Thomas Woods - Predatory Pricing

[HanStanwell]

The reason movie theatres charge so much for concessions is because they hardly make any profit from ticket sales, plus the movie goers wont refuse to pay high prices so they charge $10 for a bag of popcorn and a large coke.

[fzqlcs]

@HanStanwell and... there is no competition within the theatre.

[HanStanwell]

@fzqlcs yeah but there is no rule sayng you can't eat before a show, nor is there a rule that says you have to buy food when you get there. with the age of digital projectors, I wouldn't be surprised if ticket sales start coming down and food prices cause it will make things cheaper for the theatres since they no longer have to rent big, expensive, heavy film reels, but by then the dollar might have collapsed and it may cost $100 for popcorn, coke and 1 ticket.

[diogotomediogo]

so, the germain people got stuck with the prices of the germain cartel

[jtropeano]

Man, Tom Woods has dropped a lot of weight. Nice job!

[macduggles]

Predatory pricing strategy in commodity like goods is difficult. But as the Japanese television manufacturers showed it can be a viable strategy if you can control your home turf. The USA used to be the largest manufacturer of tv's. A second example of a predatory pricing strategy is what some Big Box retailing has done. The strategy was not to compete head to head with top competitors but to open in small markets and compete against mom and pop shops.

[aoeu256]

@macduggles

Instead of mourning US TV companies, why not celebrate the US consumer who are getting subsidized televisions at the expense of the Japanese? Flexibility is the name of the game, so what if TV companies can't sell TVs for a limited time, make something else. Those workers can go on and work on other products.

[macduggles]

@aoeu256 Good advice? The problem with your strategy is that technology breeds technology - if companies can be put out of business not due to better competition and products but by a price fixing and price manipulation schemes then the development cycle and process is broken. Yes those workers can work on other products - in Japan? If investors feel that overseas companies may practice these strategies at whim why would they invest in risky capital-intensive high-tech manufacturing.

[aoeu256]

@macduggles

If innovation means that you make TVs 5% cheaper then you can borrow $ to outlast the price war since they are losing more $ than you [company would have to have more $ than all investors?].  If the Jap govt is helping, then this means that all other Jap companies are weaker since they have to pay taxes/ or can't buy best/cheapest inputs. Again don't put all your eggs in the same basket, and pick a market weakened by the Japanese govt.

[macduggles]

@aoeu256 Hey Clueless, the Japanese television manufacturers controlled their home markets and charged a premium is those markets with the help from both Japanese and American governments.

[aoeu256]

@macduggles

"Charged a premium in those markets"... This means that the Jap buyer has less $ because their TVs are higher priced thus companies other than the TV company get smaller markets. US buyers, however, save money by buying subsidized Japanese TVs thus every single other market other than TVs is increased. Smart CEOs know to be flexible, so just don't go into TVs if Japan wants to give them away: however, this means that the Americans have more $ for other goods. 

[macduggles]

@aoeu256 I am looking at it from the investor's point of view and you like to look at it from the consumer's point of view.

[aoeu256]

@macduggles

Businesses use other businesses products as inputs, and getting rid of cheap foreign goods reduces profit. Meanwhile on the other side, the Japanese businesses are weakened because consumers have less spending power [since they are paying more for TVs]. This means that American companies[that don't make TVs] do better since American home market has more spending $, while Japanese has less $. Investors invest in many companies, so if TV is weakened all other is strengthened.

[aoeu256]

@macduggles

By "helping" I meant subsidies, tariffs, regulations, or bans. Did any American laws do this? When Jap government shifts resources to TV companies, or favors one over the others, all other Jap companies are weakened slightly. This means that American companies can compete better say in Germany.

[sniped101]

I'm happy that this video was made. I had people telling me what about monopolies that do this... and this video allows me to debunk this myth.

Thanks a ton!

[mvanmeter14]

Actually over the past few years Target has undercut Walmart in terms of pricing, hence Walmart's stagnation. Walmart's recent marketing changes and changes in the products they sell are a direct result of Target beating them at their own game. Who benefits from this? We all do.

[s0beit]

Wal-mart would only be taking part in predatory pricing if it were selling at a loss. It isn't, it's actually making a handsome profit. It has no intentions of raising it's prices once it has "monopoly" control and even if it did, it would be outbid.

[regina4968]

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[Candyliz2003]

This is BS!

Anyone who lives in a rural community where WalMart moves in knows that predatory pricing is REAL.

Sm. biz gets forced out. Prices go back to the original level or higher.

It is TOO HARD to open up a new biz as Woods suggests and compete against WalMart. Capital necessary to start a biz and then fight against WalMart for the individual entrepreneur is extreme.

[daPlumber702]

@Candyliz2003 you're certainly not thinking logically.

[Candyliz2003]

@daPlumber702

You should at least give some kind of example or proof to back up that statement.

[zoogle1]

@Candyliz2003 Hashishin is correct, but Wal-Mart doesn't partake in predatory pricing anyways. In late 2010 it started raising prices nationwide because it was making a loss, and started actually getting out competed by local grocers and other supermarkets like Target. I don't know if that is still the case, but it makes it apparent that Wal-Mart cares about its bottom line. It doesn't want to go in the red, even if it loses marketshare.

[Hashishin13]

@Candyliz This is because of the government, if there weren't so many taxes, regulations and licenses entrepeneurship would be much easier.

Also there is such a thing as economies of scale, ever wonder why there aren't any small car companies? There probably were when the car was first invented. With advancements in communication and a big hand up from the government, Walmart has made general stores and lots of small stores obsolete.

The horse and buggy people were pissed at the car I bet.

[KripDrip]

Walmart doesnt put other stores out of business. The customers do for only shopping at Walmart. They had the choice of buying things at Walmart or buying from other stores in the community but they chose to destroy the other businesses by not supporting other businesses and only going to Walmart.

[Questfortruth86]

The theoretical problem of limit price strategies is that they require substantial cost advantages and barriers to entry.

[00dfm00]

The Eddy Match Company did exactly that: drove down prices, forcing competitors out of business, bought them up to give the appearance of competition, and then all increased prices again in a monopoly environment. Although, this is quite rare, as Woods would point out.

[Elasaltaculos]

@00dfm00: A "monopoly environment" as you put it, can be beaten in a free market by a strategy employed by Jay Gould against Western Union. He shorted Western Union stock, then opened up his competing business. Western Union wanted to run him out of business and started charging below operating costs, which only made Jay Gould richer.

[00dfm00]

@Elasaltaculos - That Jay Gould example was brilliant! Wish I knew about that when I was taking my industrial organization class.

Although, how would this apply between 2 non-public companies?

[Elasaltaculos]

well, you got me there, albeit I don't think there are many non-publicly traded companies that could reach a monopoly status. I may be wrong here, but I can't think of an example.

[no3commando]

@Elasaltaculos Where can I find the details of Jay Gould's plan of short selling Western Union?

[Elasaltaculos]

Been looking for the book so that I could give you more specific information, but I couldn't find it. Anyway, I read about it in John R. Lott's Jr.'s book "Freedomnomics", and I believe it was in the beginning of the book, around page 30 or so.

I am sure I could find it in a Jay Gould biography that I have, but I have not gotten around to reading that book yet.

[no3commando]

@Elasaltaculos Thanks man, thats an interesting story. I laughed when I heard it

[Surhotchaperchlorome]

Best.

Example.

Ever.

[YerTalkingKrap]

LOL, okay, sorry to be contradicting myself, but in hind-site I guess the point of government interference not helping is rather valid. I live by several small communities. One of these communities (Qualicum Beach) has a local statute prohibiting large company chains from opening stores (except where it obviously cannot be avoided, such as banking and gas stations). All this has lead to is people travelling to other towns/cities to do their shopping. Hasn't helped the "small" shops at all.

[gf1605]

Wow, a reference to the podunk I grew up in. What are the odds? I remember a franchise video store, though, so I'm sure it was really just a matter of how political clout you had. Like the QF owners, for instance. Wasn't there supposed to be a statute restricting the size/height of your building as well?

[YerTalkingKrap]

Usually, I enjoy Thomas Woods. But on this one, I feel he makes a flawed assumption. He assumes that all industries behave in the same way. Software, for example, cannot behave the same way as selling chemicals. You cannot buy up your competitors install CD's and resell them as your own. Same for many "branded" product. Imagine if Intel/AMD could buy each other's CPU's and sell them as their own on different markets. (for the sake of argument, I've not argued for which is "better").

[fzqlcs]

Correct me if I am wrong, but why couldn't Intel/AMD buy each other's CPU's and sell them in other markets not as their own, but as what they are, if such is profitable? They would simply be distributors for the other product. Wouldn't that work to thwart a predatory pricing scheme?

[YerTalkingKrap]

Sorry I wasn't more clear - I was referring to the scenario played out in the video. My basic point was that the story laid out by Mr. Woods doesn't always hold true - there may be different ways and means of working around predatory pricing as you state, absolutely - but in the same token, I'm not entirely convinced that this is necessary always possible.

[thinkrevolution]

Great video

[Auggie56]

Walmart

[tewj57]

How is Wal-Mart an example? Where's the raising of prices that's essential to the model?

[thinkrevolution]

Good point. I've always heard that this is what Walmart does, but I've never really seen an example of them raising the prices back up. They always put small businesses out by selling cheaper, but they normally keep the prices low.

[stevemcduffie]

Did you not pay attention to the video?

[YerTalkingKrap]

I paid attention, and all I saw was one EXAMPLE of how to counter-act an attempt at predatory pricing. I didn't see any universal explanation as to why it's a myth.

[coffeeintheface]

I'm reading about this exact topic in Man Economy and State right now, in the "Monopoly & Competition" chapter, and Rothbard says the exact same thing. And it's so true.

[dudemanbearpig]

Thanks, LibertyPen. I was waiting for you to post a video on the myth of predatory pricing.

[YerTalkingKrap]

I'm not convinced it's a myth - I think it's dependent on individual circumstances and industries. Taking his example, what if the little businessman never entered the European market, but the Germans brought over their cheaper product? How would the scenario play out then?

[fzqlcs]

That might spur the little man to buy up the cheap German product and enter the European market.  But, in the end, whoever can provide the product to consumers at the most attractive price deserves to win. When unencumbered, the free market works this out naturally and organically.

[YerTalkingKrap]

That's true, but that assumes that the small guy has the capacity to enter the European market. Does he have the financial resources to set up a foreign corporation, and do all the shipping required?

BTW, thanks for entering into a DISCUSSION with me :-D I get tired of flame wars, and it's nice to be able to discuss these things with level heads.

[LibertyPen]

You are right. Quite possibly, he would be unable to enter the European market and wind up the victim of predatory pricing. On the other hand, good ideas usually find investors. I tend to agree with Woods' conclusion simply because it is difficult to point to instances where predatory pricing schemes have worked. Outside of collusion, very few business practices bother me. What bothers me far more, is governmental interference in the free market.

[fzqlcs]

I'll drink to that!

[YerTalkingKrap]

So you feel that Linux/Mac OS X/BSD gaining ground into the OS markets, and Mozilla/Safari/Chrome biting into Microsoft's market-share was inevitable without government intervention? That's interesting, especially seeing that this market-share has been lost in areas where the government has NOT interfered, as you say. By comparison, the EU has tried to interfere, with what would seem to be little effect. Good points, and thanks for the discussion!

[agenthelios1]

@YerTalkingKrap I know what you mean. All these "fairy tale" ideal stories are just that just surface BS stories for the speaker to prove his point. Its not even realistic.

I also hear many stories about how someone came to US with "$1 in his pocket and made millins"...LOL I always laugh because these days you can come here with $5million and leave broke". I always tell people if that is the case, I have $5,000 so I ill give it to you and surely you can turn that into a million.