3 ms·

What is “predatory pricing” vs. “pricing”?

giaour 9mo ago
Selling items for less than they cost to produce is known as "dumping" in international trade (where it is generally disallowed by trade organizations) and can be illegal in the US if the intent is to eliminate competition [0]. That last factor can be hard to prove, and I don't think the FTC is doing much about anticompetitive behavior these days. [0]: https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/single-firm-conduct/predatory-or-below-cost-pricing https://www.ftc.gov/advice-guidance/competition-guidance/gui...
- twoodfin 9mo ago
  Yes, I can imagine it’s hard to prove, which is a pretty good indicator it’s a slippery concept to being with. Everyone wants to “eliminate the competition”, including your competition!
  - giaour 9mo ago
    The predatory pricing pattern the FTC would in theory sure over would be: selling items at an artificially low price until the competition goes out of business, then raising prices once you are the only seller left standing. It's the second step that makes it anticompetitive instead of just competitive
    - twoodfin 9mo ago
      What does it mean to be “the only seller left standing”? If somebody’s out there making big margins because they don’t face competition, competition is likely to emerge!
      - giaour 9mo ago
        Yes, but the monopoly seller has already demonstrated that they will operate at a loss until their competitors go out of business, which is a pretty big deterrent to any new market entrants. They've also demonstrated that no one will be making any money until either the monopolist or the new entrant is out of business, so who would actually launch a new business in that environment?
        twoodfin 9mo ago
        “Imagine profitability doesn’t matter to ownership, and investors will accept losses—and less losses than a more efficient competitor—indefinitely.” Even Amazon had to eventually find its way to profitability.
        giaour 9mo ago
        Yeah, it is theoretically possible to have a marketplace where "predatory pricing" is an accepted though aggressive business strategy, and I'd say that we are roughly there in the US. But the original intent behind the law on the books was to make markets friendly to new entrants, even if that meant sometimes constraining what large participants were allowed to do.
        twoodfin 9mo ago
        This is an historical question I’m not equipped to answer, but I’d guess it was just the opposite: These laws were intended to protect incumbents from more efficient, better financed new competitors!
- kay_o 9mo ago
  I'd be unsurprised in this case that Amazon could produce the product profitably for less than half the cost due to scale.
  - giaour 9mo ago
    I don't think Amazon was producing anything they sold in their grocery stores. They were probably buying the same white label items as everyone else for their store brand.
- krferriter 9mo ago
  The Biden admin went slightly harder against anti-competitive actions and anti-consumer actions by companies and all the billionaires freaked out and poured money into Republican campaigns in 2024 in order to roll all that back.
  - somenameforme 9mo ago
    What was rolled back? There was no major change in action whatsoever, only rhetoric, which is meaningless. As for funding, Trump raised substantially less in 2024 than 2020 while Harris raised more money than any campaign ever has, by a wide margin. [1] Dark money also overwhelmingly flowed to the DNC. [2] And a large chunk of all of Trump's funding came after the previous administration tried to imprison him, which rather freaked people out - even those not particularly fond of him. That also likely played a significant role in the more DGAF presidency we're seeing today relative to 2016. [1] - https://ballotpedia.org/Presidential_election_campaign_finance,_2024 https://ballotpedia.org/Presidential_election_campaign_finan... [2] - https://www.brennancenter.org/our-work/research-reports/dark-money-hit-record-high-19-billion-2024-federal-races https://www.brennancenter.org/our-work/research-reports/dark...
    - specialist 9mo ago
      Enforcement.
      - deleted 9mo ago
        [deleted]
    - triceratops 9mo ago
      > As for funding, Trump raised substantially less in 2024 than 2020 while Harris raised more money than any campaign ever has, by a wide margin. Does that include the $44b spent on the Twitter acquisition?
- bushbaba 9mo ago
  Selling it at cost though isn’t. And the cost to make a good is often less than 50% retail
  - giaour 9mo ago
    Standard grocery margins are usually lower, in the 30%-40% range, and are often much lower for promotional items. Rotating "loss leaders" to get people in the door are standard practice. IMHO that would make it hard to bring an antitrust action against a grocery chain, as pretty much every store engages in a limited amount of predatory pricing as a marketing technique. 50% is the standard retail markup, but it varies by industry.
mcmcmc 9mo ago
To add onto sibling comment: it is specifically when they sell below cost to eliminate competition, with the goal of later being able to raise prices to recover those losses (and more) once they are the only player in town and can jack the prices up all they want. The later price elevations are what result in consumer harm, which is why it is illegal.
bmurphy1976 9mo ago
Predatory pricing: A big gorilla comes in and under prices the entire market. They can do that because they already have tons of money. They do this long enough to break the market and drive the competition out of business. Once the competitors are gone they jack up the prices to unprecedented levels because there's no more alternatives available and bleed the market for all the money. Regular pricing: Charge a fair price based on actual costs.
- twoodfin 9mo ago
  This presupposes some athletic new competitor can’t enter the market and take the margin off the fat incumbent. It’s why we have capital markets: If capturing a profitable opportunity requires spending some money, someone who wants to profit will send that money your way.
  - nothrabannosir 9mo ago
    You can do this to a low margin business. In fact you can increase the margin once the dust settles.
  - spockz 9mo ago
    But it should only be because they indeed have lower margins or more efficient operations. It should not be funded by external money (other departments or investors), only to undercut competition too force them out only to raise prices to above the previous point after. So a simple law could be that prices can only be raised to the point where they were at before the competition was squashed.
deleted 9mo ago
[deleted]

Selling items for less than they cost to produce is known as "dumping" in international trade (where it is generally disallowed by trade organizations) and can be illegal in the US if the intent is to eliminate competition [0]. That last factor can be hard to prove, and I don't think the FTC is doing much about anticompetitive behavior these days. [0]: https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/single-firm-conduct/predatory-or-below-cost-pricing https://www.ftc.gov/advice-guidance/competition-guidance/gui...

twoodfin 9mo ago
Yes, I can imagine it’s hard to prove, which is a pretty good indicator it’s a slippery concept to being with. Everyone wants to “eliminate the competition”, including your competition!
- giaour 9mo ago
  The predatory pricing pattern the FTC would in theory sure over would be: selling items at an artificially low price until the competition goes out of business, then raising prices once you are the only seller left standing. It's the second step that makes it anticompetitive instead of just competitive
  - twoodfin 9mo ago
    What does it mean to be “the only seller left standing”? If somebody’s out there making big margins because they don’t face competition, competition is likely to emerge!
    - giaour 9mo ago
      Yes, but the monopoly seller has already demonstrated that they will operate at a loss until their competitors go out of business, which is a pretty big deterrent to any new market entrants. They've also demonstrated that no one will be making any money until either the monopolist or the new entrant is out of business, so who would actually launch a new business in that environment?
      - twoodfin 9mo ago
        “Imagine profitability doesn’t matter to ownership, and investors will accept losses—and less losses than a more efficient competitor—indefinitely.” Even Amazon had to eventually find its way to profitability.
        giaour 9mo ago
        Yeah, it is theoretically possible to have a marketplace where "predatory pricing" is an accepted though aggressive business strategy, and I'd say that we are roughly there in the US. But the original intent behind the law on the books was to make markets friendly to new entrants, even if that meant sometimes constraining what large participants were allowed to do.
        twoodfin 9mo ago
        This is an historical question I’m not equipped to answer, but I’d guess it was just the opposite: These laws were intended to protect incumbents from more efficient, better financed new competitors!
kay_o 9mo ago
I'd be unsurprised in this case that Amazon could produce the product profitably for less than half the cost due to scale.
- giaour 9mo ago
  I don't think Amazon was producing anything they sold in their grocery stores. They were probably buying the same white label items as everyone else for their store brand.
krferriter 9mo ago
The Biden admin went slightly harder against anti-competitive actions and anti-consumer actions by companies and all the billionaires freaked out and poured money into Republican campaigns in 2024 in order to roll all that back.
- somenameforme 9mo ago
  What was rolled back? There was no major change in action whatsoever, only rhetoric, which is meaningless. As for funding, Trump raised substantially less in 2024 than 2020 while Harris raised more money than any campaign ever has, by a wide margin. [1] Dark money also overwhelmingly flowed to the DNC. [2] And a large chunk of all of Trump's funding came after the previous administration tried to imprison him, which rather freaked people out - even those not particularly fond of him. That also likely played a significant role in the more DGAF presidency we're seeing today relative to 2016. [1] - https://ballotpedia.org/Presidential_election_campaign_finance,_2024 https://ballotpedia.org/Presidential_election_campaign_finan... [2] - https://www.brennancenter.org/our-work/research-reports/dark-money-hit-record-high-19-billion-2024-federal-races https://www.brennancenter.org/our-work/research-reports/dark...
  - specialist 9mo ago
    Enforcement.
    - deleted 9mo ago
      [deleted]
  - triceratops 9mo ago
    > As for funding, Trump raised substantially less in 2024 than 2020 while Harris raised more money than any campaign ever has, by a wide margin. Does that include the $44b spent on the Twitter acquisition?
bushbaba 9mo ago
Selling it at cost though isn’t. And the cost to make a good is often less than 50% retail
- giaour 9mo ago
  Standard grocery margins are usually lower, in the 30%-40% range, and are often much lower for promotional items. Rotating "loss leaders" to get people in the door are standard practice. IMHO that would make it hard to bring an antitrust action against a grocery chain, as pretty much every store engages in a limited amount of predatory pricing as a marketing technique. 50% is the standard retail markup, but it varies by industry.

mcmcmc 9mo ago

To add onto sibling comment: it is specifically when they sell below cost to eliminate competition, with the goal of later being able to raise prices to recover those losses (and more) once they are the only player in town and can jack the prices up all they want. The later price elevations are what result in consumer harm, which is why it is illegal.

bmurphy1976 9mo ago

Predatory pricing: A big gorilla comes in and under prices the entire market. They can do that because they already have tons of money. They do this long enough to break the market and drive the competition out of business. Once the competitors are gone they jack up the prices to unprecedented levels because there's no more alternatives available and bleed the market for all the money. Regular pricing: Charge a fair price based on actual costs.

twoodfin 9mo ago
This presupposes some athletic new competitor can’t enter the market and take the margin off the fat incumbent. It’s why we have capital markets: If capturing a profitable opportunity requires spending some money, someone who wants to profit will send that money your way.
- nothrabannosir 9mo ago
  You can do this to a low margin business. In fact you can increase the margin once the dust settles.
- spockz 9mo ago
  But it should only be because they indeed have lower margins or more efficient operations. It should not be funded by external money (other departments or investors), only to undercut competition too force them out only to raise prices to above the previous point after. So a simple law could be that prices can only be raised to the point where they were at before the competition was squashed.

deleted 9mo ago

[deleted]