What is the real core issue of the price war?

Jing-dong, suning easy to buy the "price" war broke out, there is a popular view: This is a "malicious competition", will damage the market environment, damaging the interests of consumers, the government should be a "pipe". The opposite of the other faction is that the business fight, consumers are always benefited, let "price war" come more violent some!

The term "malicious competition" is actually a misnomer, and there is no such term in economics. Competition is necessarily "malicious", will there be "goodwill" of competition? For an operator, the goal of market entry is of course to beat opponents, win more customers and earn more profits. The key is that as long as this "malicious" competition is not to take improper means, we can not use the moral code to criticize the business, and can not call on the government to come forward to "pipe a pipe." What we need to think about is what's really at the heart of the matter?

In the review of the electricity price in wartime, a frequently cited law is the "anti-unfair competition Law" 11th: Operators should not be excluded from the competition for the purpose of selling at a price below the cost. In fact, article 17th of the Antimonopoly Act expressly prohibits market-dominant operators from abusing market dominance, with the second paragraph "selling goods at a price below cost without justification". In economics, the act referred to in the above article is generally termed "predatory pricing". Predatory pricing (predatorypricing) refers to the existence of a manufacturer that cuts prices below the average cost of an opponent in order to evict an opponent from the market or curb entry, even if it suffers short-term losses. Once the competitor leaves the market, the incumbent will raise the price to compensate for the loss of the plunder period. Thus, in the long run, if a predatory pricing firm succeeds, consumer interests will eventually suffer. The question is, is predatory pricing really so easy to succeed?

It is reported that at the beginning of the current round of the electric business, Liu announced on Weibo that he had just had a meeting with the shareholders, "I said this war is going to cost a lot of cash, what's your attitude?" A shareholder said: we have nothing but money! You can fight it, hit the dead! Liu then said in a media communication meeting on 15th that the cash was far more than 1 billion dollars, enough to challenge.

Liu is similar to a predatory pricing model known as the "Long Rope Purse (longpursestrings)". The model points out that large companies with sufficient financial resources can be sold more persistently at lower-cost prices and rally with smaller companies with less financial resources. Small companies will eventually run out of money and have to pull out of the market, and big companies will raise prices to recoup their previous losses.

And whether Liu's shareholders are really that profligate, the "long Rope Bag" model was challenged by the Chicago school in the late 50. They point out that while there are more financial resources than new companies but still limited, it is not possible for a company to be kept at a loss for ever-and ultimately to stop predatory pricing. If this is recognized, the investor will be willing to financially support the continued operation of the new company and insist that the existing companies abandon predatory pricing strategies or fail to operate. In this case, the predatory pricing strategy is not a trustworthy and successful business strategy, so it is irrational.

With the rise of game theory in the 1980 's, the post-Chicago school points out that predatory pricing is a feasible and rational strategy in the case of asymmetric information. Nevertheless, empirical studies have shown that predatory pricing does not often occur in real life. In practical judicial practice, the view of Chicago school has been of great influence. As the 1986 U.S. Supreme Court verdict on the Panasonic Matsushita Case said: "The academic consensus is that predatory pricing strategies are rarely tried, and successful precedents are rarer." ”

In the Panasonic case, the plaintiffs were two US television manufacturers, claiming that Japanese competitors were using their monopoly in Japan to conduct predatory pricing of the US television market in an attempt to squeeze the plaintiffs out of the market. The Supreme Court found it difficult to see the existence of the alleged predatory pricing act. "The success of any predatory pricing scheme depends on the ability to maintain monopoly power long enough to make up for the loss of predators and reap the rewards." "If a long awaited monopoly cannot be guaranteed and maintained for a considerable period of time, then these" predators "will have nothing to gain.

In the case of the Brookegroup v. Brown&williamson Tobacco Company in 1993, the Supreme Court still ruled that the charges were not substantiated, apparently by the Chicago School of Philosophy. In European and American countries, predatory pricing is considered as "anti-competitive" (anti-competitive) behavior, and is regulated by competition law or antitrust law. But reasonable price competition means should be protected, if the Legislative Council to undermine competition, it is tantamount to putting the cart before the horse. Similarly, in China, where the market mechanism is not yet in place, it is particularly wary of the tendency to call on the government to "pipe a pipe".

Back to the Beijing-East and Suning easy to buy the war, the implementation of predatory pricing is a prerequisite for the enterprise occupies a certain market dominance, it is clear that jingdong in the field of electrical business does not enjoy this status. Even if Liu really do not understand "predatory pricing", it is impossible not to know that he can not rely on a real "price war" to drive away suning and other competitors. As many consumers have pointed out, this round of price war in the capital, instead of large price reduction, but in many commodities "fare", which is no longer a question of predatory pricing, but involves false propaganda, cheating consumers.