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Below-cost pricing hurts consumers

Thursday, February 8 at 4:56 PM

This Speakout has not been edited

By Brad Young, Government Affairs Director, RxPlus Pharmacies Inc.

When Attorney General John Suthers announced in December that he would work with legislators to amend Colorado’s “Unfair Practices Act,” The Rocky Mountain News, heralded the announcement as good news for consumers. The legislation proposed would amend a Colorado law that prohibits companies from selling to consumers at prices below their actual cost. If companies want to sell goods at below-cost prices, goes the argument, what difference does it make to anyone if they choose to lose money? Yes, it’s hard to argue with that theory. Two products most often referred to in the debate are gasoline and prescription drugs. Several large grocery stores have gasoline discount programs for their customers. WalMart and a few other “big box” discount stores have rolled out $4 generic drugs programs. These programs create great savings for customers, according to the editorials.

Selling a product below cost is a marketing strategy. A large retail store can sell a high-visibility item, like gasoline or generic drugs, below its cost, and increase prices on its other products across the store to make up the difference. Consumers put money into one pocket, only to have it taken out in small quantities from the other. Companies still exist to make a profit. Consumers still pay.

Casualties of the below-cost wars being waged by the national and regional chain retailers and discount stores will be small, independently owned businesses that cannot shift losses between departments or product mixes. In the end, the loss of small business is a loss to the consumer.

Anti-trust law was created to protect consumers by restricting certain business practices. Big businesses cannot sell below cost, and small businesses cannot act in concert to control prices and markets. Changes in the state predatory pricing law proposed by the Colorado legislature and the Attorney General tilt this competitive balance in favor of the “Big Boxes” because all the federal anti-trust measures restraining the independent merchant remain in place.

There are business reasons to change the current law to allow below-cost selling: shifting inventory, getting rid of overstocked items, after-holiday sales, etc. But the current proposal is a blunt instrument that offers little to the consumer, and threatens the existence of many independent businesses.

READER COMMENTS

So, Mr. Young....what you are saying is that the consumer exisits to ensure the livelyhood of the business?? I think you have it backwards. The smart consumer knows when you have the so-called level playing field, the reality is higher prices. If you are a small business and unable to compete, then obviously you have either improperly marketed your product or you're in the wrong business. If someone can offer me a lower price for a product, they will get my business.

Posted by Richard on February 17, 2007 06:18 AM

I am the customer that stores hate - I know what the 'every day' prices are like at the stores - for instance, I know that unless vitamins & supplements are 50% off at a competitor, Walmart is the only place to buy them.

I stock up when items I want or need are on sale and rarely pay full price for anything in the food & clothing categories. When I get to about a 1/2 tank of gas, I check denvergasprices.com (or if I am on the road, gasbuddy.com) for the lowest price in the area ( I don't drive 10 miles out of my way to save a penny a gallon, but I will to save 20 cents a gallon).

It's something my mother (who grew up during the Depression) taught me. Many 'boomer babies' shop as I do - and, if you think about it, this is the way to 'stick it' to the big box stores.

Unfortunately, the more recent generations seem to only believe in instant gratification, then complain when the item they bought on Tuesday at full price goes on sale on Wednesday. Smart shopping & saving for future purchases should be added to junior high (aka middle school) or high school curricula - as part of the math studies.

Posted by Mary on February 10, 2007 04:14 AM

Brad Young raises a valid point, in my opinion.

Many people complain about the growth of chain stores, but few look at the root causes.

We used to be a nation of shop keepers, we're becoming a nation of clerks working for Wal-Mart and Starbucks.

I'm not against Wal-Mart, Starbucks and true free market competition. But the government has an obligation to keep the playing field level. Robber Barron type preditory pricing should not be allowed.

Three other unfair practices that are killing small business in America are 1) unfair lease rates; 2) unfair practices in capitol markets; and 3) unfair advertising rates.

Why isn't the Small Business Association speaking out on these issues? Because the SBA is part of the problem, not part of the solution. Formed in 1954 with the idea of financing new businesses like new home construction, it has just about killed small business in America.

Posted by John Wren on February 9, 2007 05:54 AM

Considering the job that the author has, not surprised that he thinks it "negative" to allow the sale of his product at a lower price.
While he may be correct about the shifting of prices, I suspect he is, he offers no solution other then the status quo.

Posted by Jim in Erie on February 9, 2007 05:04 AM