[Jka9rhnDJos]

It’s called predatory pricing. Pricing products to eliminate competition is illegal.

If you sell Widgets and Sprockets, but you have a competitor that only sells Widgets, you can price of your Widgets so low (on 1-2% margins, for example) that the competitor is unable to compete and goes out of business because you can use Sprocket sales to keep your company in business during that time.

Now that the other company is out of business, the price of your Widgets doesn’t matter because you no longer have competition in the market. You’re getting 100% of the potential sales and despite selling on a lower margin, you’re sales volume is now way up making those margins acceptable.

You don’t have to worry about making a better Widget, or improving the Widget making process, because you have no competition. And you’ve priced yours so low, no other company can come in and attempt to enter the market because they can’t compete at your volume and margins.

If there’s a high-demand material needed to make a Widget, you can put pressure on the producer to lower material prices since you are now their primary customer, or purchase the company that produces it and prevent access to the material.

Predatory pricing consolidates market control and can be used to prevent access to the market. Anti-trust laws were designed to prevent this.

[username332211]

> Now that the other company is out of business, the price of your Widgets doesn’t matter because you no longer have competition in the market. You’re getting 100% of the potential sales and despite selling on a lower margin, you’re sales volume is now way up making those margins acceptable.

Please don't re-define words. This is not what's normally called predatory pricing. Predatory pricing is supposed to involve a corporation raising prices after destroying it's competition. The thing you are describing is nothing more than having a low margin strategy.

Is every dropshipper undermining brand-name (high-margin) apparel?

[withinboredom]

> Predatory pricing is supposed to involve a corporation raising prices after destroying it's competition.

Why would you raise prices after? That would just invite competition again. Keep the prices low and competitors away. Maybe raise them to at-cost, but if your Widgets can comfortably cover the cost, then there is no reason to raise prices.

[username332211]

> Why would you raise prices after? That would just invite competition again. Keep the prices low and competitors away.

The assumption of predatory pricing is that it's not easy for a competitor to just show up. Supply chains would be destroyed, capital equipment scrapped, etc and replacing them would be time consuming and expensive.

Sometimes that's a reasonable assumption to make, sometimes it's not. Even if the assumptions are unreasonable, many CEOs won't let mere reason stand in their way.

> Maybe raise them to at-cost, but if your Widgets can comfortably cover the cost, then there is no reason to raise prices.

So, the Widget-making capital would just sit there producing 0 ROI? Someone's gonna object to that. A company pursues market dominance to make money.

[withinboredom]

Haha. That’s a short-sighted strategy if I ever heard it. Why would you play a long-game like this to play a dumb short-game at the end? No, what you do is make it so you can no longer buy “just Widgets” you can still get your cheap Widgets through us, but you can only get them buy buying a Sprocket & Widget bundle. We are so sure you’ll love our Sprockets too!

Nobody can compete with you on the price and it is clear you can unbundle your Widgets from your Sprockets at any time if you ever feel threatened.

[keep_reading]

> Is every dropshipper undermining brand-name (high-margin) apparel?

I don't like this analogy because you're not comparing items of equal quality. They're not fungible.

[username332211]

Perhaps I've let my feeling of decline of quality in brand-name apparel color my argument. Sorry.

[paulddraper]

> Predatory pricing is supposed to involve a corporation raising prices after destroying it's competition.

That is not necessary for the definition of predatory pricing.