Hacker News Reader

Comment by api | Hacker News Reader

In raw materials and manufacturing this is called "dumping" and is often illegal because it can have absolutely disastrous effects on supply chains. A well financed competitor can sell something below cost, crush all its competition, and then raise prices to whatever it pleases.

View on HN

Just to expand on this, it's the sort of thing that sounds like it shouldn't work, because the competition can just wait you out and raise prices down the road too. But it can, because relative advantage is stateful and path-dependent. If you lay off skilled workers, cancel contracts, close factories, lose customer mindshare, and so on, that damage can be very hard to reverse even when favourable conditions eventually reappear.

What allows this tactic to work is the size asymmetry between very large companies and smaller companies. It is much less effective against similarly sized companies. Very large companies have much more buffer (reserves of capital, talent, etc.) to draw from. The very large company can absorb layoffs, cancelations, closures, and mindshare losses longer than a much smaller and very likely leaner company can.

Defining what does and does not constitute predatory behavior is difficult to define clearly and concisely.

One potential mitigation, given the above, would be to routinely break up companies above a certain size. To make it perfectly typical, ordinary, and automatic to do so. To shift the burden of proof from the government needing to establish monopoly status to the giant company needing to demonstrate that the consumer benefits due to economies of scale derived from its size outweigh the negative externalities due to its size and subsequent disproportionate power and influence.

Economies of scale leading to lower consumer prices are a positive good. The negative externalities of huge companies due to their size and outsized power and influence aren't given as much consideration as they are less quantifiable, but they are real and should be taken into account.

Forcing companies to break up can have the unintentional effect of creating cartels where the previously joined companies of similar size work together to push out smaller companies with price fixing. If there is only so much business to be done and there's no realistic way for you to cover a majority of the industry, you can make more money pushing out any of the competition that won't keep prices fixed.

You’ve just described why I am so cynical about the magic of free market competition. Often, the competition has absolutely nothing to do with the price, features, and quality of the product being offered. It’s competition on the business side of things that artificially removes a better competitor from the market because they couldn’t keep their supplier contracts locked in.

Yeah, it feels like this should be illegal when done to expand into new markets by a profitable business.

Framing the law would be tricky though, as one doesn't want to criminalise high-growth (read: VC-funded) startups.

How are VC-funded startups different from "expand into new markets by a profitable business" ?

Because a startup isn't profitable often for years even while in growth before it hits the inflection point.

Taking this ability away without being careful means you'll likely further entrench incumbents at the expense of those new companies.

I think marginal unit costs should not be allowed to be higher than the sale price in general, with maybe some exception (liquidation of existing stock with no further production or explicit temporary promotions).

For example a company like Uber should not be allowed to sell rides for less than what they pay the driver for the ride.

I agree with you in principle, but framing the law would be tricky.

I think it is the case in some European countries like France.

It's not. VC is often a cut out for institutional investors who are also major shareholders in BigTech or are literally BigTech itself.

These kinds of laws are fundamentally political in nature, as there is no real 'neutral' ground.

We should be careful with definitions here.

Dumping, in the context of international trade, is very specifically a price discrimination rather than just an absolute price concept: it's where you export for cheaper than you sell domestically.

But it's also not just exchange rate. Other things come into consideration like local cost difference, PPP and so on. You can't expect a coke to cost the same (relative to USD) in the US as in Azerbaijan for example.

> and then raise prices to whatever it pleases.

I know that there is lots of theory on this, but has any company really ever gotten to this point?

Depends a bit on your definitions, but Google did it with Photos.

Google Maps started charging developers once it was the dominant digital map, the fees killed MapFrappe: http://mapfrappe.com/

In the tech space, or outside?

Trade wars between nations happen all the time because of dumping. Timber, aluminum, soybeans, and all kinds of other commodities.

Tech companies have largely gotten a pass on normal business practices and codes of conduct this century because they're shiny and new. But as the industry ages, it will have to learn to work within the boundaries or ordinary civilization.

Why would a company with 90% market share crush it's own profit margins to drive a 10% competitor out of the market? They'd be losing $9 for every $1 they took from the little guy.

Do you have any contemporary examples of this happening?

Seems like something that would be really easy to take advantage of by buying the material sold cheap and selling it later at a profit.

There are numerous allegations from different countries claiming that another country is dumping some product on the market.

The one I can find most recently is: https://www.bloomberg.com/news/articles/2021-06-24/china-sue...

> China filed a lawsuit at the World Trade Organization over Australian anti-dumping and anti-subsidy measures on Chinese exports of railway wheels, wind towers and stainless steel sinks, the Ministry of Commerce said Thursday in Beijing. This would be the third recent WTO case between the two countries, after Australia sued over Chinese tariffs on wine and barley.

Prior to that (three weeks ago), it was China dumping steel alleged by Japan.

Here’s one - China flooded the global market with cheap solar panels that undercut everyone else in an effort funded by the govt. It made building massive solar projects cheaper but it decimated the domestic solar production around the globe because they couldn’t compete.

Except... that's just the first part. Where's the second part where they "do whatever they want" (I assume this meant raise prices)? Even after winning, they haven't done this. Why?

The goals of a nation-state are not the same as those of a corporation. Having a monopoly on a strategically important industry is valuable in and of itself, especially when viewed from a geopolitical perspective. Just look at what's currently going on in semiconductors.

I know EU deals with anti-dumping[1]. As of 2019 there were anti-dumping measures for 67 products from 10 countries as mentioned in the annex of the annual TDI report[2].

In section 3.1.4 of the annex, they go into some detail regarding a dumping claim on electric bicycles from China.

[1]: https://ec.europa.eu/trade/policy/accessing-markets/trade-de...

[2]: https://trade.ec.europa.eu/doclib/html/157811.htm

China did this with Rare Earth Minerals, and put most other mines out of business:

https://www.energy.gov/sites/prod/files/2020/04/f73/Critical...

Doesn't Walmart do something similar when they open a store in a new area?

You don't necessarily have to engage in predatory pricing if you can sell in such volume that you can get better prices than a mom and pop as well as offering a one stop shop for most consumers. You don't even need to raise prices once the competition is gone simply because you are already making a decent profit.

I thought walmart just had lower prices, period, rather than having lower prices when they enter and then jacking them up.

Walmart is the original modern big company to do exactly this. And now they're now seen as the "good guy" when compared to Amazon. Ain't life funny?

Walmart was repeatedly found guilty of predatory pricing, along with entering consent decrees to forbid predatory pricing throughout the 1990s.

Arkansas https://www.washingtonpost.com/archive/business/1993/10/13/w...

Wisconsin https://ilsr.org/walmart-settles-predatory-pricing-charge/

Reply on news.ycombinator.com