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Uber-Screwed: How Corporations Use Loss-Leader to Strangle Competition and Bleed Communities

Make sure to check out the full write up below the Ghion Cast video.

Imagine somewhere in a beleaguered city, five children come up with an innovative way to sell lemonade in their impoverished neighborhood. After a long deliberation, these five kids tell their parents about their idea. The parents, excited to see their kids do something creative, all jumped on board and expanded all efforts to attain the necessary paperwork and permits. A week later, these five kids launched their business; they had a grand opening of five lemonade stands placed strategically throughout their neighborhood.

These five kids managed to catch lightening in a bottle. Not only were they making enough money to fill up their piggy banks, the lemonade stands were so successful that the five kids were able to alleviate the financial difficulties their respective parents were facing. News caught on, the lemonade was so delicious and the story of five kids helping their parents through their innovative lemonade so moving that people from all over the state would drive down to get a cup of the famous “5 Kids Lemonade”.

All was going great. Until one day, parents from the wealthy part of town caught wind of the success the five children from the city of hard luck were enjoying. They looked at their kids playing video games all day and decided to do something about the apathy of their children. A deal was struck between the parents and their children; the wealthy mom and dad would fund their children’s own lemonade stand that would compete directly with the “5 Kids Lemonade” stands. The children were all promised brand new cars on their 16th birthdays and each kid was also promised their own credit cards. The kids, given financial incentives, were properly motivated and the parents were ready to go into business. They came up with a name, “Child-Corp Lemonade”, intent on making fortunes from the idea of the five children from the city. Within a couple of weeks, “Child Corp Lemonade” stands were popping up in the impoverished parts of town within close proximity of “5 Kids Lemonade”. The parents decided to buy all the products in bulk in order to enjoy a price advantage not enjoyed by “5 Kids Lemonade”. Moreover, because the wealthy parents had deep pockets—and their motivation was greed instead of the necessity that drove the five children to open the lemonade stands—they decided to employ a loss-leader strategy. What this means is that the wealthy parents were willing, and had the financial means, to take a loss on each lemonade stand in order to take market share away from “5 Kids Lemonade”. This tactic was lethal, where “Five Kids Lemonade” bought their inventory on retail, “Child-Corp” used their bargaining power and financial position to buy in bulk and at discount.

The five kids realized that they had to cut their prices to compete with “Child-Corp Lemonade”; they soon reached the break-even point and shortly thereafter got priced out in the race to the bottom strategy employed by “Child-Corp”. Not only did “Child-Corp Lemonade” undersell the five children from the poor side of town, they also had fancy billboards and merchandise that gave the image of status and glamour to their customers. Where “Five Kids Lemonade” were selling their lemonade in red cups, “Child-Corp” was selling their lemonade in golden cups with a fancy logo on it. A once thriving “Five Kids Lemonade” was effectively slaughtered by “Child-Corp Lemonade”; even though the idea of an innovative lemonade stand was initiated by the five children of blue collar workers, the two trust fund children drove them out of business.

To add injury to insult, the five children were hired by “Child-Corp Lemonade”. The wealthy parents made millions, their children got their cars and credit cards. Meanwhile, the five children who started the “Five Kids Lemonade” business found themselves working for minimum wage in the very industry they could have been thriving in. The two wealthy parents, smug in their victory, decided to “give back” to the impoverished town they screwed over. They started giving one scholarship a year to a child to attend college—for this “philanthropy” City Hall was renamed “Child-Corp Hall”. One out of the five children who started “5 Kids Lemonade” was a recipient of the “Child-Corp Global Initiative”. She went on to college while the other four languished and lived a life below the poverty line.

The five children could have become wealthy entrepreneurs; instead they were driven out of business by the deep pockets of the wealthy parents. If the competition was fair, the five children could have remained in business instead of becoming the charity cases of the wealthy parents. But they just could not keep pace with the size and scope of “Child-Corp Lemonade”; customers were more desirous of status and saving a few percent than they were interested in empowering children in their own community. The wealthy parents went from being millionaires to being billionaires while four out of the five children who started “5 Kids Lemonade” became statistics—the fifth child became a worker for a corporation instead of being an entrepreneur.

It was a combination of loss-leader, the strategy of intentionally under-pricing the competition to drive them out of business, and customer indifference that led to the shuttering of a once thriving business. “Child-Corp Lemonade” became wildly successful; not only did they thrive in the impoverished part of town, they went on to become a publicly traded corporation. They mimicked the loss-leader strategy in one town after another. Each time, they would invade a community and use their scale and size to neuter their competition and monopolize the marketplace. They drove countless companies out of business to become the undisputed kings of lemonade in America. In their trail, they left carcasses of destroyed businesses, impoverished communities and minimum wage workers—this is the face of cancerous corporatism.

Replace “Child-Corp Lemonade” with Walmart, Uber or your favorite Wall Street corporations and replace “5 Kids Lemonade” with your community and your children. Reread this article, the hypothetical story I conveyed was in actuality the reality of the plague on earth that corporate capitalism has become. I hope we really reflect on the decisions we make as consumers; corporations are nooses around our collective necks. Each penny we spend at Walmart instead of empowering local businesses is a penny that is taken out of our communities and given to billionaires. Patronizing a corporation means we are replacing a local entrepreneur with a foreign agent whose sole intention is to maximize profits and eliminate workers (inefficiencies). We are digging our own graves with our shopping habits; feeding the engine of corporatism is signing our own economic death warrants.

This scenario I painted above is not just a cute analogy, these things have real life consequences in every town and city throughout America. I spoke to Esmé A Carter, a co-owner of Carter Color Company which is a family paint company in South Carolina, about these very issue earlier. Esmé relayed the challenges of being an entrepreneur and why customers should really make an effort to patronize community based businesses. Esmé noted: 

“You are buying from people with a vested interest in their field. They are passionate about weird things, like paint! They have made a point of learning all they can about it and how to use it and when and where. Patronizing small businesses preserves that knowledge. Once the knowledge is gone, it’s GONE. There is no other source. And guess what? The internet is not always right. You CANNOT reliably find the correct answer to everything online. Eventually you need an expert. You will need a small business.”

Small businesses serve multiple purposes in this way. Not only do they have a vested interest in enhancing the community they serve because they live there, they also have a passion for serving the community in ways large corporations only give lip service to. I don’t write this to demonize people who work at corporations, my stance is against the system of corporatism that institutionalizes greed and places profits over the needs of people and the communities they live in.

It doesn’t have to be this way. Capitalism in theory is supposed to be a marketplace of ideas where companies and entrepreneurs compete on an even playing field. Theory has been hacked to death by incorporated machete wielders who keep using their size and scale to put bullets in the heads of their competitors. Companies who make billions use all sorts of chicanery in order to drive smaller businesses from the marketplace. Using a combination of rent-seeking, legalized bribes that the “elites” refer to as campaign contribution, graft (otherwise known as graft) and illegal anti-trust practices, we have become a nation of two realities where corporations make trillions while Main Street is witnessing an economic meltdown. Publicly traded corporations are at the center of this problem; Wall Street is the virus that is eating away at the fabric of our nation and this world. By the by, don’t you just love euphemism! Institutional investors own the vast majority of Wall Street shares yet they cunningly call it publicly owned companies. I’m pretty sure the devil must have been a marketer.

We are headed right over the cliff as a nation as both Republicans and Democrats, beholden to corporate interests, are making fortunes while they push peddle to the metal powering the machine of crony capitalism. After eight years of Obama feeding us to the wolves on Wall Street and fleecing tax payers to the tune of more than $14 trillion dollars laundered to Wall Street by way of Quantitative Easing, it’s Trump and the Republicans’ turn to stick the knife in the heart of the middle-class, blue collar and impoverished Americans. The difference between Republicans and Democrats is the difference between getting kicked in the gut versus being stabbed in the back.

Today, Republicans roll out a tax cut plan that will transfer billions to the wealthiest 1% and corporations while giving the bottom 99% get chump change. When you see “liberal” pundits feigning outrage over Trump’s tax cuts after being mum for eight years of Obama laundering money from Main Street to finance Wall Street, discount them all as frauds and duplicitous charlatans. As for the Republicans crowing about this tax plan and pretending that trickle down economy works, see them as nothing more than shysters and corporate hustlers. Alas, the rich get richer as the rest of us are told to eat Monsanto sponsored cake. “Child-Corp” will thrive as “five kids” and the rest of us get shafted by our government. Click! Clack! Kaboom America!
We are not powerless to affect change; we do not have to grovel like impotent and feeble weaklings for our liberation. The most powerful weapon that can change the world instantly and deliver economic justice resides in our hands, our feet and our wallets. Stop voting for duplicitous politicians who are all bought out by corporations and instead vote with your wallet. Reinvest in our communities and empower local businesses and we can build up our neighborhoods and store up wealth in our localities. Or else, keep marching and demanding change from the “elites”, that playbook hasn’t gotten us anywhere for centuries and it won’t get us anywhere for another thousand years. We can keep protesting and marching all we want, but if we keep feeding the engine of corporatism, we expose ourselves as masochists who scream foul after we get what we keep asking for. Either we will empower ourselves and our neighbors or we will stay #UberScrewed 

“The rich rob the poor, and the poor rob one another.” ~ Sojourner Truth

Check out the Ghion Cast below where I discuss the very things I mentioned above, we have it in us to either empower each other or bury each other in perpetual dependence. 

Teodrose Fikremariam
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Teodrose Fikremariam

Writer at Ghion Journal
Teodrose Fikremariam is the co-founder and former editor of the Ghion Journal.
Teodrose Fikremariam
Follow Me

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