Sunday, March 09, 2008

Predatory Pricing - for years

Predatory pricing is generally defined as lowering your price, often below cost, in order to drive a competitor out of business, so that you can then monopolize the market and reap monopoly profits. The problem economists have with the premise is that we haven't seen the second step - raising prices and reaping a monopoly profit. None the less, selling below cost is against the law in several states, California among them.

The SF Weekly, a San Francisco sister publication of Phoenix New Times, has been ordered by a jury to pay $15.6 million for illegally slashing ad rates, apparently in an attempt to put a competitor out of business.

Apparently the illegal rates have gone on for years.

Although both papers lost money in the last decade, the Guardian says it's at a disadvantage because the SF Weekly is bankrolled by Village Voice Media's 16-paper national chain.

Cash infusions from the parent company allowed the Weekly to drop ad prices from $18 a column inch to between $10 and $15 an inch, said Guardian attorney Ralph Alldredge.

Both Village Voice Media Executive Editor Michael Lacey and Weekly Editor Tom Walsh declined to comment.

Although offering a lower price is the golden rule of good business, it can be illegal in California if a company undercuts another with the specific intention of bankrupting its rival.

Although the ad pricing may not have driven one of the papers from the market, the lawsuit might.

"It seems like given the losses that both are experiencing, maybe the San Francisco market can't support two alternative weeklies," said local media watcher Randy Shaw, who writes the online blog BeyondChron. "It's likely, after the outcome of this court case, there might only be one left standing."

A bit of advice before leaving the topic. I used to work in a marketing group for a large corporation. When you work in an oligopoly market structure, it's important to be careful what you say about the competition. You can compete aggressively, but don't ever say you want to "destroy the competition" or "drive them out of business." It tends to get the antitrust folks curious. That's one of the reasons all of our sales training materials and ads had to be vetted by legal before used them.

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