Fear of anti-trust laws might be a lawyer's or economist's first thought, but my purely pragmatic mind's first thought was -- what store manager has the time on his hands to keep track of competitors' prices for the thousands of products in his store?
Mein Gott! He's got enough problems with employees, customers, spills in aisle 3, sexual harassment training, juggling vacations and overtime and holidays, interviewing new employees, and all the tiny stupid problems of just keeping the store open. He hasn't got *time* to visit his competitors and note their hundreds or thousands of prices, and then adjust his accordingly. He couldn't even do that once a month, let alone weekly.
That's corporate's problem, not local store managers'.
And yet all of the grocery chains in my area have price comparison signs as you enter the store, displaying how a selection of their products are less expensive than their competitors.
Oooh, a “selection of their products”. That’s definitive proof, is it, that managers have time to check thousands of items to keep the price comparisons up to date?
My answer was pretty snarky, so I want to expand upon it.
This “selection of their products” is useless.
How do they keep it up to date? Do they check competitors’ selected prices every day?
If competitors to the same thing to them, their natural reaction will be to change their prices, either matching or lower than, making even daily comparison tracking useless.
I have never known anyone who actually verifies price comparisons. In fact, I can’t remember the last time I saw any ads with detailed price comparisons, just “lowest prices in town” which I have never trusted, for all the reasons I listed.
One alternative is that store managers or an employee zip through a competitor’s store or web site, noting a few dozen items, then cherry pick any of theirs which are lower by chance.
In short, I doubt anybody but fast food joints and gas stations actually compare prices often enough to make the process truthful and useful.
That is a good exception, but it actually rather proves the rule. Typically those specific items are what stores consider their big draw, what they actively compete on to get people into the store resulting in them buying all the other things they want at whatever price is set. When I was young the stores would typically do that for milk, eggs and bread, then throw in turkey around holidays and ice cream and soda in the summer. Another would advertise their exceptional meat department instead. Almost everything else was roughly the same price, probably arrived at by cost plus based on distributors I would guess.
I suspect that over all the stores were paying a bit of attention to what each other were doing, but mostly they were basing their behavior on internal data on purchasing costs and sale volumes, while ensuring their costs for the few staples people plan a trip around were competitive.
Well consider a model where Walmart's supply chain is the lowest around. There is simply no way for anyone to profitably sell that type of pillow for $3.44 or less without replicating the size and scope of Walmart's chain.
In that world there is no possible competition but there's not much of an anti-trust problem since Walmart isn't selling at a loss to keep competition out. The question then is why doesn't Walmart strategically capture a bit more profit by raising the price a bit in higher demand areas? It could simply price them $3.54 in richer areas and $3.44 everywhere else. Why leave the dimes on the table?
I think it's because of menu costs and a desire to present a uniform price to shoppers to limit the incentive to 'study' the pricing between stores too much.
I wonder if fear of anti-trust law plays a role. Differential pricing could be taken as evidence of price discrimination, which would be evidence of exercising monopoly power and… maybe you'd be able to argue against it but it's not worth the hassle.
This refutes not only the Joe Bain et al views, but also even the views of some of my professors at UCLA. Ben Klein, for example, taught me that companies will set prices depending on local competition.
I bet he never considered the practical problem of how to keep track of competitor's prices. It might work for a burger joint or gas station, but a big box store? Not a chance. I'm tempted to shout "Ivory tower" and "eggheads" but I will refrain :-)
It looks like a problem only when its not been attempted. A large company could get into the business of tracking the prices in real time and provide an API for everyone. At that point it becomes an easy business.
But I do agree with you the cost of that API and subsequent process complexity might not be worth it.
Web sites make automated comparisons easier, but it works both ways. If store A lowers its milk prices by 5 cents, stores B, C, D, and E will notice within minutes and adjust their prices. They can’t keep lowering prices forever, and even if customers checked around before buying groceries, they’d only be saving a few cents, and that assumes those cheap prices stayed the same.
If they only adjust prices in the morning before the stores open, then it comes down to minutes. If store A always changes their prices at 6:55 for a 7:00 opening, competitors will start changing theirs at 6:56, or they might look at customer activity and decide there aren’t enough customers from 7-8 to pay for the lights, heating/cooling, and employees, and open an hour later so they can always post the most up to date price cuts.
I just don’t buy it. It’s way too much work for too little gain.
I have been saying that Walmart at some point should be considered for Nobel Prize (Peace). The level to which they have made life comfortable for kids, new parents, elderly people, poor people is pretty unimaginable.
They have their own brand called Parent's Choice. All the baby stuff. The prices are mindboggling low. A milk bottle of high quality for $2. Frida Baby would sell it for $25.
Is this a good thing? Since Walmart controls its pillow supply chain to all stores, it can either dynamically raise/lower prices or increase/decrease supply to maintain a constant price. Why would it choose the latter?
Some ideas:
1. Menu costs are a thing. To change the price each day you'd have to alert an associate to run out and put a new sign up next to the big box of pillows. In addition you can save money on displays, just ship the pillows in a huge box with $3.44 printed on it and the associates just have to plop it down in the middle of the section.
2. They want to discourage 3rd parties from monitoring prices too closely. Imagine a world where the stores had different prices that changed each day. A 3rd party could build an app that crowdsources prices, think of something like gasbuddy that reports local gas station prices. If an app is going to monitor the cheap pillow price, it might as well monitor all of them. That would allow people to reverse engineer the algorithms for the stuff that WalMart DOES like to change prices a lot.
3. They have a deep case of Amazon envy. They really want all their customers to sign up on the app and preferably just shop there with everyone either picking up or getting the purchases shipped to their homes. In that world the stores become more like warehouses and there's less cost pressure to have a lot of them open in high priced retail areas. If the price of many goods is going to vary between stores, the app makes it easy to break that attempt to balance supply and demand.
I am neither an economist nor a law expert. So I'm not familiar with the way antitrust laws prevent companies from charging different prices in different cities. And i am puzzled that economists would assert the validity of the modrl that pricing is heavily influenced by local competition when the data disconfirm the model. Or maybe the model correctly predicts maximum profits and companies don't care about maximizing profits by adjusting prices locally? Very curious.
You do not get to pick a specific delivery date. All I have ever seen is, sometimes, a choice from several dates which are seldom consecutive.
It also assumes they always deliver on the scheduled date. I'd say one in ten of mine are late or sometimes early (one yesterday was a day early). That risk hardly justifies saving 78 cents.
Fear of anti-trust laws might be a lawyer's or economist's first thought, but my purely pragmatic mind's first thought was -- what store manager has the time on his hands to keep track of competitors' prices for the thousands of products in his store?
Mein Gott! He's got enough problems with employees, customers, spills in aisle 3, sexual harassment training, juggling vacations and overtime and holidays, interviewing new employees, and all the tiny stupid problems of just keeping the store open. He hasn't got *time* to visit his competitors and note their hundreds or thousands of prices, and then adjust his accordingly. He couldn't even do that once a month, let alone weekly.
That's corporate's problem, not local store managers'.
And yet all of the grocery chains in my area have price comparison signs as you enter the store, displaying how a selection of their products are less expensive than their competitors.
Oooh, a “selection of their products”. That’s definitive proof, is it, that managers have time to check thousands of items to keep the price comparisons up to date?
My answer was pretty snarky, so I want to expand upon it.
This “selection of their products” is useless.
How do they keep it up to date? Do they check competitors’ selected prices every day?
If competitors to the same thing to them, their natural reaction will be to change their prices, either matching or lower than, making even daily comparison tracking useless.
I have never known anyone who actually verifies price comparisons. In fact, I can’t remember the last time I saw any ads with detailed price comparisons, just “lowest prices in town” which I have never trusted, for all the reasons I listed.
One alternative is that store managers or an employee zip through a competitor’s store or web site, noting a few dozen items, then cherry pick any of theirs which are lower by chance.
In short, I doubt anybody but fast food joints and gas stations actually compare prices often enough to make the process truthful and useful.
That is a good exception, but it actually rather proves the rule. Typically those specific items are what stores consider their big draw, what they actively compete on to get people into the store resulting in them buying all the other things they want at whatever price is set. When I was young the stores would typically do that for milk, eggs and bread, then throw in turkey around holidays and ice cream and soda in the summer. Another would advertise their exceptional meat department instead. Almost everything else was roughly the same price, probably arrived at by cost plus based on distributors I would guess.
I suspect that over all the stores were paying a bit of attention to what each other were doing, but mostly they were basing their behavior on internal data on purchasing costs and sale volumes, while ensuring their costs for the few staples people plan a trip around were competitive.
Well consider a model where Walmart's supply chain is the lowest around. There is simply no way for anyone to profitably sell that type of pillow for $3.44 or less without replicating the size and scope of Walmart's chain.
In that world there is no possible competition but there's not much of an anti-trust problem since Walmart isn't selling at a loss to keep competition out. The question then is why doesn't Walmart strategically capture a bit more profit by raising the price a bit in higher demand areas? It could simply price them $3.54 in richer areas and $3.44 everywhere else. Why leave the dimes on the table?
I think it's because of menu costs and a desire to present a uniform price to shoppers to limit the incentive to 'study' the pricing between stores too much.
More likely they simply don’t have the staff to fiddle with dime changes in prices for all the inventory.
I wonder if fear of anti-trust law plays a role. Differential pricing could be taken as evidence of price discrimination, which would be evidence of exercising monopoly power and… maybe you'd be able to argue against it but it's not worth the hassle.
That was my first thought. Anti-trust, price gauging, and probably gazillion of other laws I've never heard of could be influencing this.
Wow! I had no idea.
This refutes not only the Joe Bain et al views, but also even the views of some of my professors at UCLA. Ben Klein, for example, taught me that companies will set prices depending on local competition.
I bet he never considered the practical problem of how to keep track of competitor's prices. It might work for a burger joint or gas station, but a big box store? Not a chance. I'm tempted to shout "Ivory tower" and "eggheads" but I will refrain :-)
It looks like a problem only when its not been attempted. A large company could get into the business of tracking the prices in real time and provide an API for everyone. At that point it becomes an easy business.
But I do agree with you the cost of that API and subsequent process complexity might not be worth it.
Web sites make automated comparisons easier, but it works both ways. If store A lowers its milk prices by 5 cents, stores B, C, D, and E will notice within minutes and adjust their prices. They can’t keep lowering prices forever, and even if customers checked around before buying groceries, they’d only be saving a few cents, and that assumes those cheap prices stayed the same.
If they only adjust prices in the morning before the stores open, then it comes down to minutes. If store A always changes their prices at 6:55 for a 7:00 opening, competitors will start changing theirs at 6:56, or they might look at customer activity and decide there aren’t enough customers from 7-8 to pay for the lights, heating/cooling, and employees, and open an hour later so they can always post the most up to date price cuts.
I just don’t buy it. It’s way too much work for too little gain.
Did your professors take into account fear of anti-trust laws and the like that we might not know about?
I have been saying that Walmart at some point should be considered for Nobel Prize (Peace). The level to which they have made life comfortable for kids, new parents, elderly people, poor people is pretty unimaginable.
They have their own brand called Parent's Choice. All the baby stuff. The prices are mindboggling low. A milk bottle of high quality for $2. Frida Baby would sell it for $25.
The more I learn about Bryan Caplan...
Is this a good thing? Since Walmart controls its pillow supply chain to all stores, it can either dynamically raise/lower prices or increase/decrease supply to maintain a constant price. Why would it choose the latter?
Some ideas:
1. Menu costs are a thing. To change the price each day you'd have to alert an associate to run out and put a new sign up next to the big box of pillows. In addition you can save money on displays, just ship the pillows in a huge box with $3.44 printed on it and the associates just have to plop it down in the middle of the section.
2. They want to discourage 3rd parties from monitoring prices too closely. Imagine a world where the stores had different prices that changed each day. A 3rd party could build an app that crowdsources prices, think of something like gasbuddy that reports local gas station prices. If an app is going to monitor the cheap pillow price, it might as well monitor all of them. That would allow people to reverse engineer the algorithms for the stuff that WalMart DOES like to change prices a lot.
3. They have a deep case of Amazon envy. They really want all their customers to sign up on the app and preferably just shop there with everyone either picking up or getting the purchases shipped to their homes. In that world the stores become more like warehouses and there's less cost pressure to have a lot of them open in high priced retail areas. If the price of many goods is going to vary between stores, the app makes it easy to break that attempt to balance supply and demand.
With the prices and technology are screens getting cheaper, we will see these stores moving to more dynamci prices of certain items if not all.
I am neither an economist nor a law expert. So I'm not familiar with the way antitrust laws prevent companies from charging different prices in different cities. And i am puzzled that economists would assert the validity of the modrl that pricing is heavily influenced by local competition when the data disconfirm the model. Or maybe the model correctly predicts maximum profits and companies don't care about maximizing profits by adjusting prices locally? Very curious.
Amazon has a cheaper pillow—$$6.62 for two (and you don’t need to drive to get them!)https://a.co/d/08uujGQ4
Of course, unless you’re a Prime member, you need to pay for shipping—there are always transaction costs.
Won't do much good unless they can deliver them to his address the same day he gets there.
They can
You do not get to pick a specific delivery date. All I have ever seen is, sometimes, a choice from several dates which are seldom consecutive.
It also assumes they always deliver on the scheduled date. I'd say one in ten of mine are late or sometimes early (one yesterday was a day early). That risk hardly justifies saving 78 cents.
https://youtu.be/N6-SPUeCB8U?is=eEi9RB8Xssj6Bkfc