Local merchants in the Northbrae neighbourhood of Berkeley, California (h/t Marginal Revolution) are fighting against an evil competitor who wants to sell the same products at lower prices. Apparently, there was previously a tacit agreement that each store would keep to its own speciality and there would be no undercutting.
This quote was especially amusing:
Asked why Monterey Market should not have the right to pursue a business model that includes selling what it wants, Ng said: ”Sure, but they don’t have to carry exactly the same products. It’s not that there was no competition before — we carried some of the same items — but we had matching pricing,” Ng said.
What a cheeky idea: “competition with matching pricing”. Of course it suffers from a minor drawback – it’s illegal. But this kind of implicit deal exists in many industries. Lots of companies say they refuse to compete on price – partly to preserve their premium quality image, but undoubtedly also because it helps to keep profits high, supporting all suppliers at the expense of consumers.
Equally comical-sounding:
[Monterey Market’s Sunday opening] has also had a direct impact on sales…opening hours used to be coordinated among the merchants, according to Ng.
It’s easy to mock this as naivety about how competitive markets work. But one can understand the impulse to maintain a local community of traders in the medium-term interests of both consumers and sellers.
In the short term, the new lower prices are good for consumers. In the medium term (if some of the other shops go out of business) they might be bad. But in the long term? I think this is the interesting question. Is the long-term survival of this particular group of businesses what people will most benefit from? Or is it better that the business mix in an area changes over time, as people figure out better (and/or cheaper) ways of doing things?
The answer is different for different people; some people value stability, some like novelty. But whichever of the two worlds you prefer, trying to forbid price competition probably isn’t the way to achieve it.
Shops which sell distinctive, high-quality goods can maintain a competitive edge in various ways. The most immediately appealing is the idea of packages: combinations or experiences that only you can create, and which give people a reason to come specifically to you.
In the case of ethnic foods (which I believe covers several of the merchants in this case) this could be recipes, special deals on ingredients which go together, cooking courses, or an online service for choosing and ordering a whole meal at once. Or it could simply be the fact that you’re on the cutting edge – seeking out the latest products in your category which the cheaper, generalist merchant has no time to find.
Any of these can help you maintain a price premium without collusion or the apparent sour grapes exhibited here. Of course they do all involve a bit of hard work. Surely the shops in this story aren’t suggesting they’re entitled to a living?