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

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below cost Hoping to drive your competition out of business

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

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kicked and punched a bit knowing full well that the

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sweet sweet juice of penguin du jour will be all

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

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or at least how does this work Well think about

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the greatest retailer in the world the pre Amazon It

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was this soon to be little company called Walmart which

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is now dying in largely the same way it killed

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the small mom and pop store Well for fifteen years

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

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a loss and made up for the losses by selling

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customer data selling ad space selling other information technology services

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on its Web network and so on It did not

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make money from selling books Well technically Amazon used predatory

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pricing kind of sort of to take most of the

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retail dollar in the country Well why was Amazon not

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called out for the quote Felony unquote This represents well

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because it was beating up on Big Seamus including Wal

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Mart So like how would the dinosaur government come down

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on this little Sora pod for beating up on this

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

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the store a pod became big enough to just stop

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on the T Rex or uh you know do this

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but spin the clock back to the nineteen thirties Yeah

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

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of thousands of small stores like this one the country

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store They had maybe a thousand different items crammed into

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the small building The owner bought them from a sub

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distributor fifty miles away and had things delivered by post

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or by rail every week and bought like eight sets

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of gloves at a time Then along came Wal Mart

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with its megastore system where one store covered acres place

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just in between eight small towns It was enough volume

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available to buy tow warrant visitors driving in there You

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know crappy cars in the forties and fifties to spend

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all day shopping the four hundred thousand stock keeping units

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or skews our escape use that a typical Wal Mart

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store had And because WalMart ordered gloves in bundles of

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ten thousand units from the manufacturer will the pricing it

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could command was half or less of what the small

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mom and pop store owner could buy them for And

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in fact Walmart often retailed items for a price less

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than what the mom and pop store could even buy

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

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or Pop So the mom and pop stores were all

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

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that Barnes and Noble and Borders and the others drove

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out small book stores You know Mom and pop bookstores

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before Amazon then destroyed Barnes and Noble and Borders and

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the other was all this predatory like Did WalMart actively

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seek to bankrupt the mom and pop stores so they

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could well own a kind of monopoly which would then

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in theory be able to raise prices forever with impunity

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There may be Prove it Good luck in court of

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law You gotta prove that it was accused of predatory

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pricing anyway as family business after family business clothes and

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a lot of arm waving in Nina Nina Ring and

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the public read stories tearfully written by journalists who were

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employees of large media companies about how terrible it wass

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

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store for one hundred fifty years now had to close

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because Walmart ate their lunch Did the public stop shopping

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at Wal Mart and then return to the much higher

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priced much lower value mom and pop store products in

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order to really show those evil predator people at Wal

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Mart a thing or two about how American culture works

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in supporting the little guy The underdog the downtrodden No

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America is a capitalist country We vote with our dollars

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

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double edged sword For a short period of time Consumers

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benefit by having amazing value given to them prices at

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such low levels sponsored by the company dumping them and

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having losses to essentially by market share for themselves in

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the future But then what All the competitors were driven

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out of business Well then in theory the seller has

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a monopoly like WalMart kind of did at least locally

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for a long time The consumer then pays handsomely for

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everything with little or no alternate buying options But in

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practice that almost never happens because competitors aire lurking behind

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rocks pretty much everywhere And this type of activity happens

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all the time in technology A given country wants to

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own say mobile semiconductor manufacturing ability For the next decade

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their factory costs five billion dollars there Country makes the

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

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as that factory puts toe work hundreds of thousands of

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

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for eleven cents each or at least per unit Or

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however you want to do the math when it cost

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that country fourteen cents to make him And the big

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

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a unit Well after a while those pennies add up

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

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their wares for thirty cents a unit and more than

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make up for those predatory pricing Three sent a unit

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

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for how predatory pricing works for how it should work

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

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

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