I’ve long extolled the benefits of companies competing for consumers’ business. According to orthodox economics, it reduces prices, and therefore profits, and thus shifts the division of the economic surplus towards consumers. Competition is generally a Good Thing.
Unless you’re the company being outcompeted, in which case it’s cause to go running to the regulator, hoping that they will stop the big bad bullies doing things better and cheaper than you. Like Paul Uniacke, managing director of Franchise Entertainment Group, which is the franchisor of 750 Video Ezy and Blockbuster stores. The Sydney Morning Herald reported that he has lodged a complaint with the Australian Competition and Consumer Commission because supermarkets are offering cheap DVDs when you go above a spending threshold with your groceries.
The ACCC “declined to comment”, but here are five reasons why they should instead have spoken out, and stated that they are in fact in favour of competition and that Uniacke is being a whinging crybaby:
- The number of discounted titles is… wait for it… three. Three, out of how many thousands? Granted, they are best-sellers among parents (the target market), but it’s hardly an all-out price war.
- You have to buy at least $80 worth of groceries before you get the deal. That’s well below an average family’s weekly food budget, so it’s not onerous if you’re doing that anyway, but it’s not something you’re going to do every day, or every week. Do it once, you have the DVD, the deal isn’t relevant anymore.
- How much does this really impact on Video Ezy and Blockbuster’s margins? They have been moving to selling DVDs more than they used to, but their primary business is hiring. They can’t compete on price with big discounters like JB HiFi anyway, they don’t have the requisite business model.
- Low prices are not “predatory” like Uniacke claims. If one company can provide something cheaper than another, they have every right to take market share – it benefits many, and impacts negatively on only a few. Predatory pricing is a fallacy, unfortunately codified in law with “anti-dumping” legislation, but that’s a subject for another post.
- Why should Video Ezy and Blockbuster have special protection anyway? They don’t even fall into the normal categories that advocates of protectionism say are worthy of special treatment – they’re hardly vital interests or the “commanding heights” of the economy.
In short, the complainers are exaggerating the threat to their business, and even if they weren’t, their woes don’t deserve any consideration from the ACCC. They are essentially asking consumers to subsidise their business, and should be rejected outright.
Ironically, the full cost of the DVD is embedded in the groceries, so people are deluded if they think it’s much of a bargain. It’s not a price war, just smart marketing. Time for Franchise Entertainment Group to stop running to Mummy and instead start thinking creatively about how to run and grow their businesses. If not, good riddance.
* In case anyone takes offence at the title, it’s a reference to this.