Trade War

And finance Allah Shmoop What is predatory pricing Let's pricing

below cost Hoping to drive your competition out of business

like you're the Predator you're willing to get sliced and

kicked and punched a bit knowing full well that the

sweet sweet juice of penguin du jour will be all

the sweeter when it's being you know guzzled well Why

or at least how does this work Well think about

the greatest retailer in the world the pre Amazon It

was this soon to be little company called Walmart which

is now dying in largely the same way it killed

the small mom and pop store Well for fifteen years

Amazon had no profits literally none It's sold product at

a loss and made up for the losses by selling

customer data selling ad space selling other information technology services

on its Web network and so on It did not

make money from selling books Well technically Amazon used predatory

pricing kind of sort of to take most of the

retail dollar in the country Well why was Amazon not

called out for the quote Felony unquote This represents well

because it was beating up on Big Seamus including Wal

Mart So like how would the dinosaur government come down

on this little Sora pod for beating up on this

huge T Rex Yeah it didn't make sense Well until

the store a pod became big enough to just stop

on the T Rex or uh you know do this

but spin the clock back to the nineteen thirties Yeah

that's the American landscape actin which was dotted with tens

of thousands of small stores like this one the country

store They had maybe a thousand different items crammed into

the small building The owner bought them from a sub

distributor fifty miles away and had things delivered by post

or by rail every week and bought like eight sets

of gloves at a time Then along came Wal Mart

with its megastore system where one store covered acres place

just in between eight small towns It was enough volume

available to buy tow warrant visitors driving in there You

know crappy cars in the forties and fifties to spend

all day shopping the four hundred thousand stock keeping units

or skews our escape use that a typical Wal Mart

store had And because WalMart ordered gloves in bundles of

ten thousand units from the manufacturer will the pricing it

could command was half or less of what the small

mom and pop store owner could buy them for And

in fact Walmart often retailed items for a price less

than what the mom and pop store could even buy

them for Like there'd be no profit for Mom and

or Pop So the mom and pop stores were all

driven out of business And ironically it's the same way

that Barnes and Noble and Borders and the others drove

out small book stores You know Mom and pop bookstores

before Amazon then destroyed Barnes and Noble and Borders and

the other was all this predatory like Did WalMart actively

seek to bankrupt the mom and pop stores so they

could well own a kind of monopoly which would then

in theory be able to raise prices forever with impunity

There may be Prove it Good luck in court of

law You gotta prove that it was accused of predatory

pricing anyway as family business after family business clothes and

a lot of arm waving in Nina Nina Ring and

the public read stories tearfully written by journalists who were

employees of large media companies about how terrible it wass

You know this family in that family who'd run their

store for one hundred fifty years now had to close

because Walmart ate their lunch Did the public stop shopping

at Wal Mart and then return to the much higher

priced much lower value mom and pop store products in

order to really show those evil predator people at Wal

Mart a thing or two about how American culture works

in supporting the little guy The underdog the downtrodden No

America is a capitalist country We vote with our dollars

So when predatory pricing activity happens it's kind of a

double edged sword For a short period of time Consumers

benefit by having amazing value given to them prices at

such low levels sponsored by the company dumping them and

having losses to essentially by market share for themselves in

the future But then what All the competitors were driven

out of business Well then in theory the seller has

a monopoly like WalMart kind of did at least locally

for a long time The consumer then pays handsomely for

everything with little or no alternate buying options But in

practice that almost never happens because competitors aire lurking behind

rocks pretty much everywhere And this type of activity happens

all the time in technology A given country wants to

own say mobile semiconductor manufacturing ability For the next decade

their factory costs five billion dollars there Country makes the

country's banking system is backing them with insanely cheap debt

as that factory puts toe work hundreds of thousands of

that country's local workers So that country then sells chips

for eleven cents each or at least per unit Or

however you want to do the math when it cost

that country fourteen cents to make him And the big

existing makers can't produce them for less than eighteen cents

a unit Well after a while those pennies add up

and there's just one ship maker who can then sell

their wares for thirty cents a unit and more than

make up for those predatory pricing Three sent a unit

losses they suffered in the beginning That's the theory anyway

for how predatory pricing works for how it should work

At least if you're a predator and if that makes

you happy well then you should clap your hands or 00:05:31.838 --> [endTime] try to anyway