Lower Your Newspaper Advertising Prices, Pay a $21 Million Fine

It may seem hard to believe in the era of Craigslist that a newspaper (in the Bay Area, no less!) can be found guilty of "predatory pricing" for lowering its ad prices, but not only has that happened in the U.S. and A., it:

A) happened in March 2008, when a San Francisco jury awarded damages from the Village Voice Media-owned SF Weekly to the hoary old San Francisco Bay Guardian to the tune of $6 million; then
B) saw that amount tripled by a Superior Court judge in 2008 to $16 million + $5 million in interest, and then
C) had that $21 million verdict upheld [PDF] this Wednesday in the First District Court of Appeal in San Francisco.

Over at the formerly True/Slant website now known as Forbes Blogs, William P. Barrett highlights this supposedly damning bit from the court's unanimous opinion (to help you sort through the title confusion here, the New Times chain was a longtime competitior to the Village Voice chain, and bought the SF Weekly in the mid-'90s, then eventually bought the Village Voice chain itself a few years back):

[S]oon after the acquisition [of the SF Weekly] the executive editor of the New Times, Mike Lacey, disparaged the content of both the SF Weekly and the Guardian at a staff meeting, and announced that he wanted "the SF Weekly to be the only game in town." The Guardian was considered the primary competitor of the SF Weekly. Lacey stressed that the New Times had "deep pockets," with the financial resources to "compete very aggressively" with the Guardian and use "guerilla tactics" in rate battles. Lacey also emphasized that he was interested in improving the editorial quality of the SF Weekly. To increase circulation, additional salaried journalists were hired to bring higher quality "long form journalism" to the paper. The essence of Lacey's message was that he wanted "to put the Bay Guardian out of business."

Good heavenly Moses biscuit sauce, a journalism competitor wanted to compete aggressively enough to win–partly by improving editorial quality and hiring journalists!–so we better drag him to court and slap him with an eight-figure fine? In the town that Hearst built? For really?

I don't know what's more nauseating here–an evidently robust state law making it unlawful "to sell any article or product at less than the cost thereof to such vendor, or to give away any article or product, for the purpose of injuring competitors or destroying competition"; the application of it in such a way that's clearly intended (much more than Mike Lacey's chest beating) to drive a newspaper out of business (consider that the penalty is most likely several multiples of the SF Weekly's annual revenue, let alone profit)...or that the journalistic thumbsucker community outside of the Bay Area has been almost completely silent about this potentially momentous precedent. (In part, this is because the media establishment has long resented Lacey and his minions for their allegedly right wing/libertarian/"neo-con" hippie-baiting pugilism.)

Why shouldn't the San Francisco Chronicle now use the same law (and courts) to go after Craigslist for its "predatory pricing" of classified ads? Why shouldn't every weaker link in a two-newspaper California town accuse the deeper-pocketed winner of "injuring competitors" through lower prices?

Though the VVM folks have previously been apocalyptic about the consequences of losing, and the SFBG graybeards are busy gloating, the court decision referenced a settlement being either completed or on the verge. While I kind of hope so (being friendly to Mike Lacey and Co.), part of me wishes there was some process by which California could legally strike down the tougher-than-federal-law predatory pricing/"injuring competitors" provision, especially as regards the media business. And the consumer in me just hopes that neither side ever takes down bitchy content like this.

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  • jester||

    In a nanny-state, we all need a Guardian.

  • PR||

    So Chevrolet is going to have to put an $81,000 MSRP on Volts?

  • Corduroy||

    Zing!

  • Paul||

    Good heavenly Moses biscuit sauce, a journalism competitor wanted to compete aggressively enough to win–partly by improving editorial quality and hiring journalists!–so we better drag him to court and slap him with an eight-figure fine? In the town that Hearst built? For really?

    Newspapers are the architects of their own doom.

  • Jeffersonian||

    You say that like it's a bad thing.

  • Paul||

    I am the Switzerland of commentary on the newspaper industry.

  • ||

    It is generally illegal for a large business to price items below cost in order to drive competitors out of business. That is a monopolistic tactic that has long been illegal under the Sherman Anti-Trust Act as well as state law. Without that, once you've gotten rid of competitors, you can raise prices as high as you want, as long as you maintain sufficient reserves to drop your prices as soon as someone decides to compete with you.

    Personally, I generally favor anti-trust legislation as it aims to increase competition and prevent really large companies (who mostly get that way through government largess in the first place) from controlling the market. That is, the market should be as free from interference as possible, whether by government or by large businesses who use government to manipulate the market to their advantage.

  • kilroy||

    Wait. Did you just argue for price controls?

  • Colonel_Angus||

    Monopolies can only be sustained when they are protected by the government interfering in the market. Even inaccurately labeled "natural" monopolies.

    Laws against "predatory pricing" have a similar effect to price fixing- by government force.

  • ||

    For a mind-numbing analysis and explanation of "monopoly" in all its manifestations, I heartily recommend Chapter XVI, ("Prices") in Mises' Human Action.

  • ||

    It is generally illegal for a large business to price items below cost in order to drive competitors out of business. That is a monopolistic tactic that has long been illegal under the Sherman Anti-Trust Act as well as state law. Without that, once you've gotten rid of competitors, you can raise prices as high as you want...

    Unfortunately, this assumes that getting rid of your competitors is as simple as dropping your prices below the competition, and that there's a one-to-one link between cause and effect there.

    The Starbucks in the strip mall near my house has four drive-thru espresso-stand competitors within a three-block radius. When Starbucks opens a store (in Vancouver, BC, for example, there are two Starbucks' cross-corners from each other; the first one drove a competitor out of business, then took over its slot), they'll offer free drip coffees and little cups of cocoa and baked good samples and all sorts of crap.

    But oddly enough, not all coffee drinkers want to drink Starbucks. So even if they offer cheap or free coffee, some coffee drinkers (myself included) are unmoved, because we still don't like their ka-ka burnt-to-shit beans. So even if they dropped their prices to where they paid me to drink their swill, I'd still not do it. And I'm joined by enough coffee drinkers to keep a lot of Starbucks competitors -- like the four that are within walking distance of my house alone -- in business.

    Don't assume that price is the only driver of consumer or advertiser choice.

    That is, the market should be as free from interference as possible...by large businesses who use government to manipulate the market to their advantage.

    That's precisely what the Guardian's publishers did, in this case. They used the courts to steamroll their competition, or what they assumed was their competition. For all Bruce Brugmann knows, Guardian customers could have been reading both papers, or this could have been a case where readers of the VV would have avoided the Guardian like the plague.

  • Mr Whipple||

    ka-ka burnt-to-shit beans.

    Char-bucks

  • MJ||

    It also assumes that businesses that sell almost exactly the same product or service as you are the only ones you are in competition with. The idea that the only competition for newspaper ad space are other newspapers is so antiquated as to be laughable.

  • ||

    I am just embarrassed for the justices - its on par with saying that the sun revolves around the earth. A newsPAPER will monopolize the...news???????? How many zillions of sources of news are there now?
    Monopolize ads??? Ha, Ha, Ha!!! Craigslist, Google ads, Amazon ads, ads on produce at the grocery store.
    The only cogent arguement is that there will only be one cheap supplier of paper to line your bird cage.

  • ||

    Without that, once you've gotten rid of competitors, you can raise prices as high as you want, as long as you maintain sufficient reserves to drop your prices as soon as someone decides to compete with you.

    Back to Econ 101 for you.

    When you drop prices below your own costs, buyers are going to desert your competitors and flock to you. Sound good? Well, it's not, since the more product you sell during this period, the more money you lose. And if you attempt to limit your losses by limiting the amount of product you sell, then the excess buyers are going to go to your competitors, which is going to prevent them from going out of business. So you're going to have to lose a ton of money in the process of driving your competitors out of business.

    OK, so now your competitors are all gone. Now you can jack up your prices to your heart's content to make the money back...or can you? Well, you do have to be worried about (1) new competitors starting up, or (2) buyers substituting other products for yours, or (3) simply doing without the product. Let's assume (2) and (3) don't happen, which is a pretty iffy assumption for most products.

    It doesn't really matter what reserves you've got; even if they're huge, for the monopolistic course of action to make sense, it has to be profitable. So there's going to have to come a time when you can jack up prices for a long enough period of time to make back the money you lost while driving competitors out of business...and if new competitors periodically appear and you drive them out of business too, that's going to increase the amount you have to make back.

    The numbers just don't add up, unless (a) you're not trying to profit directly from the monopoly, for example a gas station that lowers their gas prices in the hope that customers lured by low gas prices will shop in the more lucrative convenience store; or (b) your monopoly is enforced by govt, in which case the cost of keeping competitors away is born by the taxpayer.

  • ||

    It may not make sense, but that's a strategy followed before by New Times (I mean, Village Voice Media). They bought two newspapers in Los Angeles, for example, and then immediately closed one, believing their surviving paper would benefit. When this strategy didn't work out as planned, they made a deal to shut down their LA paper if their chief rival would close a paper that competed against their paper in Cleveland. When the Justice Dept. took the company to task for this market manipulation in 2003, New Times decided to borrow tens of millions to simply buy out the competitor in a half dozen markets. But in the midst of all this market meddling, New Times forgot that a newspaper wins loyal readers by being uniquely entertaining. Local products need to be local -- it's not one size fits all. That's a lesson Michael Lacey never had to learn until he started to compete in cities with real alternatives. The nation's last genuine alt-weekly is now The Stranger in Seattle, where Lacey also happens to own a newspaper.

  • ||

    They may have tried, but it sounds like non-governmental consequences quashed their attempt to profit from anti-competitive practices. This goes right along with what I wrote above...

  • ||

    I agree.
    Funny thing about monopolies - you can corner a market, but so what? I produce turds that are a unique blend of cheetos, spagettios, and beer. I believe this 'humanure' has unique and valuable properties for growing plants.
    Despite its obvious value, people refuse to pay 1 million $ a turd. They refuse to pay 10$ a turd, a 99.99% discount!!!
    As a matter of fact, if I deposit one gratis on their lawn out of the goodness of my heart, they get angry and call the police.
    I would submit newspapers are analogous. (Goddamn free newspapers thrown on my lawn that I don't want - but unlike my wonderful free turds, the police won't stop the free delivery of newspapers - damn police)

  • Dwight Brown||

    "The nation's last genuine alt-weekly is now The Stranger in Seattle, where Lacey also happens to own a newspaper."

    The Austin Chronicle is also independently owned and publishes weekly; I'm not sure why you rule that out of consideration.

  • Jason||

    Don't you have to have a monopoly already to build the large cash reserves required for predatory pricing?

  • CrackertyAssCracker||

    what about when one competitor uses anti-trust laws to put the other one out of business? are you against that too?

  • ||

    Predatory pricing almost never works. That's why it's subject to the rule of reason. In order to make money via predatory pricing, you have to earn enough over time to compensate for the huge immediate loss you're suffering. The loss has a certain value. Your future gains are discounted two ways - by being earned over time and by being uncertain. So, losing $1 million in revenue now, due to a predatory pricing scheme, has to result in a future stream of payments equal to much more than $1 million - you apply a reasonable discount rate to the future stream, then divide by the appropriate risk multiplier.

    Now, to make up all that money later, you need to charge above-market rates. How? Market power. Market power is tough to get and keep. So, really, the risk of predatory pricing is low.

    If you look at who usually rails against predatory pricing, it's firms that have been priced out of the market due to higher costs. Their competitors are more efficient and able to offer goods and services at lower prices - not because of predation but because of increased productivity. The losers of capitalism try to get the government to intervene in something that's doing nothing but provide consumers equal value at a lower cost.

  • Ring||

    Meh, let them eat their own ...assholes.

  • ||

    You reminded me, I had to drop by the store for a box of Rosebud Frozen Peas

  • Jason||

    At A&P?

  • ||

    Matt:
    Where is that picture from? Some Alternate History book?

  • ||

  • ||

    :( shame at missing such an obvious thing

  • PIRS||

    "–an evidently robust state law making it unlawful "to sell any article or product at less than the cost thereof to such vendor, or to give away any article or product, for the purpose of injuring competitors or destroying competition";"

    So what about online news resources that charge $0.00 for their content? Does this mean they better not be based in California?

  • robc||

    What about free newspapers, not even online ones?

  • Matt Welch||

    These *are* both free newspapers. The price in question is of ad rates.

  • Paul||

    Someone should sue the internet. I can advertise there for free.

  • robc||

    Hence Matt's reference to craigslist.

  • robc||

    Does SF not have a subscription newspaper to sue them both then?

  • Colonel_Angus||

    1.) Isn't shit like "predatory pricing" a matter for the FTC or something to handle?

    2.) Fuck the FTC.

  • ||

    The primary problem with both of these newspapers is not that they're print publications. It's that, frankly, they suck. They're simply not entertaining to read.

    The Guardian is predictable and earnest, but at least it understands its shrinking, old-school hippie audience.

    SF Weekly claims to upset the Bay Area elite, but it's not provocative in the least. Michael Lacey made his mark in markets like Phoenix, Dallas and Denver, where the overall quality of journalism was terrible.

    As it is, San Francisco lacks good local journalism -- that's why we're online readers. I avoid both of these newspapers, but I'd surely pick them up if they told interesting stories about where I live.

  • ||

    The SF Weekly is a heck of a lot better than you say. I've read it for decades. Try Matt Smith's columns - http://www.sfweekly.com/conten.....or:306110/

    I recommend the one entitled "Progressive Justice".

  • Warty||

  • Fist of Etiquette||

    9%

    I'll take those odds.

  • ||

    But what a way to go.

  • Colonel_Angus||

    Brugmann looks like Krugman.

  • Fist of Etiquette||

    Local fish-wrappers are entertaining for police blotters, nice for obits and valuable when they actually challenge local politics. I think our fingers might be cleaner and our flower beds left unmolested but we'll all be sorrier than we realize when the newspaper has finally shuffled off this mortal coil.

  • ||

    Dude that makes a lot of sense man!

    Lou
    www.web-privacy.at.tc

  • Suki||

    Matt, I asked Katherine to help you out with that alt-text. Did she make it by or did you just not learn from her?

  • Matt Welch||

    This is a war you can't win.

  • Fire Tiger||

    Does that mean no more free toys in my breakfast cereal?

  • hee||

    Toys in breakfast cereal might be next. Then maybe Cracker Jacks. SF's Gavin Newsom is now on the "ban the Happy Meal" bandwagon. He just couldn't resist!

  • Jack (Libanin.blogspot.com)||

    Competitive pricing = "Guerrilla tactics"?

    What would be normal advertising warfare, Gevenva convention-type pricing then? I assume what is commonly known as price fixing, between all local papers?

  • ||

    Thanks for the idea. When the adverstising rates match, I'm going to sue them both for collusion.

  • ||

    With severe apologies to Adam Ant:

    Can't compete
    Can't collude,
    What do you do?

  • Virginia||

    I'd like to sell California to Mexico and Canada. Would the price have to be at least what the Federal government is giving them in bailouts? Because at this point I'd accept far less. You know, sunk costs.

  • ||

    Here's another neat legalism with which to bash competition:
    A union-sponsored lawsuit to block a WalMart in California used the "diminishment" argument, saying that a WalMart, with it's lower prices and wide selections, should be blocked because it would diminish the value of other businesses.
    In other words, if you fix up your lawn, look out, because your neighbor with the weedpatch lawn could sue for damages on the theory that your better lawn was "diminishing" the value of his home.

  • e'||

    click on my name,you can find cheap watches

  • دردشة||

    thanks

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