5 ms·

The idea is to force other people out of the market because they can't continue to sell at your price. If Apple gave away their iPhone for free (and could susta

by jtchang 11y ago

The idea is to force other people out of the market because they can't continue to sell at your price. If Apple gave away their iPhone for free (and could sustain that with the cash they have) they could drive every other phone manufacturer out of the market (assuming everyone wanted iPhones). This works better if the product is homogenous. In web products maybe Gmail is an example? Hard to compete with free and the # of features they have. It's hard to come up with a better example because features is a big differentiator. Once your competitors go out of business you're the only guy left in town so you raise your prices to the moon and profit.

thaumasiotes 11y ago
> Once your competitors go out of business you're the only guy left in town so you raise your prices to the moon and profit. Has there ever been a case of this happening?
- ceejayoz 11y ago
  https://en.wikipedia.org/wiki/Monopoly#Historical_monopolies https://en.wikipedia.org/wiki/Monopoly#Historical_monopolies
  - thaumasiotes 11y ago
    Please identify something in the article that matches this description.
    - ceejayoz 11y ago
      > De Beers is well known for its monopoloid practices throughout the 20th century, whereby it used its dominant position to manipulate the international diamond market. The company used several methods to exercise this control over the market. Firstly, it convinced independent producers to join its single channel monopoly, it flooded the market with diamonds similar to those of producers who refused to join the cartel, and lastly, it purchased and stockpiled diamonds produced by other manufacturers in order to control prices through limiting supply.
      - thaumasiotes 11y ago
        Thank you. I agree that this is close enough to be relevant. But as a counterpoint: > In the cigarette racket, for example, predatory price-cutting was common around the turn of the century, when the Tobacco Trust, composed of the American Tobacco Company and several allied firms, cornered 95 percent of the market, typically by selling its products at a loss in a given area until local competitors went bankrupt or sold out. In 1911 the Supreme Court ordered the trust broken up into 16 successor companies (many of which are still around today). Since then the companies have mostly been content to compete on the basis of largely imaginary differences in quality, which they promote through extensive advertising. National ad campaigns are quite expensive, of course, which discourages new firms from entering the market, and as a result the existing manufacturers have the field pretty much to themselves [in 1981]. > This all sounds pretty snaky, I suppose, but it's worth pointing out that oligopolies can't just set any old price they want to. In 1931, for instance, all the major tobacco companies followed Reynolds's lead in raising cigarette prices, despite the fact that the price of tobacco leaf had fallen to a 25-year low. This stupid move permitted several small manufacturers to introduce 10-cent brands to compete with existing brands, which were going for 13 cents a pack. By 1932, the 10-cent brands accounted for 23 percent of the market, setting off a price war in which wholesale prices were slashed 20 percent. Despite this, several relatively small companies, such as Philip Morris, were able to gain a foothold in the market and eventually overtook some of their previously impregnable competitors. http://www.straightdope.com/columns/read/179/why-do-all-brands-of-cigarettes-cost-the-same http://www.straightdope.com/columns/read/179/why-do-all-bran...
- loeg 11y ago
  Martin Shkreli & Turing Pharmaceuticals comes to mind as a recent example.
  - thaumasiotes 11y ago
    But that's completely different. Shkreli's plan worked because everyone else was legally prohibited from selling his product. There was never any period of "dumping", either - he bought the only vendor for a drug, protected by a legal pseudo-monopoly, and jacked up the price.
    - maxerickson 11y ago
      Calling it a legal pseudo-monopoly is probably even going too far, it was just regulatory friction that stopped another company from setting up production of daraprim, there were no exclusive rights involved.
      - thaumasiotes 11y ago
        Well, that's why I called it a pseudo-monopoly and not a monopoly. There was an exclusive right involved, but it was exclusive more or less by coincidence; you have to pay millions of dollars to get a license to sell the product, and only one party had done that. Someone else could have.
    - loeg 10y ago
      I think this part describes Shkreli: > you're the only guy left in town so you raise your prices to the moon and profit. Sure, it's not because of dumping. But you can do that with an effective monopoly (pseudo or not).
      - thaumasiotes 10y ago
        You can do that when nobody else is allowed to start selling your product, sure. There's an important difference between being the only vendor in a market because nobody else has bothered, and being the only vendor in a market because nobody else is allowed to compete with you. In the second case, we always see prices "raised to the moon". But it can't be usefully compared with the first case; potential entrants may not exist yet, but they're still a constraint on the prices existing vendors can charge.
- strommen 11y ago
  Blockbuster video was notorious for this around the year 2000. Put small video rental shops out of business with 99 cent rentals, then jack it up to $4 once the competition was gone.
- potatolicious 11y ago
  Happened in my home town - small indie ISP started that provided faster speeds and much lower prices than the mega-cableco. that served a small section of the city - and was a huge it. Mega Cable Co. proceeded to drop prices to the floor only in the postal codes covered by the indie ISP and drove them out of business. Now it's business as usual for Mega Cable Co.
- lostlogin 11y ago
  Isn't this exactly what happens with a monopoly? The New Zealand supermarket situation had this happen (despite government intervention, which concluded that having 2 supermarket chains rather than 3 would lower prices, as they would have more purchasing power. Yeah right).
- smokey_the_bear 11y ago
  I can't find any verification, but my dad always claimed Wonderbread did this. Entered new markets with absurdly low prices until local bakers went out of business and then raised their price.
  - thaumasiotes 11y ago
    This one is a little harder for me to believe, since wonderbread has some pretty dramatic quality differences from local bread. They compete, but they don't compete directly and there's a significant chunk of people who would never buy wonderbread even if it was free.
    - monkeyprojects 11y ago
      Wonderbread didn't need to take all the market to make the bakery unprofitable, just reduce bakery sales enough (say 30%) to make it unsustainable.... After all profitable only comes after fixed costs are covered. If sales drop below the amount required to cover those fixed costs the business is no longer viable....
- deleted 11y ago
  [deleted]
- uptown 11y ago
  It's basically the approach Uber takes. When they enter a new market they pay drivers more and keep fares low to develop both sides of their business. As they capture that market they decrease driver compensation and increase fares.
- megablast 10y ago
  Internet explorer.
scholia 11y ago
> In web products maybe Gmail is an example? When Gmail arrived, the market was already dominated by free services. The main ones were Hotmail (bought by Microsoft) and Yahoo Mail (Yahoo bought Rocketmail in 1997). Perhaps Google Android is a better example?

by jtchang 11y ago

thaumasiotes 11y ago

> Once your competitors go out of business you're the only guy left in town so you raise your prices to the moon and profit. Has there ever been a case of this happening?

ceejayoz 11y ago
https://en.wikipedia.org/wiki/Monopoly#Historical_monopolies https://en.wikipedia.org/wiki/Monopoly#Historical_monopolies
- thaumasiotes 11y ago
  Please identify something in the article that matches this description.
  - ceejayoz 11y ago
    > De Beers is well known for its monopoloid practices throughout the 20th century, whereby it used its dominant position to manipulate the international diamond market. The company used several methods to exercise this control over the market. Firstly, it convinced independent producers to join its single channel monopoly, it flooded the market with diamonds similar to those of producers who refused to join the cartel, and lastly, it purchased and stockpiled diamonds produced by other manufacturers in order to control prices through limiting supply.
    - thaumasiotes 11y ago
      Thank you. I agree that this is close enough to be relevant. But as a counterpoint: > In the cigarette racket, for example, predatory price-cutting was common around the turn of the century, when the Tobacco Trust, composed of the American Tobacco Company and several allied firms, cornered 95 percent of the market, typically by selling its products at a loss in a given area until local competitors went bankrupt or sold out. In 1911 the Supreme Court ordered the trust broken up into 16 successor companies (many of which are still around today). Since then the companies have mostly been content to compete on the basis of largely imaginary differences in quality, which they promote through extensive advertising. National ad campaigns are quite expensive, of course, which discourages new firms from entering the market, and as a result the existing manufacturers have the field pretty much to themselves [in 1981]. > This all sounds pretty snaky, I suppose, but it's worth pointing out that oligopolies can't just set any old price they want to. In 1931, for instance, all the major tobacco companies followed Reynolds's lead in raising cigarette prices, despite the fact that the price of tobacco leaf had fallen to a 25-year low. This stupid move permitted several small manufacturers to introduce 10-cent brands to compete with existing brands, which were going for 13 cents a pack. By 1932, the 10-cent brands accounted for 23 percent of the market, setting off a price war in which wholesale prices were slashed 20 percent. Despite this, several relatively small companies, such as Philip Morris, were able to gain a foothold in the market and eventually overtook some of their previously impregnable competitors. http://www.straightdope.com/columns/read/179/why-do-all-brands-of-cigarettes-cost-the-same http://www.straightdope.com/columns/read/179/why-do-all-bran...
loeg 11y ago
Martin Shkreli & Turing Pharmaceuticals comes to mind as a recent example.
- thaumasiotes 11y ago
  But that's completely different. Shkreli's plan worked because everyone else was legally prohibited from selling his product. There was never any period of "dumping", either - he bought the only vendor for a drug, protected by a legal pseudo-monopoly, and jacked up the price.
  - maxerickson 11y ago
    Calling it a legal pseudo-monopoly is probably even going too far, it was just regulatory friction that stopped another company from setting up production of daraprim, there were no exclusive rights involved.
    - thaumasiotes 11y ago
      Well, that's why I called it a pseudo-monopoly and not a monopoly. There was an exclusive right involved, but it was exclusive more or less by coincidence; you have to pay millions of dollars to get a license to sell the product, and only one party had done that. Someone else could have.
  - loeg 10y ago
    I think this part describes Shkreli: > you're the only guy left in town so you raise your prices to the moon and profit. Sure, it's not because of dumping. But you can do that with an effective monopoly (pseudo or not).
    - thaumasiotes 10y ago
      You can do that when nobody else is allowed to start selling your product, sure. There's an important difference between being the only vendor in a market because nobody else has bothered, and being the only vendor in a market because nobody else is allowed to compete with you. In the second case, we always see prices "raised to the moon". But it can't be usefully compared with the first case; potential entrants may not exist yet, but they're still a constraint on the prices existing vendors can charge.
strommen 11y ago
Blockbuster video was notorious for this around the year 2000. Put small video rental shops out of business with 99 cent rentals, then jack it up to $4 once the competition was gone.
potatolicious 11y ago
Happened in my home town - small indie ISP started that provided faster speeds and much lower prices than the mega-cableco. that served a small section of the city - and was a huge it. Mega Cable Co. proceeded to drop prices to the floor only in the postal codes covered by the indie ISP and drove them out of business. Now it's business as usual for Mega Cable Co.
lostlogin 11y ago
Isn't this exactly what happens with a monopoly? The New Zealand supermarket situation had this happen (despite government intervention, which concluded that having 2 supermarket chains rather than 3 would lower prices, as they would have more purchasing power. Yeah right).
smokey_the_bear 11y ago
I can't find any verification, but my dad always claimed Wonderbread did this. Entered new markets with absurdly low prices until local bakers went out of business and then raised their price.
- thaumasiotes 11y ago
  This one is a little harder for me to believe, since wonderbread has some pretty dramatic quality differences from local bread. They compete, but they don't compete directly and there's a significant chunk of people who would never buy wonderbread even if it was free.
  - monkeyprojects 11y ago
    Wonderbread didn't need to take all the market to make the bakery unprofitable, just reduce bakery sales enough (say 30%) to make it unsustainable.... After all profitable only comes after fixed costs are covered. If sales drop below the amount required to cover those fixed costs the business is no longer viable....
deleted 11y ago
[deleted]
uptown 11y ago
It's basically the approach Uber takes. When they enter a new market they pay drivers more and keep fares low to develop both sides of their business. As they capture that market they decrease driver compensation and increase fares.
megablast 10y ago
Internet explorer.

scholia 11y ago

> In web products maybe Gmail is an example? When Gmail arrived, the market was already dominated by free services. The main ones were Hotmail (bought by Microsoft) and Yahoo Mail (Yahoo bought Rocketmail in 1997). Perhaps Google Android is a better example?