Overstock to Amazon: "If they go to 10 cents, I'll go to 9 cents"

[HarryT]

Originally Posted by K. Molen

This scenario is often being used to illustrate why Amazon and others like them are bad, but has this ever happened? I'm genuinely curious, as I can't think of a time or a company that's done what's being described here.

Do a Google Search for "Standard Oil". This is precisely what they did (and is the way that Mr Rockerfeller made his zillions). It was the actions of Standard Oil that led to the introduction of anti-trust laws.

[speakingtohe]

Originally Posted by leebase

It goes like this. You have a product you price at $30...and wholesale at $15...expecting the retailers to sell at $25. All is good. The customers know that the $30 retail price is never the one they pay and expect to pay approx $25 give or take a bit.

Retailer A decides to buy marketshare by pricing the book at $10 taking a bath on each book sold but they do so to drive the competition out of business. Or perhaps they have other merchandize they are making money on and losing money on books is made up on profits selling shampoo.

Why do the Publishers care? Are they not getting their $15 either way? Well, what happens when Company A runs Company B, C, and D out of business such that the Publishers becomes dependent on the only Company A to sell it's products?

What happens now that consumers are trained to expect brand new hard backs to come out for only $10. They become unwilling to pay the $25 they used to be willing to pay.

Then Company A, now that the competition is out of business...goes back to the publishers and says "we are no longer willing to pay a wholesale price of $15....but $7 for books".

The publisher can't just say "no" because the publishers other retailers are out of business....and it's customers have stopped being willing to pay $25.

Lee

As HarryT said there are Antitrust laws and of course public opinion. But failing those I there are other options that publishers can pursue.

A big name publisher could set up there own store if they haven't already and match their prices. If they have to sell for $10 and get only $7, why not sell for $7-9. Sell individual copies only and make the undercutter buy from their site one copy at a time.

I am not saying that retailers will not try to cut out competition with loss leaders etc. but not unique to 'Company A'

Publishers have already demonstrated that they have power, they just chose a poor way to exercise it and got caught. Bet they enjoyed the ride while iit lsted though.

And many small companies have chosen to pull some or all of their products without noticeable harm from 'Company A'.

My opinion is that the reason people sell through 'Company A' is that they make more money, but if small wholesalers/retailers can stop at their wish, so can the bigger publishers at least.

Helen

[SteveEisenberg]

Originally Posted by K. Molen

I'm genuinely curious, as I can't think of a time or a company that's done what's being described here.

http://www.fastcompany.com/47593/wal-mart-you-dont-know

Wal-Mart priced it at $2.97--a year's supply of pickles for less than $3! "They were using it as a 'statement' item," . . .

Therein lies the basic conundrum of doing business with the world's largest retailer. By selling a gallon of kosher dills for less than most grocers sell a quart, Wal-Mart may have provided a service for its customers. But what did it do for Vlasic? The pickle maker had spent decades convincing customers that they should pay a premium for its brand. Now Wal-Mart was practically giving them away. And the fevered buying spree that resulted distorted every aspect of Vlasic's operations, from farm field to factory to financial statement.

[leebase]

Originally Posted by speakingtohe

My opinion is that the reason people sell through 'Company A' is that they make more money, but if small wholesalers/retailers can stop at their wish, so can the bigger publishers at least.

You've asked for why. I've given you the explanation. That is indeed WHY the publishers are not happy about having their product sold so cheaply even if they get the full wholesale value.

I'll leave it as an exercise for you to come to an understanding that predatory pricing is indeed something that both producers and consumers should beware of.

[Fbone]

Originally Posted by K. Molen

This scenario is often being used to illustrate why Amazon and others like them are bad, but has this ever happened? I'm genuinely curious, as I can't think of a time or a company that's done what's being described here.

Walmart does this. I saw a report on how they do it. Basically, they tell the vendor that they will no longer sell their product unless they lower the wholesale price. The vendor can't afford to lose their largest account so they lower the prices often by closing their US factories and moving production to Asia. I'm sure other retailers do the same.

[tubemonkey]

Originally Posted by Fbone

The vendor can't afford to lose their largest account so they lower the prices often by closing their US factories and moving production to Asia. I'm sure other retailers do the same.

Then there are US companies who go straight to Asia for production from day one.

[HansTWN]

Originally Posted by Fbone

Walmart does this. I saw a report on how they do it. Basically, they tell the vendor that they will no longer sell their product unless they lower the wholesale price. The vendor can't afford to lose their largest account so they lower the prices often by closing their US factories and moving production to Asia. I'm sure other retailers do the same.

Consumers are not willing to pay more for "Made in the US". The US has fewer than 400 million people and how many would like to work on an assembly line? Components are being made in Asia already -- by Asian manufacturers. Manufacturers don't have any choice but to locate their factories elsewhere. Besides, what is wrong with lifting 3rd world countries out of poverty through investments? Many American companies don't want the hassle of manufacturing and rather outsource.

[speakingtohe]

Originally Posted by leebase

You've asked for why. I've given you the explanation. That is indeed WHY the publishers are not happy about having their product sold so cheaply even if they get the full wholesale value.

I'll leave it as an exercise for you to come to an understanding that predatory pricing is indeed something that both producers and consumers should beware of.

Pretty sure I did not ask why, I said I didn't understand why. And I was aware, as most people are, that these practices have been used in the past, and that they are now illegal in the scope you are speaking of so unlikely to happen.

And I am aware as I said that some people have pulled their products from Company A when they want to sell them themselves from their own site, and my wondering was directed specifically towards publishers who did not directly sell their product themselves.

So given the extreme unlikelihood that Company A could get away with the scenario you suggest and that publishers could easily pull their products from Company A's shelf an sell them for what you wish, I don't think your answered what I may wondering.

Helen

[Kumabjorn]

Don't know enough, but bring a curious person I wonder if the described practice wasn't conducted by Procter & Gamble?

[rhadin]

Originally Posted by K. Molen

This scenario is often being used to illustrate why Amazon and others like them are bad, but has this ever happened? I'm genuinely curious, as I can't think of a time or a company that's done what's being described here.

It was what was happening in the mainframe market when the U.S. government stepped in and forced IBM to stop following that scenario.

It is what happened in long distance telephony (and then local telephony) in the U.S. until the government forced the breakup of the original AT&T (not the AT&T of today).

It was what was happening in the Microsoft case regarding browsers, which resulted in government action in an attempt to make the browser field more competitive.

Yes, it has happened, albeit not frequently in recent years. Of course, it was much more rampant before the institution of antitrust laws, and was a major reason for the original antitrust legislation.

IBM, AT&T, and others all defended on the premise that new competitors would arise to challenge their supremacy. The argument wasn't bought because of (a) the cost to create a new business from scratch that would be marginally competitive was overwhelming and (b) left unregulated, the existing businesses could lower their prices sufficiently to make any new attempt stillborn.

[rhadin]

Originally Posted by speakingtohe

So given the extreme unlikelihood that Company A could get away with the scenario you suggest and that publishers could easily pull their products from Company A's shelf an sell them for what you wish, I don't think your answered what I may wondering.

It is not so easy to pull from Company A and sell yourself. Company A's focus is on retail distribution, whereas publishers have focused on wholesale distribution. Publishers, with a few exceptions like Baen, do not have the capability to reach the retail marketplace with anything even close to the penetration of Company A whose whole focus has been on retail market penetration.

Should publishers pull all of their product from company A and try to establish a retail model, it would take years of effort and billions of dollars. It could not be done within a few months.

[fjtorres]

Originally Posted by Kumabjorn

Don't know enough, but bring a curious person I wonder if the described practice wasn't conducted by Procter & Gamble?

I'm not sure but I don't think so.
Proctor and Gamble was caught, however, conspiring to fix prices within the EU, along with Unilever and others.

Price fixing conspiracies against consumers are a lot more common and easier to engage in.

[K. Molen]

Originally Posted by K. Molen

This scenario is often being used to illustrate why Amazon and others like them are bad, but has this ever happened? I'm genuinely curious, as I can't think of a time or a company that's done what's being described here.

Thanks to everyone who answered my question. I'm not sure I agree with all of the examples as being applicable to Amazon, but some of them certainly are, so today I learned something new.

[pl001]

Originally Posted by HansTWN

Consumers are not willing to pay more for "Made in the US". The US has fewer than 400 million people and how many would like to work on an assembly line? Components are being made in Asia already -- by Asian manufacturers. Manufacturers don't have any choice but to locate their factories elsewhere. Besides, what is wrong with lifting 3rd world countries out of poverty through investments? Many American companies don't want the hassle of manufacturing and rather outsource.

US consumers will actually pay more for products made in the US. Just a couple months ago I was pleasantly surprised to see many US-made options when shopping for carseats. I didn't see that a couple years ago. And companies like Edelbrock and Weathertech proudly advertise the fact they still manufacture in the US and are able to charge a premium because of it. I expect a big campaign when Motorola starts selling the US-assembled X-Phone.

And if you can't see what's wrong with taking jobs that used to be able to support a family and shipping them overseas to factories paying slave labor rates in countries with long records of human rights abuses, well, that should have been obvious.

What frustrates me the most is how difficult it has become to even find quality products anymore. Everything is turning into disposable junk. Often, very expensive disposable junk.

[frahse]

I can see the title of the book and the subsequent TV series.
I may drop everything and dash off a screen script.

"The evil Price Reducers!"