Price War

Consumers love these. Companies hate these. It's when two companies decide to battle it out for market share in a given industry.

Let’s say it’s the nut industry. Bob’s Walnuts really wants to take on Wally’s Walnuts. Normally, walnuts sell at wholesale for 5 bucks a pound. But now, with the option of bundling in almonds and Brazilians (nuts, not wax), each wants a dominant beachhead in walnuts.

So they drop prices. $4.80. Then $4.60. Then $4.40. They’re going to battle on the prayer that, in a year or three, they’ll make up the near-term losses by selling more nuts to nut...nuts. But for now, the war is making their businesses, which used to earn a healthy 20% pretax profit margin, go to break even. And then worse.

Who wins? Well, consumers who would have paid 5 bucks for those nuts are now getting nice, fat, nut-lipid-heavy surplus value of 60 cents a pounds.

And the worst part of this war for the sellers? They used to compete on quality. On ease of opening. On the packaging. On the jingle. But now, none of that matters. They’re only competing on price, a dial that many others can turn. So when the price of that pound drops to 4 bucks in the stupid price war they’re fighting, China notices, and with its highly skilled prison labor, drops a whole trainload of nuts on America priced at $3.50, signaling a death knell bankruptcy for one or both domestic companies who chose to fight this hard-shelled war.

Yeah, nuts.