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To have the supply and resources to do this would take years. You can't just code up a diamond business overnight. Since the fixed costs and barriers to entry
by jljljl 12y ago
To have the supply and resources to do this would take years. You can't just code up a diamond business overnight.
Since the fixed costs and barriers to entry are so high, you would take on a ton of debt or issue shares just to get to this point. Your creditors and investors would demand that you start turning a profit. So you would have to sell at market price or higher.
Then you need to look at other barriers to dumping your product: Do any of the buyers have contracts with DeBeers that lock them in for the near term? Are there legal restrictions or trade agreements to prohibit you from dumping? Does DeBeers offer additional services or terms that keep merchants locked in beyond the price? etc...
Then, of course, you need to sustain the low prices long enough to drive DeBeers out of business, all while assuming DeBeers doesn't just match your prices and drive you out first.
Things like this are not done on the front page of HN very often, if ever.
- bane 12y agoI don't even have to sell them below my cost, assuming De Beers sells at a highly inflated price, I can just sell somewhere in between. Pricing myself into the market doesn't mean I have to lose money. It just means I have to undercut my competitors. There's lots of reasons not to do this but I'm starting to think that there's a lot of people on HN who don't know how pricing strategies work.
- jljljl 12y agoThe point is that there are significant barriers that prevent someone from just coming in and executing a "undercut the leader" pricing strategy. Especially if you are trying to "eliminate De Beers overnight", like you said in your previous post.
- bane 12y agoThere's a barrier to entry in just about everything. If I wanted to start an electric car company, or a rocket ship business I'd be facing the same. Overcome that barrier to execute on your chosen business strategy is how the world works. If you can't overcome the barrier then you can't execute. Simple as that. Either you can raise capital and build up an inventory of diamonds or not. This isn't rocket surgery.
- jljljl 12y agoI agree. One more time: You asked: "Why didn't anyone just enter the market and undercut De Beers?". The answer for a long time was: "Barriers to entry, and low probability of success given the risks involved". This has nothing to do with not understanding pricing strategy. I don't know what you are arguing about anymore.