Back in July, the Washington Post ran a front page story under the headline “Foreclosures are often in Lenders’ Best Interest” Apparently their hard-hitting team of investigative journalists had uncovered the shocking fact that banks were not gratuitously foreclosing on mortgages out of a desire to inflict pointless suffering on innocent homeowners.
Back in July, the Washington Post ran a front page story under the headline “Foreclosures are often in Lenders’ Best Interest” Apparently their hard-hitting team of investigative journalists had uncovered the shocking fact that banks were not gratuitously foreclosing on mortgages out of a desire to inflict pointless suffering on innocent homeowners.
In France this plea would be wrapped up in the “conserving the culture” meme and result in prompt legislation.
AnonymousOctober 28, 2009 at 3:29 pm
C’était quand, la dernière fois que vous avez visité quelques Hypermarchés en France?
AnonymousOctober 28, 2009 at 3:29 pm
C’était quand, la dernière fois que vous avez visité quelques Hypermarchés en France?
MoggioOctober 28, 2009 at 6:19 pm
Que voulez-vous dire ?
MoggioOctober 28, 2009 at 6:19 pm
Que voulez-vous dire ?
AnonymousOctober 28, 2009 at 7:11 pm
Despite the Hypermarches, my brother who works for the OECD and has lived in France for about 20 years always loads up on consumer goods every time he visits the US.
When he bought a house to remodel he took a shopping trip to China and loaded up his own container with building materials. Even with the cost of hiring an interpreter, shipping, and tariffs, he still figures he saved thousands and had a nice vacation to boot.
France is not the most consumer friendly country, but it is a great place to visit. Not everything is overpriced. I can personally attest that bike parts, wine, and outstanding meals are readily available and a bargain.
AnonymousOctober 28, 2009 at 7:11 pm
Despite the Hypermarches, my brother who works for the OECD and has lived in France for about 20 years always loads up on consumer goods every time he visits the US.
When he bought a house to remodel he took a shopping trip to China and loaded up his own container with building materials. Even with the cost of hiring an interpreter, shipping, and tariffs, he still figures he saved thousands and had a nice vacation to boot.
France is not the most consumer friendly country, but it is a great place to visit. Not everything is overpriced. I can personally attest that bike parts, wine, and outstanding meals are readily available and a bargain.
You clearly missed the point, but I have been to plenty of all kinds of shops in France.
In addition to Greg’s list, I would add that some French made luxury goods are also cheaper. But the laws governing commerce are truly hilarious – unless they apply to you.
You clearly missed the point, but I have been to plenty of all kinds of shops in France.
In addition to Greg’s list, I would add that some French made luxury goods are also cheaper. But the laws governing commerce are truly hilarious – unless they apply to you.
I’m in general a perfectly reasonable supporter of free-market competition, but I don’t think that this article does a good job of explaining why the ABA’s claims are baseless, since a lot of the argument is just of the “that’s clearly ridiculous” form.
In reality, there’s not a lot of difference between “loss leader” and “predatory pricing” (just ask Microsoft). Even if Amazon and Wal-Mart are pricing the books below marginal cost in order to drive other sales rather than to specifically put the other booksellers out of business, it could potentially hurt the consumer in the long run. Predatory pricing was deemed illegal because it makes it possible to price below cost in the short run, force other companies out of business, and then charge monopoly prices. (Note that the legislation is geared at protecting consumers rather than high-priced retailers.) In this way, if Amazon and Wal-Mart drive the others out of business and then decide that the books don’t make an effective loss leader (since now they are getting traffic from book sales because they’re the main ones selling them), the prices are going to go right back up. You could argue that raising the prices would encourage other companies to come back to the industry, but it’s quite possible that the threat of returning to predatory pricing would keep competition out.
In addition, the perceived value argument is a more flimsy one for the ABA to make, I agree, but it’s not nearly as baseless as Jacoby would have it seem. (To see this, just ask anyone in the music industry.) From a behavioral standpoint, people do often see price as a signal of quality or value, so having very low prices for books could in fact have a negative impact on the perceived value of books. That said, I certainly don’t think that that is a justification for forcing artifically high prices. I just want people to be careful before offhandedly dismissing an opposing viewpoint.
(Note that the legislation is geared at protecting consumers rather than high-priced retailers.)Certainly that’s how it is sold to the public.
And I don’t get your critique of Jacoby’s article, he provides many links and points out the lack of supporting arguments in the ABA’s claims.
MWGOctober 28, 2009 at 6:31 pm
“Predatory pricing was deemed illegal because it makes it possible to price below cost in the short run, force other companies out of business, and then charge monopoly prices.”
Similar to those who favor “anti-dumping” legislation, “predatory pricing” legislation is based on ideas of “what could happen if…” I’d be interested to hear any “good” examples of companies that have successfully used predatory pricing to gain a monopoly.
As soon as those companies start charging monopoly pricing, competitors are attracted to the industry. This restarts the cycle and means that the competitor driving out others by pricing below cost is stuck pricing below cost most of the time and will eventually fail.
As soon as those companies start charging monopoly pricing, competitors are attracted to the industry. This restarts the cycle and means that the competitor driving out others by pricing below cost is stuck pricing below cost most of the time and will eventually fail.
Unless it’s too big to fail, of course.
AnonymousOctober 28, 2009 at 8:50 pm
That’s assuming there aren’t major barriers to entry that allow for the maintenance of higher prices once monpoly status is maintained. In that way, selling below cost in the short-run can be strategic. I’m not saying it happens all the time – the threat of entry is often market discipline enough – but it’s not a trivial concern either.
Yes, without government throwing up barriers to entry via regulation in the name of “protecting the consumer”.
However, I don’t think there are a lot of barriers to entry in selling books and if there are barriers to entry resulting from government interference, then it’s government interference that should be abolished, not retail pricing.
Yes, without government throwing up barriers to entry via regulation in the name of “protecting the consumer”.
However, I don’t think there are a lot of barriers to entry in selling books and if there are barriers to entry resulting from government interference, then it’s government interference that should be abolished, not retail pricing.
That’s assuming there aren’t major barriers to entry that allow for the maintenance of higher prices once monpoly status is maintained.
The regulatory burden has the effect of keeping start-ups from competing with incumbent businesses.
AnonymousOctober 28, 2009 at 8:50 pm
That’s assuming there aren’t major barriers to entry that allow for the maintenance of higher prices once monpoly status is maintained. In that way, selling below cost in the short-run can be strategic. I’m not saying it happens all the time – the threat of entry is often market discipline enough – but it’s not a trivial concern either.
MWGOctober 28, 2009 at 6:31 pm
“Predatory pricing was deemed illegal because it makes it possible to price below cost in the short run, force other companies out of business, and then charge monopoly prices.”
Similar to those who favor “anti-dumping” legislation, “predatory pricing” legislation is based on ideas of “what could happen if…” I’d be interested to hear any “good” examples of companies that have successfully used predatory pricing to gain a monopoly.
I’m in general a perfectly reasonable supporter of free-market competition, but I don’t think that this article does a good job of explaining why the ABA’s claims are baseless, since a lot of the argument is just of the “that’s clearly ridiculous” form.
In reality, there’s not a lot of difference between “loss leader” and “predatory pricing” (just ask Microsoft). Even if Amazon and Wal-Mart are pricing the books below marginal cost in order to drive other sales rather than to specifically put the other booksellers out of business, it could potentially hurt the consumer in the long run. Predatory pricing was deemed illegal because it makes it possible to price below cost in the short run, force other companies out of business, and then charge monopoly prices. (Note that the legislation is geared at protecting consumers rather than high-priced retailers.) In this way, if Amazon and Wal-Mart drive the others out of business and then decide that the books don’t make an effective loss leader (since now they are getting traffic from book sales because they’re the main ones selling them), the prices are going to go right back up. You could argue that raising the prices would encourage other companies to come back to the industry, but it’s quite possible that the threat of returning to predatory pricing would keep competition out.
In addition, the perceived value argument is a more flimsy one for the ABA to make, I agree, but it’s not nearly as baseless as Jacoby would have it seem. (To see this, just ask anyone in the music industry.) From a behavioral standpoint, people do often see price as a signal of quality or value, so having very low prices for books could in fact have a negative impact on the perceived value of books. That said, I certainly don’t think that that is a justification for forcing artifically high prices. I just want people to be careful before offhandedly dismissing an opposing viewpoint.
John DeweyOctober 28, 2009 at 6:05 pm
Jacoby suggests that Walmart is losing money on each book it sells for $8.98 because wholesale prices are generally half of suggested retail price. It’s entirely possible, though, that publishers are granting lower wholesale prices to both Walmart and Amazon.Certain forms of price discrimination were outlawed by the Robinson-Patman Act, but the law has huge holes in it. For example, if the publisher can show that the purchaser’s large volumes will lower the publisher’s cost, price discrimination is allowed. Another allowed form of price discrimination would be cutting prices to match a competitor’s offer. That’s almost certainly the case with Walmart. The giant retailer can legally play one publisher against another. The book titles will not be the same, but a Walmart threat to favor one publisher’s titles over those of another will incite price competition.Wholesalers have other ways to lower costs for giant customers. Buyers at my large corporation frequently negotiate 10 percent or larger rebates from a large supplier, rebates which kick in after significant levels of purchases are made. Because the rebates are not tied to prices of specific items, the Robinson-Patman Act apparently does not apply.Walmart also likely obtains bundled pricing for purchases from wholesalers. In return for purchasing bestsellers at nearly breakeven cost, it likely receive much larger discounts on purchases of books which are further exempt from Robinson-Patman (such as seasonal books).I don’t believe Walmart can be guilty of predatory pricing if its costs – after adjustment for rebates, special terms, and bundled pricing – are below its selling prices.
Right, and I wouldn’t be surprised if this situation wasn’t actually an example of selling below marginal cost. If Amazon and Walmart get better deals, more power to them. In my ideal world, the situation would go something like this:
ABA: We think that Wal-Mart and Amazon are engaging in predatory pricing.
WMT/AMZ: Nope, see, here is the deal we get from the distributor/publisher.
ABA: Oh. Never mind then. And props to your negotiation skills.
That said, I support the ABA’s right to question the situation if it actually thinks that the other retailers are behaving illegally.
Right, and I wouldn’t be surprised if this situation wasn’t actually an example of selling below marginal cost. If Amazon and Walmart get better deals, more power to them. In my ideal world, the situation would go something like this:
ABA: We think that Wal-Mart and Amazon are engaging in predatory pricing.
WMT/AMZ: Nope, see, here is the deal we get from the distributor/publisher.
ABA: Oh. Never mind then. And props to your negotiation skills.
That said, I support the ABA’s right to question the situation if it actually thinks that the other retailers are behaving illegally.
AnonymousOctober 28, 2009 at 9:50 pm
I’m not clear why this should be illegal. It’s nobody’s business if a company wants to beggar itself by selling below cost.
And it’s illogical. Why can a retailer can donate money to charity but not sell items below marginal cost?
AnonymousOctober 28, 2009 at 9:50 pm
I’m not clear why this should be illegal. It’s nobody’s business if a company wants to beggar itself by selling below cost.
And it’s illogical. Why can a retailer can donate money to charity but not sell items below marginal cost?
John DeweyOctober 28, 2009 at 10:13 pm
“I wouldn’t be surprised if this situation wasn’t actually an example of selling below marginal cost.”
Not sure who you mean. The publishers may be selling to Walmart below marginal cost and to small booksellers above marginal cost. As I pointed out earlier, Robinson-Patman has so many holes that such discriminatory pricing is not likely to be illegal.
I meant “I would not be surprised if Walmart was getting a better deal from the publisher/distributor and was thus selling at marginal cost or higher.” If that is true then the ABA’s complaint is a moot point.
Despite what anyone individually thinks about predatory pricing regulations (there are thoughtful arguments on both sides to be had), it’s a little unfair, given that the regulations exist, to criticize an organization for asking that the regulations be enforced. That is, of course, unless the ABA doesn’t have a good reason to suspect this behavior, in which case it should just feel silly.
I meant “I would not be surprised if Walmart was getting a better deal from the publisher/distributor and was thus selling at marginal cost or higher.” If that is true then the ABA’s complaint is a moot point.
Despite what anyone individually thinks about predatory pricing regulations (there are thoughtful arguments on both sides to be had), it’s a little unfair, given that the regulations exist, to criticize an organization for asking that the regulations be enforced. That is, of course, unless the ABA doesn’t have a good reason to suspect this behavior, in which case it should just feel silly.
There’s a difference between wrong and illegal. Not everything that is illegal is wrong. Aiding Jews in Nazi Germany was illegal.
John DeweyOctober 28, 2009 at 10:13 pm
“I wouldn’t be surprised if this situation wasn’t actually an example of selling below marginal cost.”
Not sure who you mean. The publishers may be selling to Walmart below marginal cost and to small booksellers above marginal cost. As I pointed out earlier, Robinson-Patman has so many holes that such discriminatory pricing is not likely to be illegal.
John DeweyOctober 28, 2009 at 6:05 pm
Jacoby suggests that Walmart is losing money on each book it sells for $8.98 because wholesale prices are generally half of suggested retail price. It’s entirely possible, though, that publishers are granting lower wholesale prices to both Walmart and Amazon.Certain forms of price discrimination were outlawed by the Robinson-Patman Act, but the law has huge holes in it. For example, if the publisher can show that the purchaser’s large volumes will lower the publisher’s cost, price discrimination is allowed. Another allowed form of price discrimination would be cutting prices to match a competitor’s offer. That’s almost certainly the case with Walmart. The giant retailer can legally play one publisher against another. The book titles will not be the same, but a Walmart threat to favor one publisher’s titles over those of another will incite price competition.Wholesalers have other ways to lower costs for giant customers. Buyers at my large corporation frequently negotiate 10 percent or larger rebates from a large supplier, rebates which kick in after significant levels of purchases are made. Because the rebates are not tied to prices of specific items, the Robinson-Patman Act apparently does not apply.Walmart also likely obtains bundled pricing for purchases from wholesalers. In return for purchasing bestsellers at nearly breakeven cost, it likely receive much larger discounts on purchases of books which are further exempt from Robinson-Patman (such as seasonal books).I don’t believe Walmart can be guilty of predatory pricing if its costs – after adjustment for rebates, special terms, and bundled pricing – are below its selling prices.
AnonymousOctober 28, 2009 at 8:16 pm
Maybe we will need a stimulus program for book sellers in 2011.
AnonymousOctober 28, 2009 at 8:16 pm
Maybe we will need a stimulus program for book sellers in 2011.
Re: “Yes, without government throwing up barriers to entry via regulation in the name of “protecting the consumer”.”
Yes, there’s one example.
Re: “However, I don’t think there are a lot of barriers to entry in selling books”
I would agree.
I wonder to a certain degree what effect book selling at Wal-Mart will have on what people read – will people’s reading habits converge on a New York Times Bestseller List sort of repertoire, etc. – that would be unfortunate. One of the advantages even of a major bookseller like Barnes and Noble or Borders relative to Wal-Mart is that people are exposed (to some degree), to niche books, more technical books, canonical books – simply a more diverse selection of books. I don’t think we’re in any great danger of losing diversity of publications – quite the opposite. But I do wonder about what regular Wal-Mart shoppers will be exposed to.
Not sure where I’m going with this – it’s more a cultural thought than an economic thought on my part. But there are economies of scope at work here as well as the economies of scale that people think of when they think about Wal-Mart. Everyone talks about scale economies pushing out the small-time producer. Not many people talk about the effect of scope economies on the niche producer. And sometimes people conflate the two issues. Either way, I don’t think these problems really hold much concern in the market for books.
AnonymousOctober 28, 2009 at 9:07 pm
Re: “Yes, without government throwing up barriers to entry via regulation in the name of “protecting the consumer”.”
Yes, there’s one example.
Re: “However, I don’t think there are a lot of barriers to entry in selling books”
I would agree.
I wonder to a certain degree what effect book selling at Wal-Mart will have on what people read – will people’s reading habits converge on a New York Times Bestseller List sort of repertoire, etc. – that would be unfortunate. One of the advantages even of a major bookseller like Barnes and Noble or Borders relative to Wal-Mart is that people are exposed (to some degree), to niche books, more technical books, canonical books – simply a more diverse selection of books. I don’t think we’re in any great danger of losing diversity of publications – quite the opposite. But I do wonder about what regular Wal-Mart shoppers will be exposed to.
Not sure where I’m going with this – it’s more a cultural thought than an economic thought on my part. But there are economies of scope at work here as well as the economies of scale that people think of when they think about Wal-Mart. Everyone talks about scale economies pushing out the small-time producer. Not many people talk about the effect of scope economies on the niche producer. And sometimes people conflate the two issues. Either way, I don’t think these problems really hold much concern in the market for books.
AnonymousOctober 28, 2009 at 9:09 pm
This is just thinking out loud about what people read – it’s not a smear on Wal-Mart. It’s good that Wal-Mart can sell books cheap. Nobody should read into this post what isn’t there.
AnonymousOctober 28, 2009 at 9:09 pm
This is just thinking out loud about what people read – it’s not a smear on Wal-Mart. It’s good that Wal-Mart can sell books cheap. Nobody should read into this post what isn’t there.
AnonymousOctober 28, 2009 at 9:20 pm
Daniel – what’s the barrier to entry? Big-box or small store? What if decide to put up a specialty bookstore that mostly sells sci-fi novels, DVDs, PC games with a full coffee bar and WIFI? How are big-box retailers hurting me in that case? I’m offering a unique product on the market that doesn’t exist yet. I might succeed or fail, but that’s capitalism.
AnonymousOctober 28, 2009 at 9:20 pm
Daniel – what’s the barrier to entry? Big-box or small store? What if decide to put up a specialty bookstore that mostly sells sci-fi novels, DVDs, PC games with a full coffee bar and WIFI? How are big-box retailers hurting me in that case? I’m offering a unique product on the market that doesn’t exist yet. I might succeed or fail, but that’s capitalism.
Well, of course the average Wal-Mart shopper is just a monkey who will read only publications he happens to be exposed to while buying massive quantities of double-ply toilet paper. We all learned that from the hippies that time forgot at the hoity-toity unis we attended for some left-wing brainwashing. On the other hand, the fact that these Wal-Mart troglodytes can break the vicious cycle of couch riding, beer guzzling and football watching with the occasional John Grisham novel is a step in the right evolutionary direction.
Look, Dan, I see what you’re saying – tinged with elitism though it is – but, I’m not worried about it. Before there were Wal-Marts and Barnes and Nobles, people who wanted found their way to Dostoevsky and Kafka. The people who aren’t inclined to read “serious” literature aren’t going to buy it if it’s staring them in the face in the checkout lane at Wal-Mart. Those who want to do what I did as a kid in the dark days before Barnes & Nobles, the internet and time began (wander through the stacks of the library all Saturday ) will simply go to a book store or surf Amazon. An important rule of retailing is to know thy customer. Wal-Mart stocks the shelves with what people most commonly read so they don’t end up with dead stock. Nobody goes to K-mart in search of Nietzsche.
BTW, I think the convergence around the NYT bestsellers list is a done deal. Isn’t that why it gets on the bestsellers list…because that’s what everybody is reading?
Well, of course the average Wal-Mart shopper is just a monkey who will read only publications he happens to be exposed to while buying massive quantities of double-ply toilet paper. We all learned that from the hippies that time forgot at the hoity-toity unis we attended for some left-wing brainwashing. On the other hand, the fact that these Wal-Mart troglodytes can break the vicious cycle of couch riding, beer guzzling and football watching with the occasional John Grisham novel is a step in the right evolutionary direction.
Look, Dan, I see what you’re saying – tinged with elitism though it is – but, I’m not worried about it. Before there were Wal-Marts and Barnes and Nobles, people who wanted found their way to Dostoevsky and Kafka. The people who aren’t inclined to read “serious” literature aren’t going to buy it if it’s staring them in the face in the checkout lane at Wal-Mart. Those who want to do what I did as a kid in the dark days before Barnes & Nobles, the internet and time began (wander through the stacks of the library all Saturday ) will simply go to a book store or surf Amazon. An important rule of retailing is to know thy customer. Wal-Mart stocks the shelves with what people most commonly read so they don’t end up with dead stock. Nobody goes to K-mart in search of Nietzsche.
BTW, I think the convergence around the NYT bestsellers list is a done deal. Isn’t that why it gets on the bestsellers list…because that’s what everybody is reading?
AnonymousOctober 28, 2009 at 9:15 pm
Yes, yes, yes. Regulation is a barrier to entry. I think this is a given. It is one excellent example.
AnonymousOctober 28, 2009 at 9:15 pm
Yes, yes, yes. Regulation is a barrier to entry. I think this is a given. It is one excellent example.
AnonymousOctober 28, 2009 at 9:17 pm
And Russ says I’M the one that brings up the boring points!
I get the “regulation” response from both of you immediately. I think everyone commenting on Cafe Hayek is aware of this barrier to entry. I’m not sure how much more boring and pedestrian of a response I could think of than pointing out that regulation is an entry barrier.
AnonymousOctober 28, 2009 at 9:17 pm
And Russ says I’M the one that brings up the boring points!
I get the “regulation” response from both of you immediately. I think everyone commenting on Cafe Hayek is aware of this barrier to entry. I’m not sure how much more boring and pedestrian of a response I could think of than pointing out that regulation is an entry barrier.
Sorry, I had been on for a bit and methinks’ response had not been posted before I entered this area, otherwise, I would not have bothered to make the same point.
IAC, you might specify other barriers to entry, unless they are entirely theoretical.
Sorry, I had been on for a bit and methinks’ response had not been posted before I entered this area, otherwise, I would not have bothered to make the same point.
IAC, you might specify other barriers to entry, unless they are entirely theoretical.
I’m not sure how much more boring and pedestrian of a response I could think of than pointing out that regulation is an entry barrier.
Pointing out that there can only be competition in the absence of barriers to entry. As in…. “That’s assuming there aren’t major barriers to entry that allow for the maintenance of higher prices once monpoly status is maintained.” – DK
I’m not sure how much more boring and pedestrian of a response I could think of than pointing out that regulation is an entry barrier.
Pointing out that there can only be competition in the absence of barriers to entry. As in…. “That’s assuming there aren’t major barriers to entry that allow for the maintenance of higher prices once monpoly status is maintained.” – DK
Glass houses and stones don’t mix, Danny.
AnonymousOctober 28, 2009 at 10:04 pm
Anti-trust law, laws against so-called predatory pricing, etc. are designed basically to protect producers not consumers. Consumers get screwed by these efforts as a general rule.
AnonymousOctober 28, 2009 at 10:04 pm
Anti-trust law, laws against so-called predatory pricing, etc. are designed basically to protect producers not consumers. Consumers get screwed by these efforts as a general rule.
AnonymousOctober 28, 2009 at 10:15 pm
Re: “what’s the barrier to entry?”
If you read my comments, I said I don’t think there is a significant barrier to entry in bookselling to speak of.
AnonymousOctober 28, 2009 at 10:15 pm
Re: “what’s the barrier to entry?”
If you read my comments, I said I don’t think there is a significant barrier to entry in bookselling to speak of.
AnonymousOctober 28, 2009 at 10:17 pm
RE: “How are big-box retailers hurting me in that case? ”
They aren’t – big-box retailers are a good thing.
AnonymousOctober 28, 2009 at 10:17 pm
RE: “How are big-box retailers hurting me in that case? ”
They aren’t – big-box retailers are a good thing.
AnonymousOctober 28, 2009 at 10:18 pm
You have nothing to apologize for, Sam. I guess I just hope you guys don’t think it’s a revelation or new information for me that regulations can do this.
AnonymousOctober 28, 2009 at 10:18 pm
You have nothing to apologize for, Sam. I guess I just hope you guys don’t think it’s a revelation or new information for me that regulations can do this.
AnonymousOctober 29, 2009 at 12:19 am
As a Wal-Mart shopper myself, I can tell you your characterization of myself and my fellow shoppers is very out of touch.
Re: “Look, Dan, I see what you’re saying – tinged with elitism though it is – but, I’m not worried about it.”
I’m glad you don’t – as I said in my post, I don’t either.
AnonymousOctober 29, 2009 at 12:19 am
As a Wal-Mart shopper myself, I can tell you your characterization of myself and my fellow shoppers is very out of touch.
Re: “Look, Dan, I see what you’re saying – tinged with elitism though it is – but, I’m not worried about it.”
I’m glad you don’t – as I said in my post, I don’t either.
AnonymousOctober 29, 2009 at 12:33 am
And a good point on the NYT bestseller list
AnonymousOctober 29, 2009 at 12:22 am
You think strategic pricing behavior is more obvious and pedestrian than the understanding that regulations burden business? Interesting. I’d have to disagree with you – I think understanding strategic pricing behavior is generally more difficult to pick up on, but different people find different things intuitive.
AnonymousOctober 29, 2009 at 12:22 am
You think strategic pricing behavior is more obvious and pedestrian than the understanding that regulations burden business? Interesting. I’d have to disagree with you – I think understanding strategic pricing behavior is generally more difficult to pick up on, but different people find different things intuitive.
Hey, in fairness, I’m not the one out of touch. Unfortunately, I don’t have a Wal-Mart close by, but I would shop there if I did. Shopping there has the added benefit of annoying my pinko-commie friends and acquaintances who hate Wal-Mart more than Satan.
Fortunately, Whole Foods now pisses them off and I can delight even more in my continued patronage.
I shop at Wal Mart all the time, partially for the reasons Methinks does (pissing of my liberal friends), but more importantly for convenience. I love it when my anti-WalMart friends complain to me about me shopping there and I can say I’m keeping my Carbon Footprint lower because I don’t have to make multiple trips. Ha Ha, they know my feelings on the whole AGW debate so it kind of gets them in a bind.
Anyway, I agree that characterization is off base. There are a multitude of different kinds of people that shop there, all because of low prices. Prices have an uncanny effect of canceling out partisanship, except in some extreme cases. But most of the people I know that fear Wal Mart are young and have no money anyway, so it’s not like Wal Mart fears their wrath.
I don’t get why people get so worked up over it – either the boycott or the buycott. Mackey had a great article, and three quarters of it was perfectly compatible with your generic liberal position on health reform. People just like getting worked up about something – liberals like their boycott and conservatives like their buycott.
Ummm….I think barriers to entry is very obvious. But, if it makes you feel better: you made a deeply, painfully even, insightful point by trotting out that econ 101 answer to a test question.
Dan, I’m kidding around with you, but the “strategic pricing behaviour” you describe seems at least as obvious. Plus, you should really come off your high horse about the “regulation” response. For a great many people, the fact that regulation is a barrier to entry is not at all obvious because regulation is sold as consumer protection. For people with some education in economics and a smidge of critical thinking ability, it’s obvious. However, your response begged for a response which included regulation. People often will take the completely manufactured regulatory barrier to entry at face value and not realize that such strategic pricing behaviour can most often pay off only courtesy of your friendly government.
I don’t think your fit over Sam’s post was justified.
AnonymousOctober 29, 2009 at 12:49 am
I hope you’re not reading more rage into my posts than you should. Sometimes it’s hard to get tone over the internet. Honestly, it just seemed like your response and Sam’s response begged to be addressed too. We talk about regulation and the government every single day on this blog. It was kind of nice to read “Economists do it with models”‘s posts on strategic pricing behavior. That was a very refreshing, new discussion for this blog. It’s not just a matter of entry barriers preventing competition, as you say. It’s a matter of strategically pricing below marginal cost to push competitors out of the market with the knowledge that those losses will then be recouped behind high entry barriers. That sort of strategic decision making is not obvious to people who know that as a rule of thumb, low prices are good and markets are efficient.
I’ve always bought 99% of the family groceries at WF, so I haven’t changed my behaviour. I’m just delighted that yet another one of my behaviours can irritate a self-described pinko-commie. However, the tea party people aren’t conservatives. If you’ve ever spoken to a group of them, they pretty well cut across political lines and a great many of them who are Republicans identify more closely with libertarians.
MWGOctober 29, 2009 at 4:40 am
I just posted that link to facebook.
AnonymousOctober 29, 2009 at 4:10 am
Please don’t take this as piling on. An answer to you isn’t directed at only you. There is at least one person at this Cafe who does not understand the consequences of regulation.While few people are as stupid as Yasafi, some may be ignorant about this subject. Maybe Methinks’ or Sam’s response will educate someone who is only ignorant.
Brotio is exactly right. This is not a private conversation but a public comment section read by many people who never post a comment.
BTW, the high barriers to entry that prevent competition from returning must be new to work. Otherwise, pricing below marginal cost is not necessary because high barriers to entry would keep out competition in the first place.
AnonymousOctober 29, 2009 at 1:34 pm
I never figured it was private. I doubt any readers of Cafe Hayek come to these discussions without an understanding – if not complete agreement – of the argument. And it’s not a bad argument either. After all I agreed with both of you in both cases
Dan, I think it’s a mistake to assume that all readers have a basic understanding. YASAFI didn’t when he came and he still doesn’t. Granted, he’s an outlier.
However, the owners of the blog are university professors and the “buzz” might reach students and others who have zero background in economics.
Just a switch, we are used to see you commenting from the other side that’s all.
AnonymousOctober 30, 2009 at 9:41 am
Really? I don’t ever recall saying that regulation doesn’t impose costs.
Now – I certainly may have said that those costs are worth it because of other goals that a specific piece of regulation may achieve, but I don’t think I’ve ever been on the other side of the question of whether it imposes costs.
AnonymousOctober 30, 2009 at 9:41 am
Really? I don’t ever recall saying that regulation doesn’t impose costs.
Now – I certainly may have said that those costs are worth it because of other goals that a specific piece of regulation may achieve, but I don’t think I’ve ever been on the other side of the question of whether it imposes costs.
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Back in July, the Washington Post ran a front page story under the headline “Foreclosures are often in Lenders’ Best Interest” Apparently their hard-hitting team of investigative journalists had uncovered the shocking fact that banks were not gratuitously foreclosing on mortgages out of a desire to inflict pointless suffering on innocent homeowners.
Back in July, the Washington Post ran a front page story under the headline “Foreclosures are often in Lenders’ Best Interest” Apparently their hard-hitting team of investigative journalists had uncovered the shocking fact that banks were not gratuitously foreclosing on mortgages out of a desire to inflict pointless suffering on innocent homeowners.
In France this plea would be wrapped up in the “conserving the culture” meme and result in prompt legislation.
C’était quand, la dernière fois que vous avez visité quelques Hypermarchés en France?
C’était quand, la dernière fois que vous avez visité quelques Hypermarchés en France?
Que voulez-vous dire ?
Que voulez-vous dire ?
Despite the Hypermarches, my brother who works for the OECD and has lived in France for about 20 years always loads up on consumer goods every time he visits the US.
When he bought a house to remodel he took a shopping trip to China and loaded up his own container with building materials. Even with the cost of hiring an interpreter, shipping, and tariffs, he still figures he saved thousands and had a nice vacation to boot.
France is not the most consumer friendly country, but it is a great place to visit. Not everything is overpriced. I can personally attest that bike parts, wine, and outstanding meals are readily available and a bargain.
Despite the Hypermarches, my brother who works for the OECD and has lived in France for about 20 years always loads up on consumer goods every time he visits the US.
When he bought a house to remodel he took a shopping trip to China and loaded up his own container with building materials. Even with the cost of hiring an interpreter, shipping, and tariffs, he still figures he saved thousands and had a nice vacation to boot.
France is not the most consumer friendly country, but it is a great place to visit. Not everything is overpriced. I can personally attest that bike parts, wine, and outstanding meals are readily available and a bargain.
You clearly missed the point, but I have been to plenty of all kinds of shops in France.
In addition to Greg’s list, I would add that some French made luxury goods are also cheaper. But the laws governing commerce are truly hilarious – unless they apply to you.
You clearly missed the point, but I have been to plenty of all kinds of shops in France.
In addition to Greg’s list, I would add that some French made luxury goods are also cheaper. But the laws governing commerce are truly hilarious – unless they apply to you.
In France this plea would be wrapped up in the “conserving the culture” meme and result in prompt legislation.
I’m in general a perfectly reasonable supporter of free-market competition, but I don’t think that this article does a good job of explaining why the ABA’s claims are baseless, since a lot of the argument is just of the “that’s clearly ridiculous” form.
In reality, there’s not a lot of difference between “loss leader” and “predatory pricing” (just ask Microsoft). Even if Amazon and Wal-Mart are pricing the books below marginal cost in order to drive other sales rather than to specifically put the other booksellers out of business, it could potentially hurt the consumer in the long run. Predatory pricing was deemed illegal because it makes it possible to price below cost in the short run, force other companies out of business, and then charge monopoly prices. (Note that the legislation is geared at protecting consumers rather than high-priced retailers.) In this way, if Amazon and Wal-Mart drive the others out of business and then decide that the books don’t make an effective loss leader (since now they are getting traffic from book sales because they’re the main ones selling them), the prices are going to go right back up. You could argue that raising the prices would encourage other companies to come back to the industry, but it’s quite possible that the threat of returning to predatory pricing would keep competition out.
In addition, the perceived value argument is a more flimsy one for the ABA to make, I agree, but it’s not nearly as baseless as Jacoby would have it seem. (To see this, just ask anyone in the music industry.) From a behavioral standpoint, people do often see price as a signal of quality or value, so having very low prices for books could in fact have a negative impact on the perceived value of books. That said, I certainly don’t think that that is a justification for forcing artifically high prices. I just want people to be careful before offhandedly dismissing an opposing viewpoint.
(Note that the legislation is geared at protecting consumers rather than high-priced retailers.)Certainly that’s how it is sold to the public.
And I don’t get your critique of Jacoby’s article, he provides many links and points out the lack of supporting arguments in the ABA’s claims.
(Note that the legislation is geared at protecting consumers rather than high-priced retailers.)Certainly that’s how it is sold to the public.
And I don’t get your critique of Jacoby’s article, he provides many links and points out the lack of supporting arguments in the ABA’s claims.
“Predatory pricing was deemed illegal because it makes it possible to price below cost in the short run, force other companies out of business, and then charge monopoly prices.”
Similar to those who favor “anti-dumping” legislation, “predatory pricing” legislation is based on ideas of “what could happen if…” I’d be interested to hear any “good” examples of companies that have successfully used predatory pricing to gain a monopoly.
exactly. You have to think beyond step one.
As soon as those companies start charging monopoly pricing, competitors are attracted to the industry. This restarts the cycle and means that the competitor driving out others by pricing below cost is stuck pricing below cost most of the time and will eventually fail.
Unless it’s too big to fail, of course.
exactly. You have to think beyond step one.
As soon as those companies start charging monopoly pricing, competitors are attracted to the industry. This restarts the cycle and means that the competitor driving out others by pricing below cost is stuck pricing below cost most of the time and will eventually fail.
Unless it’s too big to fail, of course.
That’s assuming there aren’t major barriers to entry that allow for the maintenance of higher prices once monpoly status is maintained. In that way, selling below cost in the short-run can be strategic. I’m not saying it happens all the time – the threat of entry is often market discipline enough – but it’s not a trivial concern either.
Yes, without government throwing up barriers to entry via regulation in the name of “protecting the consumer”.
However, I don’t think there are a lot of barriers to entry in selling books and if there are barriers to entry resulting from government interference, then it’s government interference that should be abolished, not retail pricing.
Yes, without government throwing up barriers to entry via regulation in the name of “protecting the consumer”.
However, I don’t think there are a lot of barriers to entry in selling books and if there are barriers to entry resulting from government interference, then it’s government interference that should be abolished, not retail pricing.
That’s assuming there aren’t major barriers to entry that allow for the maintenance of higher prices once monpoly status is maintained.
The regulatory burden has the effect of keeping start-ups from competing with incumbent businesses.
That’s assuming there aren’t major barriers to entry that allow for the maintenance of higher prices once monpoly status is maintained.
The regulatory burden has the effect of keeping start-ups from competing with incumbent businesses.
That’s assuming there aren’t major barriers to entry that allow for the maintenance of higher prices once monpoly status is maintained. In that way, selling below cost in the short-run can be strategic. I’m not saying it happens all the time – the threat of entry is often market discipline enough – but it’s not a trivial concern either.
“Predatory pricing was deemed illegal because it makes it possible to price below cost in the short run, force other companies out of business, and then charge monopoly prices.”
Similar to those who favor “anti-dumping” legislation, “predatory pricing” legislation is based on ideas of “what could happen if…” I’d be interested to hear any “good” examples of companies that have successfully used predatory pricing to gain a monopoly.
I’m in general a perfectly reasonable supporter of free-market competition, but I don’t think that this article does a good job of explaining why the ABA’s claims are baseless, since a lot of the argument is just of the “that’s clearly ridiculous” form.
In reality, there’s not a lot of difference between “loss leader” and “predatory pricing” (just ask Microsoft). Even if Amazon and Wal-Mart are pricing the books below marginal cost in order to drive other sales rather than to specifically put the other booksellers out of business, it could potentially hurt the consumer in the long run. Predatory pricing was deemed illegal because it makes it possible to price below cost in the short run, force other companies out of business, and then charge monopoly prices. (Note that the legislation is geared at protecting consumers rather than high-priced retailers.) In this way, if Amazon and Wal-Mart drive the others out of business and then decide that the books don’t make an effective loss leader (since now they are getting traffic from book sales because they’re the main ones selling them), the prices are going to go right back up. You could argue that raising the prices would encourage other companies to come back to the industry, but it’s quite possible that the threat of returning to predatory pricing would keep competition out.
In addition, the perceived value argument is a more flimsy one for the ABA to make, I agree, but it’s not nearly as baseless as Jacoby would have it seem. (To see this, just ask anyone in the music industry.) From a behavioral standpoint, people do often see price as a signal of quality or value, so having very low prices for books could in fact have a negative impact on the perceived value of books. That said, I certainly don’t think that that is a justification for forcing artifically high prices. I just want people to be careful before offhandedly dismissing an opposing viewpoint.
Jacoby suggests that Walmart is losing money on each book it sells for $8.98 because wholesale prices are generally half of suggested retail price. It’s entirely possible, though, that publishers are granting lower wholesale prices to both Walmart and Amazon.Certain forms of price discrimination were outlawed by the Robinson-Patman Act, but the law has huge holes in it. For example, if the publisher can show that the purchaser’s large volumes will lower the publisher’s cost, price discrimination is allowed. Another allowed form of price discrimination would be cutting prices to match a competitor’s offer. That’s almost certainly the case with Walmart. The giant retailer can legally play one publisher against another. The book titles will not be the same, but a Walmart threat to favor one publisher’s titles over those of another will incite price competition.Wholesalers have other ways to lower costs for giant customers. Buyers at my large corporation frequently negotiate 10 percent or larger rebates from a large supplier, rebates which kick in after significant levels of purchases are made. Because the rebates are not tied to prices of specific items, the Robinson-Patman Act apparently does not apply.Walmart also likely obtains bundled pricing for purchases from wholesalers. In return for purchasing bestsellers at nearly breakeven cost, it likely receive much larger discounts on purchases of books which are further exempt from Robinson-Patman (such as seasonal books).I don’t believe Walmart can be guilty of predatory pricing if its costs – after adjustment for rebates, special terms, and bundled pricing – are below its selling prices.
Right, and I wouldn’t be surprised if this situation wasn’t actually an example of selling below marginal cost. If Amazon and Walmart get better deals, more power to them. In my ideal world, the situation would go something like this:
ABA: We think that Wal-Mart and Amazon are engaging in predatory pricing.
WMT/AMZ: Nope, see, here is the deal we get from the distributor/publisher.
ABA: Oh. Never mind then. And props to your negotiation skills.
That said, I support the ABA’s right to question the situation if it actually thinks that the other retailers are behaving illegally.
Right, and I wouldn’t be surprised if this situation wasn’t actually an example of selling below marginal cost. If Amazon and Walmart get better deals, more power to them. In my ideal world, the situation would go something like this:
ABA: We think that Wal-Mart and Amazon are engaging in predatory pricing.
WMT/AMZ: Nope, see, here is the deal we get from the distributor/publisher.
ABA: Oh. Never mind then. And props to your negotiation skills.
That said, I support the ABA’s right to question the situation if it actually thinks that the other retailers are behaving illegally.
I’m not clear why this should be illegal. It’s nobody’s business if a company wants to beggar itself by selling below cost.
And it’s illogical. Why can a retailer can donate money to charity but not sell items below marginal cost?
I’m not clear why this should be illegal. It’s nobody’s business if a company wants to beggar itself by selling below cost.
And it’s illogical. Why can a retailer can donate money to charity but not sell items below marginal cost?
“I wouldn’t be surprised if this situation wasn’t actually an example of selling below marginal cost.”
Not sure who you mean. The publishers may be selling to Walmart below marginal cost and to small booksellers above marginal cost. As I pointed out earlier, Robinson-Patman has so many holes that such discriminatory pricing is not likely to be illegal.
I meant “I would not be surprised if Walmart was getting a better deal from the publisher/distributor and was thus selling at marginal cost or higher.” If that is true then the ABA’s complaint is a moot point.
Despite what anyone individually thinks about predatory pricing regulations (there are thoughtful arguments on both sides to be had), it’s a little unfair, given that the regulations exist, to criticize an organization for asking that the regulations be enforced. That is, of course, unless the ABA doesn’t have a good reason to suspect this behavior, in which case it should just feel silly.
I meant “I would not be surprised if Walmart was getting a better deal from the publisher/distributor and was thus selling at marginal cost or higher.” If that is true then the ABA’s complaint is a moot point.
Despite what anyone individually thinks about predatory pricing regulations (there are thoughtful arguments on both sides to be had), it’s a little unfair, given that the regulations exist, to criticize an organization for asking that the regulations be enforced. That is, of course, unless the ABA doesn’t have a good reason to suspect this behavior, in which case it should just feel silly.
There’s a difference between wrong and illegal. Not everything that is illegal is wrong. Aiding Jews in Nazi Germany was illegal.
There’s a difference between wrong and illegal. Not everything that is illegal is wrong. Aiding Jews in Nazi Germany was illegal.
“I wouldn’t be surprised if this situation wasn’t actually an example of selling below marginal cost.”
Not sure who you mean. The publishers may be selling to Walmart below marginal cost and to small booksellers above marginal cost. As I pointed out earlier, Robinson-Patman has so many holes that such discriminatory pricing is not likely to be illegal.
Jacoby suggests that Walmart is losing money on each book it sells for $8.98 because wholesale prices are generally half of suggested retail price. It’s entirely possible, though, that publishers are granting lower wholesale prices to both Walmart and Amazon.Certain forms of price discrimination were outlawed by the Robinson-Patman Act, but the law has huge holes in it. For example, if the publisher can show that the purchaser’s large volumes will lower the publisher’s cost, price discrimination is allowed. Another allowed form of price discrimination would be cutting prices to match a competitor’s offer. That’s almost certainly the case with Walmart. The giant retailer can legally play one publisher against another. The book titles will not be the same, but a Walmart threat to favor one publisher’s titles over those of another will incite price competition.Wholesalers have other ways to lower costs for giant customers. Buyers at my large corporation frequently negotiate 10 percent or larger rebates from a large supplier, rebates which kick in after significant levels of purchases are made. Because the rebates are not tied to prices of specific items, the Robinson-Patman Act apparently does not apply.Walmart also likely obtains bundled pricing for purchases from wholesalers. In return for purchasing bestsellers at nearly breakeven cost, it likely receive much larger discounts on purchases of books which are further exempt from Robinson-Patman (such as seasonal books).I don’t believe Walmart can be guilty of predatory pricing if its costs – after adjustment for rebates, special terms, and bundled pricing – are below its selling prices.
Maybe we will need a stimulus program for book sellers in 2011.
Maybe we will need a stimulus program for book sellers in 2011.
This is a “Candlestick makers’ petition” moment…
Re: “Yes, without government throwing up barriers to entry via regulation in the name of “protecting the consumer”.”
Yes, there’s one example.
Re: “However, I don’t think there are a lot of barriers to entry in selling books”
I would agree.
I wonder to a certain degree what effect book selling at Wal-Mart will have on what people read – will people’s reading habits converge on a New York Times Bestseller List sort of repertoire, etc. – that would be unfortunate. One of the advantages even of a major bookseller like Barnes and Noble or Borders relative to Wal-Mart is that people are exposed (to some degree), to niche books, more technical books, canonical books – simply a more diverse selection of books. I don’t think we’re in any great danger of losing diversity of publications – quite the opposite. But I do wonder about what regular Wal-Mart shoppers will be exposed to.
Not sure where I’m going with this – it’s more a cultural thought than an economic thought on my part. But there are economies of scope at work here as well as the economies of scale that people think of when they think about Wal-Mart. Everyone talks about scale economies pushing out the small-time producer. Not many people talk about the effect of scope economies on the niche producer. And sometimes people conflate the two issues. Either way, I don’t think these problems really hold much concern in the market for books.
Re: “Yes, without government throwing up barriers to entry via regulation in the name of “protecting the consumer”.”
Yes, there’s one example.
Re: “However, I don’t think there are a lot of barriers to entry in selling books”
I would agree.
I wonder to a certain degree what effect book selling at Wal-Mart will have on what people read – will people’s reading habits converge on a New York Times Bestseller List sort of repertoire, etc. – that would be unfortunate. One of the advantages even of a major bookseller like Barnes and Noble or Borders relative to Wal-Mart is that people are exposed (to some degree), to niche books, more technical books, canonical books – simply a more diverse selection of books. I don’t think we’re in any great danger of losing diversity of publications – quite the opposite. But I do wonder about what regular Wal-Mart shoppers will be exposed to.
Not sure where I’m going with this – it’s more a cultural thought than an economic thought on my part. But there are economies of scope at work here as well as the economies of scale that people think of when they think about Wal-Mart. Everyone talks about scale economies pushing out the small-time producer. Not many people talk about the effect of scope economies on the niche producer. And sometimes people conflate the two issues. Either way, I don’t think these problems really hold much concern in the market for books.
This is just thinking out loud about what people read – it’s not a smear on Wal-Mart. It’s good that Wal-Mart can sell books cheap. Nobody should read into this post what isn’t there.
This is just thinking out loud about what people read – it’s not a smear on Wal-Mart. It’s good that Wal-Mart can sell books cheap. Nobody should read into this post what isn’t there.
Daniel – what’s the barrier to entry? Big-box or small store? What if decide to put up a specialty bookstore that mostly sells sci-fi novels, DVDs, PC games with a full coffee bar and WIFI? How are big-box retailers hurting me in that case? I’m offering a unique product on the market that doesn’t exist yet. I might succeed or fail, but that’s capitalism.
Daniel – what’s the barrier to entry? Big-box or small store? What if decide to put up a specialty bookstore that mostly sells sci-fi novels, DVDs, PC games with a full coffee bar and WIFI? How are big-box retailers hurting me in that case? I’m offering a unique product on the market that doesn’t exist yet. I might succeed or fail, but that’s capitalism.
Well, of course the average Wal-Mart shopper is just a monkey who will read only publications he happens to be exposed to while buying massive quantities of double-ply toilet paper. We all learned that from the hippies that time forgot at the hoity-toity unis we attended for some left-wing brainwashing. On the other hand, the fact that these Wal-Mart troglodytes can break the vicious cycle of couch riding, beer guzzling and football watching with the occasional John Grisham novel is a step in the right evolutionary direction.
Look, Dan, I see what you’re saying – tinged with elitism though it is – but, I’m not worried about it. Before there were Wal-Marts and Barnes and Nobles, people who wanted found their way to Dostoevsky and Kafka. The people who aren’t inclined to read “serious” literature aren’t going to buy it if it’s staring them in the face in the checkout lane at Wal-Mart. Those who want to do what I did as a kid in the dark days before Barnes & Nobles, the internet and time began (wander through the stacks of the library all Saturday ) will simply go to a book store or surf Amazon. An important rule of retailing is to know thy customer. Wal-Mart stocks the shelves with what people most commonly read so they don’t end up with dead stock. Nobody goes to K-mart in search of Nietzsche.
BTW, I think the convergence around the NYT bestsellers list is a done deal. Isn’t that why it gets on the bestsellers list…because that’s what everybody is reading?
Well, of course the average Wal-Mart shopper is just a monkey who will read only publications he happens to be exposed to while buying massive quantities of double-ply toilet paper. We all learned that from the hippies that time forgot at the hoity-toity unis we attended for some left-wing brainwashing. On the other hand, the fact that these Wal-Mart troglodytes can break the vicious cycle of couch riding, beer guzzling and football watching with the occasional John Grisham novel is a step in the right evolutionary direction.
Look, Dan, I see what you’re saying – tinged with elitism though it is – but, I’m not worried about it. Before there were Wal-Marts and Barnes and Nobles, people who wanted found their way to Dostoevsky and Kafka. The people who aren’t inclined to read “serious” literature aren’t going to buy it if it’s staring them in the face in the checkout lane at Wal-Mart. Those who want to do what I did as a kid in the dark days before Barnes & Nobles, the internet and time began (wander through the stacks of the library all Saturday ) will simply go to a book store or surf Amazon. An important rule of retailing is to know thy customer. Wal-Mart stocks the shelves with what people most commonly read so they don’t end up with dead stock. Nobody goes to K-mart in search of Nietzsche.
BTW, I think the convergence around the NYT bestsellers list is a done deal. Isn’t that why it gets on the bestsellers list…because that’s what everybody is reading?
Yes, yes, yes. Regulation is a barrier to entry. I think this is a given. It is one excellent example.
Yes, yes, yes. Regulation is a barrier to entry. I think this is a given. It is one excellent example.
And Russ says I’M the one that brings up the boring points!
I get the “regulation” response from both of you immediately. I think everyone commenting on Cafe Hayek is aware of this barrier to entry. I’m not sure how much more boring and pedestrian of a response I could think of than pointing out that regulation is an entry barrier.
And Russ says I’M the one that brings up the boring points!
I get the “regulation” response from both of you immediately. I think everyone commenting on Cafe Hayek is aware of this barrier to entry. I’m not sure how much more boring and pedestrian of a response I could think of than pointing out that regulation is an entry barrier.
Sorry, I had been on for a bit and methinks’ response had not been posted before I entered this area, otherwise, I would not have bothered to make the same point.
IAC, you might specify other barriers to entry, unless they are entirely theoretical.
Sorry, I had been on for a bit and methinks’ response had not been posted before I entered this area, otherwise, I would not have bothered to make the same point.
IAC, you might specify other barriers to entry, unless they are entirely theoretical.
I’m not sure how much more boring and pedestrian of a response I could think of than pointing out that regulation is an entry barrier.
Pointing out that there can only be competition in the absence of barriers to entry. As in…. “That’s assuming there aren’t major barriers to entry that allow for the maintenance of higher prices once monpoly status is maintained.” – DK
Glass houses and stones don’t mix, Danny.
I’m not sure how much more boring and pedestrian of a response I could think of than pointing out that regulation is an entry barrier.
Pointing out that there can only be competition in the absence of barriers to entry. As in…. “That’s assuming there aren’t major barriers to entry that allow for the maintenance of higher prices once monpoly status is maintained.” – DK
Glass houses and stones don’t mix, Danny.
Anti-trust law, laws against so-called predatory pricing, etc. are designed basically to protect producers not consumers. Consumers get screwed by these efforts as a general rule.
Anti-trust law, laws against so-called predatory pricing, etc. are designed basically to protect producers not consumers. Consumers get screwed by these efforts as a general rule.
Re: “what’s the barrier to entry?”
If you read my comments, I said I don’t think there is a significant barrier to entry in bookselling to speak of.
Re: “what’s the barrier to entry?”
If you read my comments, I said I don’t think there is a significant barrier to entry in bookselling to speak of.
RE: “How are big-box retailers hurting me in that case? ”
They aren’t – big-box retailers are a good thing.
RE: “How are big-box retailers hurting me in that case? ”
They aren’t – big-box retailers are a good thing.
You have nothing to apologize for, Sam. I guess I just hope you guys don’t think it’s a revelation or new information for me that regulations can do this.
You have nothing to apologize for, Sam. I guess I just hope you guys don’t think it’s a revelation or new information for me that regulations can do this.
As a Wal-Mart shopper myself, I can tell you your characterization of myself and my fellow shoppers is very out of touch.
Re: “Look, Dan, I see what you’re saying – tinged with elitism though it is – but, I’m not worried about it.”
I’m glad you don’t – as I said in my post, I don’t either.
As a Wal-Mart shopper myself, I can tell you your characterization of myself and my fellow shoppers is very out of touch.
Re: “Look, Dan, I see what you’re saying – tinged with elitism though it is – but, I’m not worried about it.”
I’m glad you don’t – as I said in my post, I don’t either.
And a good point on the NYT bestseller list
You think strategic pricing behavior is more obvious and pedestrian than the understanding that regulations burden business? Interesting. I’d have to disagree with you – I think understanding strategic pricing behavior is generally more difficult to pick up on, but different people find different things intuitive.
You think strategic pricing behavior is more obvious and pedestrian than the understanding that regulations burden business? Interesting. I’d have to disagree with you – I think understanding strategic pricing behavior is generally more difficult to pick up on, but different people find different things intuitive.
Hey, in fairness, I’m not the one out of touch. Unfortunately, I don’t have a Wal-Mart close by, but I would shop there if I did. Shopping there has the added benefit of annoying my pinko-commie friends and acquaintances who hate Wal-Mart more than Satan.
Fortunately, Whole Foods now pisses them off and I can delight even more in my continued patronage.
I shop at Wal Mart all the time, partially for the reasons Methinks does (pissing of my liberal friends), but more importantly for convenience. I love it when my anti-WalMart friends complain to me about me shopping there and I can say I’m keeping my Carbon Footprint lower because I don’t have to make multiple trips. Ha Ha, they know my feelings on the whole AGW debate so it kind of gets them in a bind.
Anyway, I agree that characterization is off base. There are a multitude of different kinds of people that shop there, all because of low prices. Prices have an uncanny effect of canceling out partisanship, except in some extreme cases. But most of the people I know that fear Wal Mart are young and have no money anyway, so it’s not like Wal Mart fears their wrath.
re: whole foods, did you see this the other night
http://www.thedailyshow.com/watch/tue-october-2…
I don’t get why people get so worked up over it – either the boycott or the buycott. Mackey had a great article, and three quarters of it was perfectly compatible with your generic liberal position on health reform. People just like getting worked up about something – liberals like their boycott and conservatives like their buycott.
Ummm….I think barriers to entry is very obvious. But, if it makes you feel better: you made a deeply, painfully even, insightful point by trotting out that econ 101 answer to a test question.
Dan, I’m kidding around with you, but the “strategic pricing behaviour” you describe seems at least as obvious. Plus, you should really come off your high horse about the “regulation” response. For a great many people, the fact that regulation is a barrier to entry is not at all obvious because regulation is sold as consumer protection. For people with some education in economics and a smidge of critical thinking ability, it’s obvious. However, your response begged for a response which included regulation. People often will take the completely manufactured regulatory barrier to entry at face value and not realize that such strategic pricing behaviour can most often pay off only courtesy of your friendly government.
I don’t think your fit over Sam’s post was justified.
I hope you’re not reading more rage into my posts than you should. Sometimes it’s hard to get tone over the internet. Honestly, it just seemed like your response and Sam’s response begged to be addressed too. We talk about regulation and the government every single day on this blog. It was kind of nice to read “Economists do it with models”‘s posts on strategic pricing behavior. That was a very refreshing, new discussion for this blog. It’s not just a matter of entry barriers preventing competition, as you say. It’s a matter of strategically pricing below marginal cost to push competitors out of the market with the knowledge that those losses will then be recouped behind high entry barriers. That sort of strategic decision making is not obvious to people who know that as a rule of thumb, low prices are good and markets are efficient.
That’s a good clip. Thanks.
I’ve always bought 99% of the family groceries at WF, so I haven’t changed my behaviour. I’m just delighted that yet another one of my behaviours can irritate a self-described pinko-commie. However, the tea party people aren’t conservatives. If you’ve ever spoken to a group of them, they pretty well cut across political lines and a great many of them who are Republicans identify more closely with libertarians.
I just posted that link to facebook.
Please don’t take this as piling on. An answer to you isn’t directed at only you. There is at least one person at this Cafe who does not understand the consequences of regulation.While few people are as stupid as Yasafi, some may be ignorant about this subject. Maybe Methinks’ or Sam’s response will educate someone who is only ignorant.
Brotio is exactly right. This is not a private conversation but a public comment section read by many people who never post a comment.
BTW, the high barriers to entry that prevent competition from returning must be new to work. Otherwise, pricing below marginal cost is not necessary because high barriers to entry would keep out competition in the first place.
I never figured it was private. I doubt any readers of Cafe Hayek come to these discussions without an understanding – if not complete agreement – of the argument. And it’s not a bad argument either. After all I agreed with both of you in both cases
Dan, I think it’s a mistake to assume that all readers have a basic understanding. YASAFI didn’t when he came and he still doesn’t. Granted, he’s an outlier.
However, the owners of the blog are university professors and the “buzz” might reach students and others who have zero background in economics.
Just a switch, we are used to see you commenting from the other side that’s all.
Just a switch, we are used to see you commenting from the other side that’s all.
Really? I don’t ever recall saying that regulation doesn’t impose costs.
Now – I certainly may have said that those costs are worth it because of other goals that a specific piece of regulation may achieve, but I don’t think I’ve ever been on the other side of the question of whether it imposes costs.
Really? I don’t ever recall saying that regulation doesn’t impose costs.
Now – I certainly may have said that those costs are worth it because of other goals that a specific piece of regulation may achieve, but I don’t think I’ve ever been on the other side of the question of whether it imposes costs.