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Originally posted by Did you just call me Coltrane?
Couldn't Walmart subsidize the loss in groceries (pricing them even lower than grocers) by their profit from other products for five years or until they knock grocers out of business? Isn't that what huge companies do? Economies of scope?
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Not to be an Econ-dweeb, but the phenomenon you describe has nothing to do with Economies of Scope. You've described predatory pricing (aka cross-subsidization/loss-leading). Many big companies do do this. It's risky.
It's one thing to eat the loss on groceries as a marketing expense to get people in the stores to buy appliances (or CDs, in the case of Best Buy). But to bank on being able to recoup it when your competitors go out of business . . . most of these guys are very well heeled and are in it for the long haul.
I've been told from people who know, that WalMart's lower prices are due in equal amounts to a) their ability to buy on a much larger scale than anybody else, b) their ruthless exercise of their buyer power (chargebacks), and c) their far-superior inventory and logistics system.
