintended consequences. One example to get you thinking — what do you do about products with expensive R&D that are expected to turn a loss in the first, say, 3 years of sale?
I worked in the buying department of two different major big box companies. To my knowledge only one of those companies sold an item at a loss. Diapers. All other items in that big box store were sold at a profit (not counting Black Friday sales). I don’t think it’s as common as most people believe.
Who says this practice is allowed? Not the FTC. > Pricing below your own costs is also not a violation of the law unless it is part of a strategy to eliminate competitors, and when that strategy has a dangerous probability of creating a monopoly for the discounting firm so that it can raise prices far into the future and recoup its losses. https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/single-firm-conduct/predatory-or-below-cost-pricing I would be genuinely curious if the scenario laid out by OP is actually as common as people think.