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You misunderstood, I'm saying retail already does the thing where they buy someone else's product and resell it. The comment I responded to said that was illegal, which must be news to most Amazon sellers.
Also I mentioned elsewhere if you don't ha e the capital you just have to make the market is aware that the good is being undersold. The more undersold it it the better an investment it is to get it now. The less undersold it is, the less you are being pushed out as competition.
Turns out the optimal amount of underselling is at production cost which to me just sounds indistinguishable from competition. So we have people complaining that market competition doesn't work, and they point to market competition as their example.
You can do it in small quantities that aren't enough to cause a problem for the big company, so Amazon sellers don't disprove anything. You can't do it in large enough quantities that it makes a significant dent in the big company's ability to weaponize selling below cost.
How are you going to invest in it? You can't buy large quantities of the product under production cost because of the factors described above. And you can't invest in competitors because if the big company can keep this up long enough to drive competitors out of the market, investing in competitors won't gain you anything.
You keep seeing low price products as some kind of problem. They aren't. They are an opportunity to for individuals and others to profit off of that company's mistake.
I brought up playstations elsewhere. Sony was competing with Microsoft in the game console market. The Playstation ended up being sold way below production costs. It gave Sony some advantage in the market share in that market, and there were knock on benefits for them having more consoles out there so they were sorta willing to eat the loss.
But microsoft is in the computing industry in general. Sony ended up taking way more of a loss because the playstation could be converted into a computing platform, and it was way underpriced relative to its capabilities. Server farms started hilariously looking like rows and rows of popped open playstations sitting on racks.
You ask how I'm going to profit of some item being undersold. The answer is that it probably depends on the item. For some things this is simple. The penny costs more than a penny worth of metal to make. If it wasn't illegal people would probably be melting down pennies (they might be doing it anyways).
For some assembled items the answer is "break it down and reuse the most expensive parts".
For some items it might be "find new uses for it now that it is much cheaper". This happens in food markets commonly where you popularize new recipes to take advantage of cheap foods. McDonalds supposedly does this with the McRib, waiting until pork prices are low to sell it.
It is dangerous to be a company selling their product below production costs. Because people might start finding a way to exploit those resources. It doesn't have to be a competitor. If you are a competitor you have an extra incentive to help people find those ways to exploit the competitor's resources. There is obviously no evidence of it, but someone smart at microsoft could have easily figured out "Hey the playstation is selling computation for way under production costs, we know this because we know exactly how much computation costs. How about we go spread that news around in a bunch of trade magazines, or ask some newspapers to run stories about how people are using playstations for cheap server farms."
There is also often this built in assumption among anti-market perspectives that the competitor trying to enter the market will always have to be some poor wily entrepreneur. This is often not the case. Its usually massive corporations expanding into another area. The Sony/Microsoft with Playstation/Xbox is a good example. WalMart's main competitor is Amazon. Apple competes heavily with Google/android in the smartphone market. Pepsi vs Coke. Etc etc.
Answer me this: what should a large company with an advantage in slightly cheaper production do? Because to me it seems like anti-market people will be unhappy no matter what. If they leave the price the same, then they get called greedy for not lowering their prices when they can afford to and charging way more than the product cost to make. If they do lower their prices they get accused of predatory pricing. If they ironically raise their prices, then they go out of business, and are replaced by smarter people that have to pick between one of the other two options (or if they successfully raise their prices, then people accuse them of successfully executing the predatory pricing strategy).
Ultimately the correct answer seems to be "invest in politicians so you don't get fucked over in Washington by one of your competitors sending a which hunt after you". Which is why I have a problem with centralized regulatory bureaucracy.
Low price products aren't a problem if they stay that way. They are a problem if the company raises the price once they've driven competitors out of market and relies on entry costs to keep others from entering the market again. The company can also use lowering the price as a threat: if anyone tried to enter the market they'll lower the price and make them go broke. As long as it's a valid threat, they don't have to do it very often and many companies will refuse to enter the market because of the threat without costing the big company anything.
If you precommit to doing something that harms both you and your target, you may get your target to act as you wish and not have to follow through on your precommitment very often.
They can lower their prices but to an amount that's still greater than the cost of production. Then it isn't predatory pricing.
This is like playing a game of chicken. And the strategy of a pre-commit is great against a singular opponent. But below production cost pricing is like driving on the wrong side of the road. Yes people will swerve to avoid hitting you, doesn't mean everyone will see you or swerve fast enough. And now you've just dumbly pre-committed yourself to crashing against someone that doesn't see you there. Meanwhile the more aware competitors will wait for your crash to come in.
There are just so many ways "predatory pricing" can go wrong and blow up in the face of the company doing it. History is littered with companies that took market advice from socialists and wound up in the dustbin. Its a very risky strategy with a high cost and a potentially low payoff.
In actual markets this is the mechanism that matters, but it matters more in reverse. You'll have something like two companies producing paper products. They can easily retool to start producing the other type of paper product, but they don't because the other company is already selling that paper product cheaply. If one company ever jacks up its price, its easy for the second company to switch into the market and start selling at a profit.
Basically entry into a market is sometimes cheap and easy for certain companies.
I could go through things like this all day. It seems pointless. For predatory pricing to work it requires a perfect set of market conditions to exist. And those conditions might not even exist for very long. As soon as the conditions stop existing you might be fucked if you went the predatory pricing strategy. The proof is that it just doesn't happen very often. Companies certainly get prosecuted for it, but many of those are political witch hunts.
Except that is basically exactly what Standard Oil did and what WalMart does and they are the two go to examples of "predatory pricing".
Yes, it is. But there are two factors. The first is that it's a game of chicken. The second is that if the company does drive someone out of business, there are entry costs for someone else to enter the business again. Yes, sometimes entry into a market is cheap, but sometimes is not always.
Also, as sliders points out above, some products have high initial costs but low marginal costs and the company can use predatory pricing indefinitely since they already had all the loss up front.
You make me a liar, fine, I'll go through the circumstances. These are some of the things that make predatory pricing possible:
The factors that make predatory pricing possible are almost all contradictory. For it to be possible also makes it unlikely.
This conversation has gone down too many sublevels, and I feel that I have said all that needs to be said on the topic. I'm done with it. I'll read any response you have on this topic but I won't be responding anymore.
The demand doesn't really have to be elastic. It has to be elastic to the point that after the public buys all the lower priced versions from the big company, they'll still buy the regular priced versions from its competitors. That is, it has to be elastic at the margin where the remaining products are regular priced. If it was elastic like that, the regular market without predatory pricing would also have been elastic, which is unlikely since it would have expanded until it no longer was.
As for your point about storage, most people don't behave like homo economicus and won't stock up like that. And to the extent that they do, it not only makes it harder for the big company to sell at high prices, it also makes it harder for lower priced competitors to enter the market again, so it works in both directions, not just against the big company.
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