During the Fall, Wal-mart and Amazon (along with other retailers) have been engaged in a price war for toys, books and now DVD's (h/t - Jeremy A.). The problem with price wars is that prices tend to be below market equilibrium prices (which is great for purchasers) but not sustainable.
For example, in the book price war, Wal-mart, Amazon and Target are now rationing (yes, rationing) books so that other book sellers will not purchase them at lower unit costs and re-sell the books at more market oriented prices. This is a classic case of arbitrage, which should happen in a competitive marketplace, and something the three amigos should have foresaw before they engaged in the price war.
Saturday, November 7, 2009
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