Why cheap stuff can be *bad* for consumers
Prices
In normal conditions, prices are set by Consumers.
In the end, they are the ones who decide what to buy and how much they want to pay for it!
Of course technology, the number of Producers, Salaries, etc. affects the price, but these are more long-term factors.
Predatory Pricing
Businesses can reduce prices to a point where they make a loss on that product, in order to massively increase their profits later!
But how does this work? Why is it 'Predatory'?
Increased Demand
Firstly, by decreasing the price, some people will be convinced to buy what they're trying to sell. Some of these people will actually like what they bought, ending up as recurring customers.
This might actually be good for consumers because they discover new products!
So, here's the really big problem:
Less competition
If the company that lowers their prices can manage the losses for a long time, most consumers will stop buying from the competition and start buying from them.
This means that some businesses that are in direct competition will have to take a loss, either because they sell less or because they lower prices to keep sales the same.
All of this means, in the end, that the business predated on other companies, and managing to bankrupt some of the less financially strong ones.
In the end
After some time, what happens is that, when there are fewer companies competing, prices rise again, probably to levels higher than before, and now you have fewer other alternatives to buy from.
Conclusion
While Predatory Pricing can seem just like normal price competition, it is not. A company is selling a product at a loss in order to eliminate the competition! So, remember to keep an eye out for things that just seem too cheap.
If you know of any more price manipulation practices, and if they're even worse than Predatory Pricing, leave them in the comments!
Thanks for reading!
Remember to Upvote and Resteem, so that I can keep making many posts per week!
Take a look at my last posts, about Inequality!
- Inequality today
- What creates Inequality
- How can Inequality be good?
- How can we start solving Inequality?
This was cross-posted from my blog!
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This is a practice that seen very frequently in the area of video games, they offer a game at a really crazy price, and then sell you the additional content at extremely high prices.
An important part to take into account is the quality of the product they offer, since in many cases the price is very cheap but the quality is very poor.So consumers have to be more rational and really evaluate if what they are buying is of a good quality or at least acceptable.
Great point! I hadn't thought about it in this way, but I agree with you! Many companies can try to expand their player base and limit their competitions' by offering the game for cheap and making money through add-ons
I love your point buddy!!! Predatory marketing is a tough one and some companies actually use this method to eliminate smaller companies who may not be as financially strong as they are to create problems.