Vance isn’t sure if this article is a parody or not

by on May 18, 2011 at 5:38 am in Economics, Education, Food and Drink, Games | Permalink

Emotions are running high in the Northbrae area of Berkeley, and the friendly spirit of the neighborhood is at stake, according to a number of small merchants who are afraid they will not survive in the wake of what is being perceived as aggressive marketing strategies at Monterey Market.

Several small businesses say the owners of Monterey Market have begun to deliberately stock items that they specialize in — including certain cheeses, wine and flowers — and they are selling them at predatory prices, which threatens the local merchants’ livelihoods.

A group of Northbrae neighbors has distributed a hand-out in support of the small local merchants in which it criticizes Monterey’s approach. ”We are making a moral and ethical appeal,” said Tom Meyer, speaking for the group. Signatories on the hand-out include Monterey Fish, Gioa Pizzeria, Hopkins Launderette, and Storey Framing. (See the hand-out here.)

…Meyer said that recently the group had been approached by a representative of Monterey Market to set up a meeting. “That discussion will determine where we go from here,” he said.

Asked what he expected from the Market, Meyer said: “They should talk to their fellow merchants about how they could all flourish.”

The story — if that’s what it is and I believe it is — is here.  The caption on the photo reads: “Shirley Ng, owner of Country Cheese Coffee Market, says Monterey Market is under-cutting her prices.”

Chris E May 18, 2011 at 6:12 am

What is unbelievable in this article? Chain stores have been doing this forever.

For instance, Tesco in the UK regularly sells ethnic items at cost in certain stores.

Mercy May 18, 2011 at 7:45 am

The important point is they do that and then they once they’ve driven everyone else out of business they raise their prices to higher than what the competition offered. It’s not clear that’s what’s happening here but yeah, the response from Tyler and co is pretty dumb.

Rahul May 18, 2011 at 8:31 am

So how am I supposed to judge if the other shop is just giving me a better deal or trying to be a predator?

Kleiton S da Costa May 18, 2011 at 8:56 am

When it happens, a store will show up, see the oportunity there and offer products at a more interesting price.

Free market.

Dean Sayers May 18, 2011 at 9:18 am

Sounds like quite a risk to take against an organization that previously proved it could undercut previous prices. Unless you are assuming that these new prices will still be higher than initial levels anyways?

Cyrus May 18, 2011 at 10:32 am

Retail is unusual in that it is an old sector where new firms have high market share. Barriers to entry are small, and established firms with market power can use it effectively against manufacturers, but not against consumers.

Noah Yetter May 18, 2011 at 9:41 am

This is the standard Predatory Pricing story, except you should know that it has never, ever happened.

If you can document it, there’s a Nobel Prize waiting for you.

William Newman May 18, 2011 at 11:14 am

Or, on a more modest scale, is predatory pricing one of the things where US antitrust law gives competitors standing to sue for triple damages (as opposed to leaving it up to the discretion of prosecutors and regulators)? My impression from summaries like http://www.maldonadomarkham.com/Antitrust-Law-San-Diego.htm is “yes.” If so, then aggrieved competitors documenting it might at least be able to top up their kids’ college funds or something.

Adam May 18, 2011 at 12:26 pm

“Or, on a more modest scale, is predatory pricing one of the things where US antitrust law gives competitors standing to sue for triple damages…? ”

Yes

dsquared May 18, 2011 at 12:11 pm

I would hate to see a young economics grad student blight a career by chasing down a blind alley, so I have to say that it is very unlikely that you would ever win a Nobel Prize by publishing yet another case study of predatory loss-leader pricing.

Psychohistorian May 18, 2011 at 12:15 pm

I am not familiar with empirical research on the matter, though it seems like it’d be hard to spot.

This economic analysis seems to be stopping one step short, though. Suppose the initial story is true and some crazy investor decides to start up a store and sell at a loss to drive everyone else out of business, and succeeds, then raises prices. If you’re an entrepreneur contemplating starting a store in that market, aren’t you going to be worried that they’ll engage in similar strategic behaviour the moment you enter the market? Particularly if you’re a specialty store vs. a grocery store, and they can undercut you on your product while remaining profitable overall.

If there’s a lot of churn in the sense of lots of new shops always starting up, this is obviously a losing strategy – and I’m that’s fairly typical, so it doesn’t work out in practice. But it at least doesn’t seem absurd that such a business might be able to deter startups with the threat of undercutting them – not to mention it’d already have substantial advantages due to routine consumers and experience with the local market.

Nylund May 21, 2011 at 11:03 pm

Why must they price ALL goods below cost? It could be just a few key items, highly advertised, that draws business away from competitors. They could slightly bump up the price of all the other goods to make up for the loss (or lack of profits) on the few discounted goods. IE, it could be a simple, “loss leader” pricing strategy. Its possible that the total amount paid by the customer may actually be higher. If the customer pays more attention to the few items that are steeply discounted than they do the slight increase on all other items, they may not even notice that their overall bill is higher. That is, they notice that the wine is $2 cheaper, but don’t notice that the other 25 items in the basket are all 10 cents more (how many people really notice the difference between $3.29 and $3.39?)

Given the natural variance in one’s grocery bill, it isn’t far-fetched for people to not notice this overall increase. One might argue that over time it would become apparent, but even then, it could easily be confused as a long-run increase in general food price trends.

Real people rarely act like “homo economicus” and real competitive markets are rarely “perfect”.

I’m not saying this post describes the scenario in the article, but hopefully it provides some food for thought.

Gimlet May 18, 2011 at 2:41 pm

Yeah, that’s exactly what Wal-Mart, Target and Home Depot have done after coming in and competing on price… Oh, wait…

You can compete on quality, but if your quality is matched you better be able to compete on price or service – and customers can decide which factor is more important.

Robbie May 18, 2011 at 10:05 am

I’d like to know which Tesco stores do this, in my experience ethnic food is more expensive at the big chains than smaller asian supermarkets. This is based on stores in the same area, not the after effects of successful predatory pricing.

My guess is that customers who buy these items at regular supermarkets are relatively wealthy people choosing exotic ingredients whereas in asian supermarkets they are poorer people buying their staples.

Dan Weber May 18, 2011 at 2:00 pm

The big chains charge more for the same food?! That’s criminal!

yucks May 18, 2011 at 6:30 am

@Chris E

hahahahahahA!

Is this a real comment Tyler? Or is Chris E your Jersey Shore alter ego Tyra?

Chris E May 19, 2011 at 7:51 am

Yes, it’s a real comment. What’s new about another story about chains selling stuff at cost to drive their competitors out of business?

A. May 18, 2011 at 7:13 am

Who is Vance?

yayaver May 18, 2011 at 7:40 am

History shows that where ethics and economics come in conflict, victory is always with economics. Vested interests have never been known to have willingly divested themselves unless there was sufficient force to compel them. A moral and ethical appeal will never work :(

Matt May 18, 2011 at 9:52 am

Not in Berkeley!

Lknobel May 18, 2011 at 7:40 am

Tyler, read on to the comments (pushing over 100 now) and you’ll see that many Berkeleyans do understand economics.

As the co-owner of the site that published the piece, I can say that I share your bewilderment. But it’s just part of the never-ending saga of Berkeley life.

Tom West May 18, 2011 at 8:30 am

Isn’t this a “prisoner’s dilemma”-like issue?

Most people like having the small stores (else why shop in the area), however, if only they defect, they’ll get the lower prices *and* the small stores.

Sadly, everybody thinks the same way and they lose the small stores, even if for every individual, having the small stores was worth the difference in price.

Thus the larger merchant could well be reducing the total happiness of the area.

anon May 18, 2011 at 9:17 am

isn’t the best indicator for liking small stores actually visiting them?

if people only liked them visually but not for shopping, the optimal answer would be to create “fake” unpopulated stores and go shopping at the mall.

besides, people have other desires too: e.g. having an apartment in the area of town with the small stores. these desires are in conflict with the desire to have beautiful stores.

Ryan May 18, 2011 at 1:13 pm

I like the term, “Locavore’s Dilemma”, but in essence, it’s just a subset of the term you suggest.
http://www.econlib.org/library/Columns/y2011/LuskNorwoodlocavore.html

The problem I have with “reducing the total happiness” is the measurability of such a subjective concept. The authors in the above argue that individuals may be more happy with the ability to spend the dollars saved by purchasing the less costly item on other products.

John May 18, 2011 at 8:35 am

Tyler, do you not see the dynamic issues here? If the market commits to selling these things at similar prices (relative to costs) in the future, then OK, great, let them sell them. But if they plan to attack other businesses via liquidity constraints, then this is definitely a bad thing.

I am not taking a stand either way in this case.

The quote advocating collusion is funny.

anon May 18, 2011 at 9:26 am

the large stores will only engage in predatory pricing if the (discounted) potential monopoly gains from being the only store in the future are larger than the current costs of the predatory pricing (opportunity costs of capital included).

re-entry of small stores (and the new entry of large stores) into the market is always possible when the large store raises it’s prices again.

therefore, in the absence of entry barriers (which do not seem to exist here), predatory pricing will be unlikely. the observed lowering of prices therefore should be a result of higher productivity by the large store. this is not predatory pricing.

more generally, if some company should decide to give away its products for free (products which had cost real resources to produce), should consumers really consider to be harmed by this? a prohibition of this behavior would amount to the destruction of a newly discovered facility which allowed the magical production of a product for a limited period at no cost. given the unlikelyness of predatory pricing (remember, such a behavior is kept in check by the possibility of entry), i think the answer would be no.

to sum up, consumption is the sole end of all production.

chris May 18, 2011 at 9:44 am

the large stores will only engage in predatory pricing if the (discounted) potential monopoly gains from being the only store in the future are larger than the current costs of the predatory pricing (opportunity costs of capital included).

Only under impossibly strong assumptions about predictability and rationality. Otherwise you need to insert the word “expected” and allow for the possibility that the large store could engage in this strategy because of a mistaken expectation that it will work, even under conditions where it actually won’t.

Unless you want to claim that large businesses never commit management blunders, in which case you may have an opportunity for a career as a comedian.

therefore, in the absence of entry barriers (which do not seem to exist here),

In real economies there is always at least one entry barrier: startup costs. A startup will have higher costs of capital than a large chain, too (even, or perhaps especially, if it’s founded by the former manager of one of the stores driven out of business by the predatory pricing).

predatory pricing will be unlikely.

Don’t you think your theoretical prediction of unlikeliness should take a backseat to examining the facts of the particular case? If predatory pricing is already taking place, a theoretical conclusion that it is “unlikely” says more about the validity of the theory than about the facts on the ground.

Tom May 18, 2011 at 11:13 am

Not much of a debunking there, Chris. Anon seems to be largely right. (See, I used ‘seems’ and ‘largely’ so I wouldn’t have impossibly strong assumptions about predictability and rationality. )

mlc May 18, 2011 at 12:52 pm

Once again, predatory pricing is not assumed here. The price is just shown to be lower than the competition’s. The question, at least as you put forth, is whether the management is anti-competitive or whether it is just incompetent.

Personally I think this discussion is pointless. If the people of Berkely really do care about keeping small business thriving and eating ethical and moral cheese, it would seem they will choose to shop at the small store and pay the high price, sending a clear message to the ‘predatory’ merchant with their buying decision.

John May 18, 2011 at 10:02 am

I do not disagree with most of what you said, other than that there are significant barriers to entry (as noted by chris). I think people frequently underestimate barriers to entry. You need to do a LOT of work before you can open a business, e.g. actually learn how to operate such a business.

With this is in mind, consider the following strategy of the large firm: First I drive the small firms out of business via predatory pricing, after which I price as a monopolist (suppose this is a net gain). If you later try to enter, I revert to the lower prices. Small firms choose to never enter. Do you think this is a plausible equilibrium? I do. Of course all of this is resting on the fact that one firm has a significant liquidity advantage over the others, which in general is not true (maybe Wal-Mart will open a store). But there are many other possible reasons Wal-Mart may decide it does not want to compete here.

Adam May 18, 2011 at 12:31 pm

“With this is in mind, consider the following strategy of the large firm: First I drive the small firms out of business via predatory pricing, after which I price as a monopolist (suppose this is a net gain). If you later try to enter, I revert to the lower prices. Small firms choose to never enter. Do you think this is a plausible equilibrium? I do.”

You are describing a situation in which potential competition restores competitive pricing. From a policy perspective, that’s an acceptable outcome.

Barriers to entry for a cheese shop are vanishingly small, as is generally the case for specialty retail. Not non-existent, but not what I’d want to bank on is I needed to recoup predatory pricing.

John May 19, 2011 at 2:13 am

No, you are misunderstanding me. The small firms know that if they enter they will only be undercut and driven out of business again. So they stay out, and in equilibrium we see monopoly prices.

I am curious about your claim that “barriers to entry for a cheese shop are vanishingly small.” To me, no barriers to entry means anyone could enter. I.e., if there were profits in this industry, then you or I could make a sure and costless profit. Are you telling me if the cheese shop in town is making profits (in excess of what the owner’s time is worth if he spent it elsewhere), you would immediately be there to swoop in and pick up the free nickels? I for one have NO IDEA how to run a cheese shop. That fact is a very nontrivial barrier to entry. How many people do you honestly think know how to run a cheese shop? If you think it is such a simple thing, then why do 90% of restaurants fail in their first year? I am very interested to hear why, in a world of perfect information (that is, including perfect knowledge of and ability to implement any technology), 90% of economically savvy individuals fail at running a restaurant each year. I guess it must be because in the “good state” we make 9 times more than we lose in the “bad state.”

Please do respond!

Adam May 19, 2011 at 12:18 pm

Wait, cheese shops are hard to run because not everyone knows how to run them and because restaurants (a different business all together) fail? That line of argument does not make sense.

When I think of barriers to entry I think of capital costs, particularly specialized know how, intellectual property, large minimum efficient scale, or perhaps customer relationships/contracts where there is a limited customer pool.

A cheese shop takes minimal cash and general retail knowledge. That’s not literally none, but it isn’t much, which is why I said “vanishingly small” instead of none. It’s buying and selling a particular kind of product, and apparently in Berkley it can be done with a 30% margin (note that she doesn’t seem to be saying that Monterey is pricing below cost).

As to your theory of equilibrium in which monopoly prices are maintained but no one enters despite limited barriers, I don’t think that’s stable.

sourcreamus May 18, 2011 at 3:42 pm

This is a strategy that reminds me of the “We beat any competitor’s advertised price” scheme. It is possible that it exists in the real world. But in order for it to work, the company has to have so much money it can afford to lose lots of money for a indeterminate period of time and then it requires all the potential business people to be knowledgable of the monopolist’s margins and also the absence of a related business which could start selling what the monopolist sells while their prices are high and can exit the business when the monopolists starts to lose money.

Right Wing-nut May 18, 2011 at 8:47 am

What is ethical about sellers colluding to raise prices? These small shop owners have a entitlement mentality. Small wonder their state is a basket case.

Jonathan May 18, 2011 at 8:48 am
Chris May 18, 2011 at 8:49 am

Obama definitely needs to send some antitrust boys down Berkeley way to knock some heads.

tom hynes May 18, 2011 at 10:50 am

My thought exactly.

“They should talk to their fellow merchants about how they could all flourish.”

I would love to have a recording of that discussion.

E. Barandiaran May 18, 2011 at 9:49 am

Yes, I still live in Santiago Chile. I know quite well Monterey Market, however. In the past five years I spent at least two months every year in Berkeley, and I used to go to Monterey Market for my groceries. Last year I learnt about Monterey Market’s family feud and now it seems that they are changing some of their policies.
The main problem, however, is that Berkeley is at best “a lost paradise”, a good example of California’s decline. I’m not surprised that in a declining economy, competition is prompting behaviors that upset neighbors. Anyway, if you live walking distance from Monterey Market but have a car, I suggest to buy your groceries at Berkeley Bowl. And never shop on Thursday’s Berkely Farmers’ Market (the one on Shattuck between Vine and Rose) –their high prices are to be paid by the many old rich professors of North Berkeley.

Ken Rhodes May 19, 2011 at 9:40 am

Dr. Barandarian, I occasionally disagree with your politics, but I ALWAYS look forward to your comments. This is terrific. It reminds me of an exchange from the American TV show “West Wing.” The President asks some obscure question. Chief of Staff Leo McGarry immediately answers it. One of the staffers, amazed, asks “how did you know that?”

Leo replies “I know LOTS of stuff.”

brian May 18, 2011 at 9:54 am

It is funny that the author, expecting the reader to be outraged by the chain store’s low price strategy, drops this little gem at the bottom, “Asked what he expected from the Market, Meyer said: “They should talk to their fellow merchants about how they could all flourish.”

I assume they will be discussing prices with “their fellow merchants.” Wonderful…

Rahul May 18, 2011 at 2:00 pm

Isn’t that collusion? If Walmart and Target had a similar talk they could be one step closer to prison.

Tim May 18, 2011 at 9:55 am

I think the parody here is that Monterey Market is a single-location store. It shares a market of 100,000ish with a Whole Foods, the afore-mentioned Berkeley Bowl (now with two locations! Egads! where’s the chain store Czar???), a Trader Joe’s, Andronico’s, Albertson’s (I think, in Albany?), Safeway, and the world’s best farmer’s market at Oakland Grand Lake. I lived up the hill from Monterey Market but never had a reason to go there more than a few times, when it was between me and my destination. Too many other choices with wider selections and better prices. The little guy is getting squeezed by everyone, and Monterey is just one of those getting squeezed. Groceries are a “what I lose on margin I make up in volume” kind of business. That’s their current model, apparently.

Adam May 18, 2011 at 12:46 pm

That and this is an article in which multiple store owners are quoted talking about how their competitor has the same products as lower prices (great advertising). And someone propose fixing one alleged competitive issue (predatory pricing) with another (price fixing).

Laurel May 18, 2011 at 11:40 pm

To whatever extent they’re sharing with the Grand Lake farmers’ market, you’re looking at a much larger than 100,000-person market. Berkeley has about 100,000 and Oakland has close to 400,000.

Vance May 18, 2011 at 9:59 am

Actually, I know it’s not a parody. What I’m unsure about is whether or not the writer is being sarcastic or not.

Lance Knobel May 18, 2011 at 11:05 am

Vance, the writer was trying to report a story. It’s not his point of view. All the parodic elements are quotes or paraphrases from the other local merchants or the guy who organized the leaflet.

The owners of Monterey Market refused to comment, so their point of view is absent. Niclas tries to get that across with lines like, “Asked why Monterey Market should not have the right to pursue a business model that includes selling what it wants…”

As the co-founder of Berkeleyside and an econoblogger avant la lettre, believe me that we saw the economic strangeness of the local merchant argument.

James Oswald May 18, 2011 at 10:08 am

Best quote from the article:
“We only have a 30% mark-up”, said Ng, adding that she doesn’t understand how Monterey Market can sell the same products so much more cheaply.”

Umm… maybe a 25% mark-up?

chris May 18, 2011 at 11:34 am

Or using their large size as a chain to get volume discounts from suppliers. Different stores aren’t necessarily marking up from the same cost.

If a small guy can’t even buy wholesale at the same price, that’s an even bigger barrier to competitor entry than just plain startup costs.

mobile May 18, 2011 at 11:46 am

This comment would be more defensible if Monterey Market were a chain, and not also a single store. Not a lot more defensible, though.

Rahul May 18, 2011 at 2:25 pm

Are you arguing against quantity discounts, in general? 50 years ago my grandpa bought milk from a 5 cow farmer but now I buy from a dairy having 1000 cows. Is there something besides nostalgia that needs us to bend over backward to protect the “small guy”? Economies of scale are a good thing!

meter May 18, 2011 at 4:08 pm

Won’t it be wonderful when there is a single supplier for everything?

Rahul May 18, 2011 at 5:06 pm

Ok, so where exactly are we facing this peril today?

Dan Dostal May 18, 2011 at 5:30 pm

If economies of scale were the only real principle applied, we already would. Of course reality has all kinds of competing forces.

David May 18, 2011 at 10:09 am

“The relationship between the new management and the community seems to have got off on the wrong foot soon after Fujimoto left.”

The community seems just fine with it. It’s the other merchants that don’t like it. I’m with Chris. Conspiring to fix prices and fix hours, isn’t that illegal?

I wonder if those Berkeley merchants originally just got together for merriment and diversion and then, next thing you know, a conspiracy against the public.

Bill May 18, 2011 at 10:12 am

I read the article and got a different story and a separate lesson:

I. The Different Story: The breakdown of a cartel and the resulting price competition.

From the article:

a.. “The decision by Monterey Market to stay open on Sundays, which it started to do in November last year, has also had a direct impact on sales, according to Ng and Rosales. In the days of Bill Fujimoto [the former manager of Monterey Market], opening hours used to be coordinated among the merchants, according to Ng.”

b. “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.”

II. The Second Lesson: Enlisting the customer.

a. One of the classic articles on how to fight a price war published by the Harvard Business Review discusses how one should enlist a customer in fighting a price war. The case involves a duopoly of two undifferentiated bleach manufacturers, one with a locational advantage. The close in competitor is threatened by entry of the more distant player, and, because it is less diversifed than its rival, is concerned about going out of business. One of the strategies discussed in the article is actually going to retail store chains and explaining that if they were to exit, re-entry might be difficult and prices would be higher, and seeking long term contracts with price matching guarantees to minimize picking off of selected accounts.

III. If any of the merchants are involved in encouraging this boycott, they will be visited by the FTC or DOJ.

DaveyNC May 18, 2011 at 10:36 am

Looks to me like the virtuous small shop owners have been colluding for years to extract higher rents from their customers. Is that really an example of this “friendly community”?

Funniest line from the story: ”’We are making a moral and ethical appeal,’ said Tom Meyer, speaking for the group.” LOLZ, a moral and ethical appeal to keep their own margins artificially high.

Michael Caton May 18, 2011 at 10:46 am

I think the suspicion that this is a parody comes from seeing merchants’ moral outrage that a competitor would try to compete. (I guess they’ve never heard of stores that accept competitors’ coupons.) The entitlement attitude isn’t surprising here. I lived in Berkeley for 10 years about a mile from this place, and while I can see how this would seem like parody to someone not familiar with the local culture, this is probably real.

Slocum May 18, 2011 at 1:46 pm

I think the suspicion that this is a parody comes from seeing merchants’ moral outrage that a competitor would try to compete.

That and the completely unaware comment that collusion between merchants to match prices and/or avoid offering the same items would be a good, natural thing to do (as opposed to an immoral and illegal activity). It’s a little mind-blowing to me even living here in Ann Arbor.

Kevin Postlewaite May 18, 2011 at 12:15 pm

I believe that this should have been filed under “The Culture that is Berekeley”

MPS17 May 18, 2011 at 12:23 pm

Perhaps snippets like this are a good test of ones preconceived biases. One side is preset to argue “this is the markets should work” while another side is preset to argue “this is a market failure” when the reality is, to judge what is in the best interest of the community, you have to know more about *why* Monterey Market is capable of undercutting others’ prices.

Dan Dostal May 18, 2011 at 5:39 pm

This is definitely true. Conspiracy theories aside though, I’d say it’s more a matter of quality versus quality, which often cannot be proven with what our society considers commodities.

martin May 18, 2011 at 12:23 pm

Per Noah and predatory pricing. Look up Go Airlines and Aloha. The former undercut pricing on interisland flights, the profitable part of Aloha’s business and forcing them to match the money losing prices of Go. When Aloha went under, the surprise was that Go went under too, leaving Hawaiian (think USAIR with leis) as the only interisland carrier. With no other means of public transport between the islands, Hawaiian can price as high as they please so long as it does not induce new competition. When there are high barriers to entry – capital costs here – predatory pricing can have significantly negative impacts on the consumer. I am not so sure it applies to produce.

Andy May 18, 2011 at 1:07 pm

Yet prices on flights to Hawaii, at least from the West Coast, are now incredibly low. Moreover, at least one other carrier – Alaska – has recently entered the market, and seems to be doing fine. How does your “predatory pricing” theory explain that?

Urstoff May 18, 2011 at 4:31 pm

It’s another failure to see the long-run. We can all imagine scenarios in which predatory pricing is harmful in the short run. But in the long run, any laws to stop predatory pricing will doubtless hurt the consumer.

martin May 19, 2011 at 12:36 am

Andy – You are talking the mainland market which has plenty of competition. Interisland fares are very expensive (think flying from Paris to Rome before Ryan Air).

martin May 19, 2011 at 12:41 am

Urstoff – I am not sure on what evidence you base your conclusion about the long-run. Certainly 20 years from now, the example I cited will have changed, and likely in consumers’ favor. The only extensive system of anti-predatory pricing laws that I know of is the World Trade Organization (I think) which adjudicates on such matters. It would be interesting to hear how their efforts have helped/hurt the consumer and the goal of economic development.

Andy May 18, 2011 at 12:38 pm

This is certainly a “culture that is Berkeley” story. I was given one of these fliers the other day when I was walking into Magnani’s, the butcher shop across from Monterey Market. The fliers were made and handed out by a bunch of aging hippie busybodies. No doubt they have the support of the owners of the small stores cited. But I doubt the stores were the driving force. I suspect that Ng and the storeowners see signing on as a good way to build credibility with their core customers – aging hippie busybodies.

I shop at all these stores, they all sell good stuff at reasonable prices, and all seem to be successful. Perhaps before the Monterey Market management change, there was some unspoken agreement among the stores’ owners, that none would sell products sold by the others. But it’s hard to blame MM for starting to sell more cheese, wine, etc.. Berkeley has a great food culture and plenty of money, and there is room in the market for more than a few top-notch grocery stores. Now, though, the economy is down, competition is fierce, and one nearby grocery, Andronico’s, is in financial trouble. No doubt MM is looking for ways to avoid that fate.

E. Barandiaran May 18, 2011 at 2:13 pm

I’m surprised you say that Berkeley has plenty of money. I’d have said that Berkeley used to have plenty of money. Indeed there are still many rich people but most are old, and the Bay Area’s new high-income professionals and intellectuals prefer not to live in Berkeley. The local demand for groceries will hardly grow at all in the next 10 years, and most likely will be lower.

fred May 18, 2011 at 1:26 pm

From the author’s website (http://www.niclasericsson.se/), roughly translated by Google

Storm in ostdisken
May 18th, 2011
My very first article for the American media has been surprisingly a lot of attention. The highlights of the world’s second largest economy in the blog that wonders if this is a parody . No, no parody – all seriousness (full article available here) . Read full »

I think that second sentence is about MR!

Urso May 18, 2011 at 1:41 pm

When I lived in that part of the country people told me “the Bay Area is surrounded by reality, but not in reality.”

Rahul May 18, 2011 at 2:26 pm

Umm….so the lady in the photo: is she looking sad or happy?

hern May 18, 2011 at 3:28 pm

I’ve been to Monterey Market. I think you can get the same goods at either of the Berkeley Bowl locations for even cheaper.

http://www.berkeleybowl.com

Chris May 18, 2011 at 5:07 pm

It sounds like the existing stores are participating in collusion.

“Get together to agree on hours”
“Offer the same items only at an agreed-upon price” possibly revenue-maximizing and certainly not the best for the consumer.

Ross Parker May 18, 2011 at 5:45 pm

This comment thread is quite depressing. It appears there are a large number of long-term readers of an economics blog that think price-fixing cartels are defensible. I dread to infer how that reflects on a broader sample of the population.

lemmy caution May 18, 2011 at 6:08 pm

There are some stores in my area that coordinate prices. They are called “Safeways”.

Adam May 18, 2011 at 6:15 pm

You forget its a libertarian economics blog? The government is always bad, man.

Although actually, I didn’t see many defenses of price fixing in this thread. I did see the more common willingness to credit the existence of predatory pricing, which I personally think is exceedingly rare, if it happens at all.

Ken Rhodes May 19, 2011 at 9:54 am

Ross, I wonder about your depression in re “price-fixing cartels.”

In a previous comment Tim, who told us he “lived up the hill from Monterey Market but never had a reason to go there more than a few times, when it was between me and my destination. Too many other choices with wider selections and better prices.” He cited Trader Joe’s, Safeway, and several others.

I think if a bunch of minnows get together and decide to collude against the sharks by agreeing on higher prices, I’m hard pressed to call them a “cartel,” or to figure out how their collusion is harming the free market.

Adam May 19, 2011 at 12:22 pm

“I think if a bunch of minnows get together and decide to collude against the sharks by agreeing on higher prices, I’m hard pressed to call them a “cartel,”

I would not want to make that my defense when the DOJ or California AG comes knocking, even if it’s right as purely a matter of economics.

Also, there may well be a smaller geographic or product market here across which these people are not minnows.

SteveX (formerly Steve) May 18, 2011 at 10:01 pm

Maybe the store owners can use the same strategy the blacksmiths used for the common goal of defeating the automobile.

Rahul May 19, 2011 at 4:19 am

………tossing nails on the street?

SteveX (formerly Steve) May 19, 2011 at 8:07 am

Wouldn’t doubt they tried that too, with the same inevitable result as everything else they tried.

nora June 2, 2011 at 7:21 am

Pesticide grown, Pesticide sprayed, Loaded, Loaded, Loaded with Herbicides and Pesticides: The new Monterey Market is driven by commercial, synthetically grown and sprayed vegetables and fruits.

Does North Berkeley ONLY care about who is selling what??
Wake up.

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