Tuesday, December 13, 2011


Let's see.

I was trying to sell comics out of my college dorm room, but I suddenly realize I'm missing this week's comics.

I'm dating a sexy 30 year old girl, and am scolded by a nice looking middle aged woman who comes on to me.

I keep stopping my motorcycle in the middle of the road. A pedestrian comes along and pushes me to the side. (This after nearly going off the road taking a turn too fast.)

And on and on. One dream after another, like they had been blocked up.


I was driving through the very busy intersection of 3rd and Greenwood last night, heading east, when I just happened to catch the silhouette of a pedestrian.

Then I couldn't see him again at all until I was about 10 feet away. Standing in the passing lane. Throwing his life to the winds....


Poor German guy. He was just trying to be friendly. Girls on bikes!


Bank robber is just going from town to town, now. I guess he wasn't planning on coming back, and didn't give a damn that anyone knew who he was.


"....Amazon launched a promotion for Saturday that gives customers 5 percent off (up to $5) on up to three qualifying items on its site if they check the prices of those goods on the app while browsing at a physical store."

WIKIPEDIA: In business predatory pricing is the practice of selling a product or service at a very low price, intending to drive competitors out of the market, or create barriers for entry for potential new competitors. If competitors or potential competitors cannot sustain equal or lower prices without losing money, they go out of business or choose not to enter the business. The predatory merchant then has fewer competitors or is even a de facto monopoly and hypothetically could then raise prices above what the market would otherwise bear.

In many countries predatory pricing is considered anti-competitive and is illegal under competition laws. It is usually difficult to prove that prices dropped because of deliberate predatory pricing rather than legitimate price competition. In any case, competitors may be driven out of the market before the case is ever heard.


RDC will be along shortly with a vigorous defense of this practice....


H. Bruce Miller said...

"RDC will be along shortly with a vigorous defense of this practice."

HA! You got that right.

RDC will explain how, although Walmart and Amazon et al. may destroy our jobs, we'll be better off in the long run because we'll be able to buy stuff cheaper. (What we're supposed to buy the stuff WITH is never explained.)

That's essentially the same bullshit argument Americans have been hearing for the past 30+ years.

Duncan McGeary said...

Reminds me of my former brother-in-law who told me once that if I couldn't compete with Walmart I didn't deserve to be in business.

Not long after, he was let go from his long-term corporate job, replaced by someone younger and cheaper.

He never really did find another job. Early retirement.

H. Bruce Miller said...

A little schadenfreude there, perhaps?

Duncan McGeary said...

Yeah, not a pretty motive, I know.

But I just can't understand why the people who are being hurt the most are the ones who defend these things.

Anonymous said...

Stockholm Syndrome. I'm serious.


Duncan McGeary said...

That's it! I was looking for that.

Stockholm syndrome. You nailed it.

I get a little tired of these guys acting like they are the only adults in the room. As if asking for a fair shake was childish.

"Life ain't fair, bub."

I'm not naive. But I also don't think that a lack of fairness is a worthy goal. I'd like to live in a progressive society, not a darwinian one.

If I put it this way. A guy bigger than you (or with more guns or a bigger army) can take your job if he wants it.

Yet, in a sense, that is exactly what we have allowed corporate units to do.

They have bigger armies, so it's O.K. to crush the competition.

Tell me how this isn't just an example of "might makes right."

Duncan McGeary said...

Speaking of schadenfreude, I'm not sure if I should take satisfaction in the way Amazon came along and crushed Borders and Barnes and Noble.

I mean, it's CLEARLY unfair that in most states, brick and mortar stores have to pay sales tax and Amazon doesn't.

Clearly unfair. Yet there are people who defend this.

I don't get it.

Duncan McGeary said...

Back to my brother-in-law.

His implication was that I wasn't as efficient and well run as Walmart.

It depends on how you define it.

I'll tell you this, almost no product goes to waste in my store. It all pretty much finds a home eventually.

I've used this example before. Walmart is like the railroad who wipes out the buffalo and makes use of only the hide, leaving the rest to rot.

Side benefit of killing off the Indians.

I'm the Indian, who makes use of not only the hide, but the meat, and the horns and every other part that can be used. Who's more efficient?

The answer, then as now, is you can't stop progress.

But I'm saying that you can probably go about it in a fairer manner.

As I say. I'm not naive. I know the cultural trends are agin me. But I don't have to like it.

H. Bruce Miller said...

"The answer, then as now, is you can't stop progress."

Ah, but who gets to define "progress"?

Americans by and large are poorly educated and provincial. They have little knowledge of history, little knowledge of their own political system, almost no knowledge of the world beyond their shores and even less knowledge of economics.

So, by default, it's the people with the money to buy the airwaves who get to decide what "progress" means. And, by an extraordinary coincidence, their definition of "progress" invariably coincides with their own self-interest.

H. Bruce Miller said...

"But I just can't understand why the people who are being hurt the most are the ones who defend these things."

It's complicated. Partly it's ignorance. Partly it's believing the myth that in our society hard work and talent are what counts. Partly it's wanting to identify with "the winners" and believing that someday they'll be one of them. Like Joe the Plumber getting upset about the taxes he theoretically will have to pay if he ever makes over half a million a year.

Leitmotiv said...

It's funny you mention buffalo Duncan. You see, the buffalo were slaughtered as a result of the U.S. government waging war against the Commanche (the most brutal native American tribe in the Americas). They knew if they could wipe out the Commanche's sustaining food source, they would win the interior of the future U.S. of A.

Anonymous said...

"But I just can't understand why the people who are being hurt the most are the ones who defend these things."

A lot of times they don't defend those specific things but they believe in one thing primarily, say, that abortion is immoral and wrong. One party represents that view, and that is who they stick with, for better or worse. Even if they are cutting their own hands off as they vote for their own economic doom.

The dems represent the same thing on the opposite side of the aisle. Let's say instead of abortion the issue is the environment for some democrat voters. They will always vote for a democrat, just for that one issue. Just look at how our current president is running things as a moderate repub, but staunch dems who voted for him defend him. Even as they cut their own hands off should they vote for him again.

H. Bruce Miller said...

"Life ain't fair, bub."

And never will be. But shouldn't we be trying to make it more fair instead of less?

Andy Z said...

Walmart is an unfortunate side-effect of supply-chain economics. Publishers have traditionally sold books to bookstores for what? Half the cover price? And bookstores sell those books to readers and make back what they paid plus 100%. That's a 100% markup to the reader from what the publisher charges. Is it surprising that readers would support middlemen who were satisfied only taking 90%? Or 80%? Or less?

It's attractive to publishers as well. Walmart/Amazon promises to buy a large number of books from the publisher. Why wouldn't the publishers offer incentives to guarantee those large orders?

Duncan, you know as well as anyone that the more comics or books or whatever you can sell, the smaller each sale's profit becomes as a percentage of your total gross.

If you were to have an honest-to-baal competitor in Bend, would you consider discounts to make your store more attractive? Obviously price is not everything when it comes to the book-buying experience, but how important is it? I'm guessing your opinion as a bookseller is very different from that of a book buyer.

I'm not saying its right or good or anything. It's just economics.

Duncan McGeary said...

Believe me, Andy, I've had the honest to baal competitor and I made the mistake of trying to compete on price.

Instead of just putting him out of business, it nearly put both of us out of business.

It wasn't until I raised my prices that I stopped bleeding.

Duncan McGeary said...

When I say "raised prices" I mean, selling at the marked, S.R.P. price.

That's the margin I need to stay in business, frankly.

We all live by the same rules -- overhead, cost of goods, wages, etc. etc. No way around them.

Why is it I'm still in business after 30 years and ever discounter I've ever met is gone?

Any idiot can lower prices. It would take a magician to lower prices and still have a well stocked store in a high traffic district.

Duncan McGeary said...

I should say, "any idiot can lower prices...and every idiot does."

It's the American way. That and spending lots of money on advertising. And working excessive hours. And putting on a constant 'show.'

Settle down, do the job, charge the price.

Duncan McGeary said...

Anyway, maybe I should ask you.

Do you think I have an extra margin to give?

Or that by giving an extra margin, I'll make enough extra sales to make up the difference?

Both of those thesis's have been tested repeatedly.

Could I have sold you the Criminal G.N. if I'd had a discount on it?

Duncan McGeary said...

So you see, I can tell what's going on.

I accept it, and try to work around it.

I try to make money, strangely.

Duncan McGeary said...

I've tried out every model I can think of, to see if any of them work. And at the same time, are sustainable over the long run.

It's why I don't just carry one kind of thing. Comics and Graphic novels are half my business, but none of the other categories make up much more than 10 or 15%.

If comics were to collapse, I'd be able to use that space to display something else.

I face price competition in books, games, toys and cards. I give a 10% discount on comics -- which at a 40% margin is 25% of my profits. I don't judge that I'd sell a whole lot more comics if I discounted them. Just the same comics cheaper to people who are already interested.

Remember -- no matter how cheap you go, there is always a chance that someone will go cheaper. With the internet, it's not a chance, it's a certainty.

If you are, in effect, bribing your customers by being cheaper, you have opened the possibility that someone else will offer a bigger bribe.

As Winston Churchill said, "We've already established what you are, Madame. Now we are quibbling over price."

Duncan McGeary said...

Instead of dancing around the subject, I should say this: There is a guy, named Dave Wallace, who has a chain of stores in the midwest, and he led a seminar and published some articles to pretty much proved to my satisfaction that discounted doesn't work.

I know. I know. Tell Walmart that.

But really, mathmatically, you are almost always better off not doing it.

Duncan McGeary said...

Of course, that's not to say you can survive by not discounting either.


Andy Z said...

I would argue against discounting as well. My employer never sells papers or ads at a discount. It has the effect of cheapening the product in the buyer's mind. Instead, we occasionally offer other "incentives" such as gift cards or free stuff. It seems silly because you're still giving away your margin, but apparently it works.

It would be nice if the SRP was set in stone and retailers were required to adhere to it. But that's not fair either, even though it'd be done in the interest of fairness. Businesses should be allowed to compete on price, right?

Anyway, I'm not arguing in favor of discounting. Any idiot can discount. But from a consumer point of view, isn't it idiotic to pay more for something when you don't have to?

I mean, if Diamond were to suddenly magically have a competitor that would sell you stock for 10% less, would you feel some loyalty to Diamond?

You do write on occasion about taking advantage of discounts from distributors. I mean, that's cutting into somebody's margin, right?

Duncan McGeary said...

Actually, I would probably stick with Diamond to some extent. I've actually had this scenario many times.

You give up some percentage points for other advantages -- sometimes just the advantage of already knowing your supplier, all his quirks.

A reliable honest supplier, for instance, is sometime worth the extra payment. There is usually some trade off.

There have been times when my regular suppliers have come through for me, while competitors who never established any loyalty would be left out.

I look for a "range" that I think is fair. I think most of my customers do, as well.

This is going to sound cold, but I often wait out my competitors, who can look like they are doing better than me for a few years -- but, like I said, they usually haven't reinvented the wheel, so their advantages become disadvantages in the end.

Price is just one part of the equation.

It's not a sprint, it's a marathon.

shopping monkey said...

I'm looking at the margin issue from the other end (top down instead of bottom up): if you sell something for $100 and your cost of goods is 50%, shipping is another 10-15% (sometimes higher), fixed costs are 30% (sliding scale, yes, but that percentage is higher in a bad month/bad economy)...that leaves you with $5 to $10. Maybe. A simplistic view, to be sure, but pretty realistic.

From that nebulous 30% comes rent (because we can't be in some crusty warehouse in the middle of nowhere), triple net or cam charges (a nice little way to pump up the rent), staff (includes paying yourself, maybe), utilities (lots o' lighting), promos, taxes, merchant fees for credit card usage (still high, even with recent legislation), blah blah blah. Add to that the lovely spector of theft and breakage. And then you discount.

I get it from the consumer's side (I am one, too), and we all love a good bargain. But the world according to Amazon (et al) looks pretty bleak to me. Strangle the suppliers to give up more margins, boss around the local governments in order to not pay taxes others have to pay, get customers to enjoy a shopping excursion in a b&m store, then pay them to walk out empty-handed and order online....

And then, when we (small shops) are gone, they'll realize their margins are too small for profitability and will raise prices. Heh.

RDC said...

Actually the practice you described is not preditory pricing. It isn't pricing at all.

One can argue about a program which is basically a market intelligence program. The unique apect to this one is instead of paying people to visit stores and collect price information (all of the major retailers do it). This is basically one of paying customers , in the form of a discount, for providing that information.

It is kind of unique.

As far as predatory pricing goes current legal case law is largely based upon the Booke Decision

The Brooke decision established a new framework for predatory pricing analysis. While elements of the new analysis were anticipated in two earlier Supreme Court decisions, Brooke melded them into a more fully articulated judicial policy. First, predatory pricing required proof of below cost pricing, but the Court did not embrace a particular cost test, such as AVC. Clearly, however, a price could not be predatory unless it was below some measure of cost or even “some measure of incremental cost.”Second, and most strikingly, predatory pricing required proof of recoupment—a dangerous probability, or under the Robinson-Patman Act a reasonable prospect, that the predator can later raise price sufficient to recoup its investment in below cost pricing.

One could claim that Amazon is practacing predatory pricing in that they are selling their Kindle Fire e-book readers below cost. Which they clearly are. Of course they would also need the second element that it provides them with the ability to raise prices to a higher level in the future.

Of course it is very diffuclt to effectively argue that they could raises prices substantially in the future because if they do rasie them above a competetive level room is created for someone else to enter the market place at a lower but still profitable price point.

Since at least 1975, U.S. courts have uniformly followed a cost standard in evaluating predatory pricing.

The cost standards that the courts have most often used are average total cost (ATC) and average variable cost (AVC). Under current U.S. law, a price above ATC is conclusively lawful, while at the other extreme, in most jurisdictions a price below AVC is presumptively unlawful (assuming the other preconditions of Brooke are satisfied).117 A price between AVC and ATC is either presumptively or conclusively lawful, depending on the Circuit.118 In Circuits where the price is presumptively lawful, the presumption can be rebutted by other evidence of predation, particularly intent and market structure.119 However, we shall urge that an incremental cost standard provides a superior measure for assessing predation. Thus, we would substitute average avoidable cost for AVC, and long run average incremental cost for ATC.

Since I used have among groups reporting to me the strategic pricing and contracting elements of a pharmaceutical company I had to become pretty familar with the Sherman Act, Robinson-Patman Act, etc along with case law.

RDC said...


You have a fair shake. If you think that another company is doing it wrong you can create a company to do it better.

Don't like the business decisions made by the comic book companies. That they are making poor decisions then start your own and make better one's.

Nope your decision of a fair shake is that other businesses should make decisions that allow the business model you chose to be able to be profitable. Or that your profit margin should be protected. Doesn't work that way.

If they can discount and stay in business they are entitled to do so. If they cannot oh well that is the risk they run.

By the way most of the big retailers (Target, WalMart) run a 35% margin, not much different than your 40%. Their profit margin runs about 6%.

Not huge, groceries is even less.

Now the real question is are the comic book publishers in violation of Robinson-Patman in how they price and the terms they offer to large retailers. As demonstrated in the Morton Salt case in 1948 they have to be able to justify volume discounts that are offered by corresponding costs reductions. In other words that the amount of the discount is offset by their own lower costs. If not it could be grounds for a case.

RDC said...

The reality is that their margins are not too small for profit. Taking Walmart for example you can pretty much bank on the fact that they will come in 6% +-.1% on their profit and 35% +- .2% on gross profit on cost of good sold.

So clearly their pricing structure is not too low to be profitable.

The big retailers all of prfotiable business models. They all have the same weakness and that is sales volume. Because their cost structures are so tight they are vulnerable to any major slow down in the velocity of sales. They live and die by their inventory turns and gross sales. A 2-3% reduction in per store sales is enough to wipe out their profit margin. That is why such companies do not survive long if they start to lose market share or if they have major dips in gross sales numbers.

H. Bruce Miller said...

"You have a fair shake. If you think that another company is doing it wrong you can create a company to do it better."

This glib argument has always been used to justify predatory and monopolistic practices. The flaw in it is that it ignores the barriers that would-be competitors face. In an Adam Smith world of small shopkeepers the argument holds water, but we don't inhabit that world anymore. Realistically speaking, what would it take for Duncan McGeary of Pegasus Books to establish a company that provided meaningful competition for Amazon? How many lifetimes would it take for him to raise the capital to launch it?