Does anybody know whats stopping ethical and slightly less greedy companies from outcompeting these conglomerates? Its a question I keep coming back to because if the market were efficient then competitors should be able to use that same data to undercut big potato (or big whatever). This never seems to happen.
I’m just guessing, but it likely requires scale in order to become profitable. Building up the necessary network, infrastructure and logistics, while getting up to speed on all the regulatory requirements, would require a lot of difficult work. VCs also wouldn’t fund something that merely becomes profitable, without a chance of making stupid amounts of money. The number of “founders” who would want to make this their carrier is constrained by that limited prospect as well, in addition to “selling potatoes” not being very sexy. And the price-fixing cartel would try to thwart you at every step.
That's called "barrier to entry" to a market (or "un-leveling the field of play"). Actually, that's what any significant corp use first to forbid any new competitor to compete (and that's the reason of the need of "disruption", meaning changing the field of play instead of trying to level it for all players).
Examples:
- laws and regulations provide great barrier for newcomers
- brand recognition (would you better by a know cigarette brand or unknown cheapest one?)
- technical and/or financial and/or IP investment, either because the INDUSTRIAL process need costly tools (so you need to be big from the start) or because you need some really specific know-how
Monopolies. They may not all have the 100% marketshare to convince regulators they legally constitute a monopoly, but in practice one can't compete on price with vertically-integrated conglomerates that already own the lion's share of the market, and have an existing relationship with all of your potential suppliers/logistics/retailers...
This is the answer. On paper, we have laws preventing monopolists from abusing their power. In reality, it's easy to disguise any predatory pricing or "special offers," running at or near a loss in your upstart competitor's market until they go out of business.
The only way you win is either major disruption (which is usually not possible), or having a bankroll comparable in size to the incumbent. But anyone with enough cash to enter the market is doing so for a return-on-investment, with just as much profit motive as the existing players.
>Does anybody know whats stopping ethical and slightly less greedy companies from outcompeting these conglomerates?
I like this question because it inspires the thought of an "incrementally more ethical firm". Ethics can be roughly characterized as constraints on behavior, therefore if two firms, all else equal, differ then the ethical one is naively at a natural disadvantage, having fewer degrees-of-freedom in any situation. The classic response is that cooperation between firms is itself a powerful advantage, and that ethical behavior ought to yield advantages to cooperation that outweigh the cost of behavioral restrictions.
I believe that the equation changes when ethical behavior itself is successfully attacked and associated with weakness. What happens to a bank if everyone believes it will fail? It fails. What happens when everyone believes that morality is weakness? Morality IS weakness. At that point the reputation and cooperation effects are erased, and only the loss of freedom remains. At that point the culture shifted from the "cooperate-cooperate" Nash equilibrium to the "defect-defect" one. (Religious belief tends to unequivocally favor "cooperate-cooperate" and can therefore both resist this transition and assist in the reverse transition, which adds to religion's social utility.)
Perhaps, given economies of scale, it's difficult for smaller more ethical companies to compete even with the price-fixed conglomerate product.
There are some more ethical companies, too. In N Out french fries are $2.30, certainly due to the fact that they own their supply chain and cut potatoes in house.
It's not like there's an open market you can actually just sell your frozen potato product on. The supply chain between producers and consumers is a web of vertical integration and deals between large oligopolistic companies.
If you can finangle a wedge of the market, they can just buy you, or apply local pricing pressure in lock-step based on their data broker recommendations.
By time a market is lopsided enough to incentivize startups to replace them, the established monopoly has built up a warchest of funds that is able to squash most any potential competition.
And even assuming companies don't resort to skeevy tactics to prevent competition, the companies that incentivize profit the most are going to have the most capital to expand and have the highest growth out of any potential competitors and fully saturate the market the fastest.
From what I can tell, market theory assumes it's easy to enter a market or that people with money to spend somehow want to use it to compete knowing that they're doomed to drive the industry back to "normal profit." Nobody investing money actually wants to throw money at something that will obviously drive a return to normal profit by competing, and do so within a few years after significant capital expense. They want to invest in something that will drive margin growth. Instead, the only reason people do it is to get a buyout offer from established businesses in the same market. Unless you're Mark Cuban.
Though the above is only true to a point - obviously if the margins get high enough or product deviates sufficiently existing businesses with related interests will step in: witness Costco's chicken business.
So maybe the question is less why isn't there more competition and more so why haven't restaurants vertically integrated their potato supply? The main theory I'd have is that price increases haven't negatively impacted their margins or revenues sufficiently yet.
Looking at expansion of local grocery "co-operative" in European country, well it might not have shareholders, but customers that bought in. And it is still expanding monster. Going to places where it really makes not much sense for entity that should offer shopping for local customers...
I'd add though that companies don't have to be "ethical and slightly less greedy" to compete on price. Competing on price is a natural way to gain market share. Nobody would say that Bezo expressed ethics and less greed when he said "Your margin is my opportunity"
Companies should charge the real equilibrium price of a product. It's an important signal to lower or increase supply. However, they should not create a coordinated scarcity or otherwise artificially force a higher price than the equilibrium price. This can only happen through (illegal!) cartels or too much market power (which the government is supposed to prevent).
As usual ee cannot ask for better people but need a system that makes the wrong people do the right thing.
My take: at scale, "more ethical" and "less greedy" are illusions. Corporation are not people, they are systems where, to succeed at large scale, being less greedy and more ethical is detrimental. Therefore, these good corporations are filtered out. Add to this the fact that each time, you need more and more initial investment to enter a market: you need to operate in larger scale with more and more technological investments. So, as the time passes, it is also harder to have ethical corporations operating in a market.
Because there is collusion in the supply chain as well. The grocery stores won’t place your product, the distributors won’t distribute it or will charge you more, the farmers will charge you more. This is why horizontal and vertical consolidation were made illegal a century ago. Anti-competitive behavior has to be policed at every level.
An oligopol often has some kind of moat due to anti competitive behaviour. E.g. the potatoe argument from the article, where McCain makes it hard to buy potatoes from anybody but them as they are part of a packaged deal.
What do you mean "free stuff". This isn't about giving potatoes away for free but about reducing margins and competing on price. "Your margin is my opportunity" seems to work well in many cases
I think Mastodon vs Bluesky is an example. Mastodon, being OSS developed in someone's spare time (I think he makes a meager salary off grants and donations now) is barely marketed. Bluesky, being a multi-billionaire's pet project, had plenty of marketing. As a result, everyone who complained about the lack of free speech on X still ignored Mastodon, the actually-free-speech-host-your-own-server-how-you-want-it platform, for an entire year, instead preferring to wait for Bluesky, the billionaire-owned-and-operated exact-copy-of-early-Twitter where a different billionaire still controls your speech, to come out instead.
This is naive and wrong. An example of this is Google Fiber and ironically Tesla. When Google Fiber came out, ISPs lobbied to sue Google and local governments to prevent Fiber from being available in their areas instead of competing. When Tesla tried to sell direct to consumer, dealerships sued to prevent it. Entrenched companies will always use the system to prevent competition. Regulatory capture is a term for a reason.
...which even my local CSA seems to manage. Not saying there isn't a burden, but it's nothing like laying fiber or laws which specifically ban direct sales of automobiles.
If there was big money to be made undercutting Big Potato, someone would do it. Even my CSA grows potatoes.
The OP asked for examples of things that prevent ethical companies from outcompeting unethical ones and I provided a few. Hyper-focusing on potatoes doesn't invalidate that.
Your local CSA is also unlikely to be audited by the FDA unless they tried to go larger than your community.
Correct, which is why they agglomerated in the first place. Sectors where you see lots of agglomeration are ones where there are significant advantages to agglomeration.
And yeah, it’s hard to do once, but obviously it’s dramatically harder to do after someone has already done it.
Its interesting how the benefits seem to be dependent on market context. Go to the ralphs, its big potato no doubt. Go to the farmers market and people are there arguably to avoid big potato and big anything else for that matter.
Oh sure: billions of dollars in cash? Hundreds of lawyers? Lobbyists on Capitol Hill? A buddy at USDA or EPA? Lower unit prices on just about every single thing they need to buy? Brand recognition? Strong negotiating positions in 100% of their deals?
