3 ms·

Loss leaders are to bring customers in with the hope of selling them some higher margin products, predatory pricing is selling products below the price to push

by omeid2 7y ago

Loss leaders are to bring customers in with the hope of selling them some higher margin products, predatory pricing is selling products below the price to push competition out of business.

munk-a 7y ago
Loss leaders are not universally legal, they are legal in some US states and illegal in others[1] - this may actually be a giant can of poo that's heading towards Amazon now that most states are agreed sales tax should apply to online purchases. Personally I find that loss leader pricing is unethical in a free economy, but my opinion isn't US law. [1] https://www.aeaweb.org/research/loss-leading-bans-retail-competition https://www.aeaweb.org/research/loss-leading-bans-retail-com...
- harimau777 7y ago
  Can you explain why you feel that it's unethical? That's not something I've ever thought to consider one way or the other.
  - munk-a 7y ago
    I think that loss leading leads to device or producer lock in (as it's intended to) and limited the utility of devices for frivolous reasons - if your nuclear reactor specifically requires rods with little notches at the end feel free to warn and protect against incompatible notches, but if that notch requirement was to lock the consumer into your Atomizer Brand Rods(R) then you may force a consumer into making fiscally unsound choices down the line, preventing a new competitor with a genuinely improved (possibly even safer) product from being able to compete fairly. Loss leading is just another barrier to entry that incumbent companies can establish to prevent free competition.
    - Dylan16807 7y ago
      The example that comes to my mind for "loss leader" is stores a while back selling CD-R spindles for almost free, limit one per customer, to get people in the door. No lock-in at all, just a way of doing advertising.
    - hakfoo 7y ago
      I feel like that's more the Gilette/HP "expensive propriatery consumables" model, not the classic loss leader. When I think of "loss leader" I think of the Thrifty pharmacies that used to have an ice-cream counter. People went in for a 35-cent cone and ended up buying $10 of other merchandise that more than made up for the 15 cents Thrifty lost on the cone.
      - TeMPOraL 7y ago
        That Gilette/HP model is something I consider unethical as well. It's manipulative (instead of a honest deal, it tries to mess up people's calculus), anticompetitive (undercuts honest dealers) and generates ridiculous amounts of waste - doubly so, when you end up in situations like people buying new printers every time their old ones run dry, because even with reduced-capacity starter cartridges, it's still a better deal than just buying ink cartridges.
haimez 7y ago
So yes, it’s not externally distinguishable and basically boils down to intent.
- omeid2 7y ago
  I am not sure what you mean by externally distinguishable but pattern-behavior is hard to hide. 1. undercut product x and y that Z Corp sales 2. wait for Z Corp to go out of business 3. Increase price of x and y VS 1. sale product x cheap 2. sale other products to people who buy x 3. continue to step 1 or terminate selling below market
  - TeMPOraL 7y ago
    How about: 1. Sell products x cheap and y at higher margin. (x happens to be what Z Corp also sells) 2. At some point in time, coincidentally after Z Corp folds, decide to stop selling x cheap. Was x the case of predatory pricing? Or was it just a loss leader to get people to buy y, and it's just a coincidence that the company abandoned it around the same time Z Corp gave up?
- sgift 7y ago
  I thought the difference is that in one case you sell below market price (loss leader) and in the other below production cost. So: 1$ production cost 5$ market price Your price: 3$ -> Loss leader .50ct -> Predatory pricing
TeMPOraL 7y ago
Beyond being indistinguishable but by intent, loss leaders deployed at scale effectively are predatory pricing.

by omeid2 7y ago

Loss leaders are to bring customers in with the hope of selling them some higher margin products, predatory pricing is selling products below the price to push competition out of business.

munk-a 7y ago

Loss leaders are not universally legal, they are legal in some US states and illegal in others[1] - this may actually be a giant can of poo that's heading towards Amazon now that most states are agreed sales tax should apply to online purchases. Personally I find that loss leader pricing is unethical in a free economy, but my opinion isn't US law. [1] https://www.aeaweb.org/research/loss-leading-bans-retail-competition https://www.aeaweb.org/research/loss-leading-bans-retail-com...

harimau777 7y ago
Can you explain why you feel that it's unethical? That's not something I've ever thought to consider one way or the other.
- munk-a 7y ago
  I think that loss leading leads to device or producer lock in (as it's intended to) and limited the utility of devices for frivolous reasons - if your nuclear reactor specifically requires rods with little notches at the end feel free to warn and protect against incompatible notches, but if that notch requirement was to lock the consumer into your Atomizer Brand Rods(R) then you may force a consumer into making fiscally unsound choices down the line, preventing a new competitor with a genuinely improved (possibly even safer) product from being able to compete fairly. Loss leading is just another barrier to entry that incumbent companies can establish to prevent free competition.
  - Dylan16807 7y ago
    The example that comes to my mind for "loss leader" is stores a while back selling CD-R spindles for almost free, limit one per customer, to get people in the door. No lock-in at all, just a way of doing advertising.
  - hakfoo 7y ago
    I feel like that's more the Gilette/HP "expensive propriatery consumables" model, not the classic loss leader. When I think of "loss leader" I think of the Thrifty pharmacies that used to have an ice-cream counter. People went in for a 35-cent cone and ended up buying $10 of other merchandise that more than made up for the 15 cents Thrifty lost on the cone.
    - TeMPOraL 7y ago
      That Gilette/HP model is something I consider unethical as well. It's manipulative (instead of a honest deal, it tries to mess up people's calculus), anticompetitive (undercuts honest dealers) and generates ridiculous amounts of waste - doubly so, when you end up in situations like people buying new printers every time their old ones run dry, because even with reduced-capacity starter cartridges, it's still a better deal than just buying ink cartridges.

haimez 7y ago

So yes, it’s not externally distinguishable and basically boils down to intent.

omeid2 7y ago
I am not sure what you mean by externally distinguishable but pattern-behavior is hard to hide. 1. undercut product x and y that Z Corp sales 2. wait for Z Corp to go out of business 3. Increase price of x and y VS 1. sale product x cheap 2. sale other products to people who buy x 3. continue to step 1 or terminate selling below market
- TeMPOraL 7y ago
  How about: 1. Sell products x cheap and y at higher margin. (x happens to be what Z Corp also sells) 2. At some point in time, coincidentally after Z Corp folds, decide to stop selling x cheap. Was x the case of predatory pricing? Or was it just a loss leader to get people to buy y, and it's just a coincidence that the company abandoned it around the same time Z Corp gave up?
sgift 7y ago
I thought the difference is that in one case you sell below market price (loss leader) and in the other below production cost. So: 1$ production cost 5$ market price Your price: 3$ -> Loss leader .50ct -> Predatory pricing

TeMPOraL 7y ago

Beyond being indistinguishable but by intent, loss leaders deployed at scale effectively are predatory pricing.