From: thf2@ellis.uchicago.edu (Ted Frank)
Subject: Re: "Dumping"
Reply-To: thf2@midway.uchicago.edu
Organization: University of Chicago Computing Organizations
Distribution: na
Date: Fri, 11 Dec 1992 23:58:16 GMT

In article <Bz498w.Dx9@apollo.hp.com> nelson_p@apollo.hp.com (Peter Nelson) writes:
>In article <1992Dec11.172705.25651@midway.uchicago.edu> thf2@midway.uchicago.edu writes:
>>And they're making the decision that maximizes *today's* profits
>>(or, in this case, minimizes losses).  They have to pay the service
>>on their debt and the obligations on their contracts whether or not 
>>they fly a single plane.
>
>  Right, but it's still a *business decision*, one of many they could
>  have made.   They can reduce their fixed costs and pay off others
>  by liquidating part of the airline, selling gates, routes, whatever.
>  They've done what they think is in our (the shareholders') best
>  interest.  

But they're not dumping.

>>>In this sense 
>>>   it's no different than if Panasonic decided to sell TV's in
>>>   New York for half the price they sell them for in Tokyo.
>>
>>But that isn't the issue we're talking about.  The accusation was
>>made that Panasonic is selling below cost in New York,
>
>  Right, and American Airlines is *also* selling below cost in New
>  York City.   

For the n-th time, American Airlines is not selling below *marginal* cost,
which is what we're concerned about when we discuss dumping.  I just
bought a ticket from American, and they're going to make more money now
that they've sold me that ticket than they were if I hadn't bought a
ticket from them.

Dumpers Inc., on the other hand, allegedly loses money on every sale,
loses more money the more people buy their product, and allegedly hopes
to force everyone else in the market to drop out because they're also
losing money, at which point they'll raise prices to monopoly levels,
thus making up more than the amount that they lost.  The debate that
was supposed to be going on in this thread is whether dumping ever
happens.  American Airlines doesn't fit this definition because they
make money on each ticket sold.

There's a ridiculous case out in California that's been in litigation
for fifteen years claiming that a bakery tried to monopolize the
white-bread market in just this way.  Chyeah, right.

>> demonstrated by the fact that they're selling at a higher price in Tokyo.
>> If Panasonic were indeed selling below cost, they would be dumping.
>
>  What I'm questioning is whether this is a useful definition of
>  "dumping".  Why shouldn't they be allowed to sell below cost in
>  New York City, and subsidize this with profits from higher prices 
>  in Tokyo?   Ever look at airline prices?  They don't reflect the cost
>  of providing the service; they reflect computer driven load balancing.
>  Two adjacent seats in economy class can easily sell for $768 and 
>  $199 on the same flight!   Why shouldn't companies be allowed to price
>  things in whatever ways meet their needs and circumstances?

I never said they shouldn't.  What both Panasonic and American are
apparentally doing is price discriminating, which may or may not be
a good or bad thing, but it's definitely not illegal in this context,
nor is it dumping.

Dumping is not selling at different prices in different markets.  
Unfortunately, that's what the FTC seems to think it is.

>>The difference is that Panasonic, if it is selling televisions below
>>cost in New York, is not only losing money, but is failing to profit
>>maximize.  American Airlines is losing money, but it doesn't have a
>>choice -- it's going to lose money whatever it does,
>
>  This is a presumption!   Southwest Airlines is profitable.  British
>  Air (which is a private corporation) is profitable.  Maybe it's possible
>  to be profitable in the airline business with the right mix of routes,
>  service, product, and so forth.   Maybe AMR could be profitable as a 
>  smaller corporation serving some niche market.  

It's a presumption given the assumption that they already have the
hand they're dealt.  Yes, they could have, x number of years ago,
decided to go Southwest's route.  They didn't, and their current
pricing decisions are profit-maximizing in the short-term sense.

>>>   market share; they will presumably have higher profits in the 
>>>   future.  These are the criteria that were set down here for
>>>   "dumping".   Losses, market share, profits, are all objective
>>>   facts.   Motives and strategies are matters of opinion.   
>>
>>The criterion for dumping wasn't "lossses", it was "losses on
>>additional sales," the selling of a product or service below marginal 
>>cost.  AMR doesn't meet this criterion.  People have been sloppy
>>in saying "losses" instead of "losses on marginal sales", but though the
>>former is *necessary* for dumping, it isn't *sufficient*.  It's the
>>losses on marginal sales that is dumping.
>
>  By this definition Polaroid is "dumping" if they sell cameras below
>  marginal cost of making them, even if they plan to make it up 
>  on the film.   

That's actually a tie-in rather than dumping.  

>What if Panasonic plans to make it up some other
>  way, maybe by brand loyalty on future more expensive products, 
>  upgrades, or God-knows-what?    The point is that even if they do
>  "dump" it could still be a reasonable business decision, depending
>  on their plans and expectations.     

Sure.  Which is why I don't particularly find US anti-dumping law useful.

>  So I still say all there is to this discussion is corporate 
>  decisions to operate in the red in certain markets for certain
>  business reasons.   

I never disagreed with this.  I disagreed with the concept of dumping/
predatory pricing -- that firms engage in below-marginal-cost pricing
in order to drive all of their competitors out of the market and benefit
by charging monopoly pricing that more than makes up the discounted 
difference between the predatory losses.  Other than the questionable
case of Standard Oil at the turn of the century, I haven't seen evidence
that this happens at all.
-- 
ted frank                     | thf2@ellis.uchicago.edu 
standard disclaimers          | void where prohibited
the university of chicago law school, chicago, illinois 60637
Newsgroups: sci.econ,misc.invest