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Technology Stocks : Dell Technologies Inc.
DELL 118.75-0.8%Jan 14 3:59 PM EST
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To: SecularBull who wrote (45954)6/2/1998 11:35:00 AM
From: rudedog  Read Replies (1) of 176387
 
LoD -
An interesting study done in 1958 on the real data about Standard Oil pricing before the breakup showed that Standard did NOT engage in predatory pricing. The reason was simple economics. If standard had 80 percent of a market (as they did for Kerosene) and their biggest competitor had 10%, then standard would have to pay $8 for each $1 they cost their competitors. Other studies showed that if standard then used the elimination of other competitors to raise prices, they could never make back the money they had lost - if their prices got too far above production costs, then a new competitor would enter the market to take advantage of the new price point. Standard actually built its dominant position by economies of scale which made it the lowest cost producer.

The same is true in today's market - the lowest cost producer is immune to competitive price pressure over any reasonable time span. This is especially true if the lowest cost producer also has lower share since just as in the standard case, a predatory price action cost the market leaders more than the lower volume vendors. We have seen this in the recent quarter. CPQ, IBM and HP cost themselves a lot of money with their pricing actions, but apparently had little effect on Dell. I do not believe their actions were intended to take share from Dell (or at least that was not a major goal), they were just trying to move out the inventory glut.
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