On Wednesday, October 21, 2020 at 1:47:20 PM UTC+1, AMuzi wrote:
On 10/20/2020 10:01 PM, jbeattie wrote:
On Tuesday, October 20, 2020 at 5:46:34 PM UTC-7, Andre Jute wrote:
On Monday, October 19, 2020 at 3:59:46 PM UTC+1, jbeattie wrote:
On Sunday, October 18, 2020 at 11:48:43 PM UTC-7, Andre Jute wrote:
On Sunday, October 18, 2020 at 7:54:29 PM UTC+1, jbeattie wrote to Andrew Muzi:

You run a business. When bikes are selling like hotcakes, you don't drop the price. You sell your stock and bank the money for hard times -- maybe pay down your credit line or long term debt. You don't run a sale.

That's why you're a lawyer, and outsider looking in, Jay, why no one has ever hunted your handsome head to set up a business or even to run an established business. An entrepreneur in circumstances such as you describe, if he has a bit of capital or can borrow it, will run the biggest sale he ever ran, and buy all the stock he can, even if he has to pay premium prices and sell it below cost, and when the crisis is over, he may be in debt but his competitors will be out of business and his new market will be much, much larger, and he'll be able to attract investment because he'll be the only guy in his business standing up. You must have been skiving off the day they taught Schumpeter and entrepreneurialism in Economics 1899. Or were all the lecturers at your college already Marxists in your time? The problem with Marxism in a capitalist world is that dear old Karl thought of economics as a science, with one sure answer, like engineering. It isn't. It's a game for high rollers,
risk takers.

-- Jay Beattie.

Yeah, you're the one I'm talking to.

Andre Jute
The art is discovering the unit above and the unit below the unit at which the marginal cost meets the marginal income. That takes a lot of skill, but some can substitute luck; luck too is a talent.
Right. Let's take your scenario: Andrew drops prices, sells below cost, runs up huge debt to cover rent, payroll, cost of goods. He ends up with a massive debt-load. This assumes he can even find a lender (other than a CARES Act lender) willing to finance him as he inches towards bankruptcy. He's probably using credit cards or hard-money lenders because no bank is willing to take the risk after he's blown through his credit line or other existing facility, so its a nasty, high interest debt. And as a single shop, he's still not moving enough product to get the best pricing and good or any financing from his distributors.

And lets assume the the Red Jersey down the street can't beat Andrew's prices and shuts the doors. Andrew gets thirty-block market dominance for six months until the Green Jersey opens (selling ebikes and not classic Campagnolo), mostly debt-free. It's a low bar to market entrance. Meanwhile, after the market cools, Andrew has to raise prices to cover debt -- fire employees, move to smaller space, etc., etc. He goes out of business.

The more likely scenario is that the Yellow Jersey and the Red Jersey both make a bundle in the COVID market selling somewhat different products, pay down debt, build reserves, and when demand drops -- then they start price cutting at a time when stock is plentiful -- maybe run an annual sale, put on a bike fair, run an ad. They go back to the usual competition against cost-cutting internet sellers.

In the real world of small business and not the Andre imaginary world, nobody has access to super low-priced inputs (which, IMO, is the key) or enough cash to crush anyone. Even in the world of larger business, everyone from Schwinn to Performance/Nashbar proves that price cutting is more likely to result in bankruptcy than cornering the market.

-- Jay Beattie.

Have you ever been inside a Walmart or any other supermarket, Jay? How do your think they, or any other chain, got to dominate a market? How do you think Coca-Cola nearly succeeded in bankrupting Pepsi? How do you think any mom and pop store in one generation becomes a universal chain in the third or fourth generation? How do you get a driving license if your eyes are forever closed? What is the sound of one hand clapping? Just checking that you're paying attention.

Andre Jute
An economist is Janus-like. To government he is the enemy of oligopoly, purely on principle. To his corporate clients, he is a fount of practical wisdom on driving (almost all) their competitors out of business.

O.K., let's get Andrew onboard and test out your theory. Andrew, start selling all you stock below cost and vanquish your competitors. You will be Walmart in no time. Andre will bankroll you, at least until the Yellow Jersey IPO -- or bankruptcy, whichever comes first.

-- Jay Beattie.





No thanks. My old departed friend Bill Quinn literally wrote
the book on that 25 years ago:

https://www.alibris.com/How-Wal-Mart...530?matches=32

The other path for that plan ends with Gary Snook 'giving a
party for America' until all the capital is gone. Eddie
Lampert may be doing the same thing more slowly.
--
Andrew Muzi
www.yellowjersey.org/
Open every day since 1 April, 1971

Yup, smart people who have made their own success don't need to listen to lawyers or whiz kids. -- AJ