Predatory Pricing: Any Price That's Better Than Mine
from the it-used-to-be-called-competitive-pricing dept
Amidst the endless discussion about Google Checkout, some are trotting out predatory pricing accusations because the company is willing to take a loss on each transaction in order to drive advertising sales. But does this qualify as predatory, or is this the standard definition of a loss leader? Is the iTunes music store predatory because it runs at a loss with the goal of fueling iPod sales? Are Linux distros predatory because they offer free software in hopes of collecting service revenue later on? What about news sites giving free access so they can sell ads? Unfortunately, there's no good definition of predatory pricing, or a bright line separating it from normal competitive pricing. There's nothing intrinsically nefarious about wanting to price the competition out of business. What people are concerned about is the hypothetical case in which a company drives the competition out of business, and then raises prices dramatically. But this is rare, and assumes that new entrants couldn't then enter the space. As in the case of similar complaints against Microsoft, the solution is to compete aggressively with the predator by out innovating, which is how monopolists are eventually brought down.
Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.
Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.
While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.
–The Techdirt Team
Reader Comments
Subscribe: RSS
View by: Time | Thread
Not as easy as it sounds...
Competition doesnt get much more aggressive than intentionally taking a loss on your product in hopes that your comptetition will go broke before you.
And bear in mind that monopolists are not trying to reshape the very laws that at least gave the competition a leg to stand on.
[ link to this | view in chronology ]
Re: Not as easy as it sounds...
[ link to this | view in chronology ]
[ link to this | view in chronology ]
Well said!
[ link to this | view in chronology ]
Re: Well said!
[ link to this | view in chronology ]
Re: Well said!
[ link to this | view in chronology ]
You're missing the point
[ link to this | view in chronology ]
Re: Well said!
[ link to this | view in chronology ]
Paypal can do it too.
Make it dirt cheap to move more stuff on ebay, and make more sites accept paypal. They can't just complain "Google is doing something we arn't willing to do! we are expected to cut profits to promote our position? It's not fair!"
Stop whining and play the game, you are not the little guy either.
[ link to this | view in chronology ]
Not that rare
That type of business is not that rare. In a way that's what ebay did with paypal. They bought paypal and kept the prices low while there was competition. Once there was no more competition, Ebay significantly raised the price. The only difference is that ebay bought most of paypal's competitors, rather than driving them out of business.
Another example of this is Walmart. They will move into a small town, and have a bunch of "opening" sales that will last a few months. A few months is all it takes to put most of your small shops out of business. Once that is done, Walmart "ends" the sales and returns their prices to normal. The only thing they don't do, is jack the prices up to higher than normal levels.
[ link to this | view in chronology ]
So close.
[ link to this | view in chronology ]
Re: So close.
Um. What "jab" at Microsoft?
[ link to this | view in chronology ]
RE PRedatory Pricing
Predatory pricing, like price fixing, eventually harms the consumers. Examples are ealily found in the Wall Street Jounal archives.
[ link to this | view in chronology ]
I agree
But, what most of us are forgetting is that Google is also a WEB SEARCH engine and portal and by increasing its visibility and advertisementby so called predatory pricing does introduce an even more difficult and higher barrier to entry for new e-bay or paypal type sites. (since most sites marketing is heavily dependent on search engines).
This can be observed as a somewhat anti-trust type behavior. Just like microsoft throwing IE for free in their OS in which killed Netscape. Keep in mind, I did not disagree with Microsoft, if you are a programmer, you too will realize the wonders that they have done for integrating the browser within the OS should you use html embedded COM objects.
Anyways, in the end, good does come out of all of this for you the consumer. Google will always have competitors as the search engine business is different from on OS. (The products and results of a search engine comply and follow an international standard (arguably, we all know how well CSS performs on differing browsers (joke btw) ) verses an OS is strictly guided by its API even though the language might be a standard.
[ link to this | view in chronology ]
If it's that easy, why isn't there a viable alternative to Windows? I mean a completely functional OS that does 99% of what Windows does?
It's not easy going up against the big gorilla when predatory pricing is practiced. MS is one of the biggest offenders.
[ link to this | view in chronology ]
RE: to Dam
[ link to this | view in chronology ]
[ link to this | view in chronology ]
Econ 101
Here is your definition here:
Predatory pricing is the practice of a dominant firm selling a product at a loss in order to drive some or all competitors out of the market, or create a barrier to entry into the market for potential new competitors. The other firms must lower their prices in order to compete with the predatory pricer, which causes them to lose money, eventually driving them from the market. The predatory pricer then has fewer competitors or even a monopoly, allowing it to raise prices above what the market would otherwise bear.
The examples you give of alleged predatory pricing are lame at best. I think you need to take an econ 101 course before you wrie or speak about predatory pricing.
[ link to this | view in chronology ]
One more definition
No, it is not:
In marketing, a loss leader is an item that is sold below cost in an effort to stimulate other profitable sales. It is a kind of sales promotion. There are several varieties of this profitable technique.
[ link to this | view in chronology ]
Unethical v. Illegal
When you use phrases like "intrinsically nefarious," you are treading into the ethics arena. Ethics, however, are subjective on an individual level. While it may well be your opinion that what Google is doing is ethical, it certainly is not mine.
You would make a much better point if you stick with the legality of it. (BTW, has there been any legal action taken? I haven't seen.)
[ link to this | view in chronology ]
Re: Unethical v. Illegal
[ link to this | view in chronology ]
missing the bigger issue
Symantec and the like have taken advantage of the fact that MS didn't see this coming. Well, now they know better and if MS does it right, there will be no reason for someone operating a Windows system to use a Symantec product. So Symatec cries "predatory pricing!"
[ link to this | view in chronology ]
Let's give this some time
[ link to this | view in chronology ]
Innovation is what drives the market. Microsoft and Google will need to continue to innovate or someday they will be replaced, just as the buggywhip and ice block manufacturers were by the automobile and refrigerator.
[ link to this | view in chronology ]
walmart sucks
[ link to this | view in chronology ]
Loyalty
Sometimes a company will sell at a loss to increase loyalty. You may lose money on a sale to a new customer that will lead to more sales to the same customer down the road that will be profitable.
[ link to this | view in chronology ]