Why isn't selling at a loss illegal?

[Limewater]

Didn't sony sell the PS3 at a loss for a while there?

I would be surprised if they aren't still selling the PS3 at a loss.

[RyaNtheSlayA]

Didn't sony sell the PS3 at a loss for a while there?

I would be surprised if they aren't still selling the PS3 at a loss.

They just turned black on every PS3 sold.

[ZeroAX]

For example, if a business buys one million widgets for $1.00 each and, to clear its inventory, later sells those widgets for $0.50 each, it has not engaged in any illegal activity. If, on the other hand, a business buys a million widgets for $1.00 each and, for the express purpose of destroying its competition in the retail widget industry (so that it can later use its monopoly power to raise the consumer price of widgets to $3.00), sells the widgets for $0.50 each, it is probably engaging in illegal "anti-competitive" behavior. Since a competitor may be harmed by the legitimate clearing of the business's inventory (i.e., the first example), it can be difficult to distinguish between when a business is selling at a loss for legitimate purpose and when it is engaging in illegal "anti-competitive" behavior. Like many things in the law, intent is the key.

This.

Let's say Smallville has 10 small grocery stores (not related to superman btw).

Walmart decides to open up a store in Smallville. Now small stores can't compete with them, since super markets buy 100 times the supplies than small stores, so they get a much better price.

The 10 store owners join forces, get their money together, and make a Smallville-Mart to compete with Walmart.

Now that is good competition, cause now Smallville-Mart gets better prices as well, can compete with Walmart, and of course they will go on price wars on specific products. For example the clearing of inventory we were talking about, and other special offers, which they use to attract costumers. With lower prices everyone spends more, so all and all everyone is a winner.



But, if say walmart, being a huge franchise and all, had the means to borrow a big amount of money, and be able to sell for a year or two most of its product at a loss, the Smallville-Mart just couldn't compete.

That's why it's illegal.


Now how do you defer between stock clearance and selling stuff at a loss? By having a state market regulation force.

In my example Smallville-Mart could sue the local Walmart, the market-regulation could check to see if it is really clearing stock, or trying to unfairly close S-Mart, and act accordingly.



That's why I think some stuff like consoles being sold at a loss by the manufactures isn't really a problem, since every competitor can and will do it.

[Luke]

THE ANSWER:

Fluctuations in the economy, retail, technology, customer preference, etc. are all factors. Each company is industry specific, so if you want to argue why a company can't sell at a loss, pick an industry and a company, and do some financial homework. Trust me, you can sell $7000 on an order, lose $2000 and still make the cfo happy.

[EllertMichael]

It worked out well for the Michael Scott Paper Company

[avrame]

I'm no economist, but I believe it's perfectly legal to do so in a free market economy. If Wal-Mart decides to sell apples at a loss for half of what a local Mom & Pop grocer sells them for just to bring more shoppers into their store to hopefully purchase other goods that M&P don't have, then yeah, thats unfair to M&P.... but whoever said life is fair?

It should not be up to the government or legislature to legally enforce the price of those apples, rather the burden is now upon M&P to creatively evolve thier business to be competitive.... hopefully they can succeed, if not, well, thats called survival of the fittest, a natural law enforced long before humans started coming up with our own silly rules.

Now lets take it a couple years further.

Wal-Mart sells apples at a loss and reduces traffic to M&P to the point that they can no longer compete/survive/exist. Wal-Mart successfully killed any other competition in it's area, so what will it do? Sell apples at 3x the original price.

Would you still buy apples then?

Coming from a small town ruined by a Wal-Mart (roughly 80% of the high schoolers in town work at Wal-Mart since few other businesses can afford extra staff), I look down on the idea that Jumbo Marts constantly offers crazy sales as a good thing. Sure it's good to your pocket, but it takes away from many M&Ps that need that dollar to make ends meet.

[Hatta]

Selling at a loss is common. You just make up for it in volume.

[MrPopo]

Selling at a loss is common. You just make up for it in volume.

Not entirely correct. You sell at a loss to entice people to purchase the things that make you revenue. In the case of a grocery store you might sell some items at a loss to get them in the store where they are more likely to buy some of your other products, which make a profit. For video game consoles frequently the console is sold at a loss to get it into consumer homes and then the console manufacturer makes back the loss from the licensing fees on the games themselves (and peripherals).

[avrame]

For video game consoles frequently the console is sold at a loss to get it into consumer homes and then the console manufacturer makes back the loss from the licensing fees on the games themselves (and peripherals).

Yep yep, thats how Sony survived on the PS3, market it anyway necessary to get it into the consumers homes (the whole, 'It's a Bluray player', 'It plays games too', 'It does EVERYTHING). Afterward, sell their games for profit and win in the long run.

If I remember correctly, they were selling at a $300 loss with the launch PS3s, if the consumer bought 10 blurays for 5 games, they earned the majority back already.

[Hatta]

Popo, I hope you meant "not entirely incorrect"