Wealth comes from serving your customers.

[Anonymous]

    The reason walmart is the biggest shopping brand is because they give their customers what they want. The same can be said of Amazon.com
As soon as you ignore this simple dynamic your customers will flee. If you boil it down the reason the big media companies will eventually fail is not because of piracy or competition ,it is because they are not giving the customers what they want. When a company serves the needs of the political class rather than its own customers it will inevitably decline and no matter how much government props it up with regulatory protection it cant escape the inevitable failure.

    The moral is that companies making lots of money is not a sign of failure it is a sign that their customers are happy. 

The question I ask is why is this frowned upon? Can you serve your customers too well? Maybe if the state offered something we actually want it would not need to resort to extortion through violence.

   its a shocking thought isnt it?

[kiba]

Don't question the antitrust authorities: Offer your price too low, you're doing predatory pricing. Offer your price too high, you're gouging your customers. Offer your price the same, you're colluding. You're evil, and should be eliminated.

[FreeMoney]

Don't question the antitrust authorities: Offer your price too low, you're doing predatory pricing. Offer your price too high, you're gouging your customers. Offer your price the same, you're colluding. You're evil, and should be eliminated.

Nice summary.

The best thing I've ever heard in support of "price gouging" was Mike Munger on Econ Talk. I'll try to find a direct link and put it here. The main example he uses is selling ice in North Carolina immediately after a hurricane.

http://www.econtalk.org/archives/2007/01/munger_on_price_1.html

Russ Roberts has lots of great interviews. I especially enjoy the ones with Munger and Don Boudreaux.

[RHorning]

I think there are a whole bunch of reasons for the success of Wal-mart, with perhaps the reason Wal-mart itself offers is because they have so completely optimized their distribution system that the cost of shipping product to the end-consumer is so cheap (per unit) that they can undercut all of their competition.  That is something the "mom and pop" stores hate to hear and it is something hard to compete against to when Wal-mart can continue to sell items at a retail price making a profit at prices lower than most stores can purchase products for at a wholesale price.

Yes, there is bullying of suppliers for deep discounts and other factors there too which make other merchants angry with Wal-mart, but without that logistics system they've built it wouldn't work.  When you can buy bottled water at prices cheaper than you can pay for it out of your faucet, it becomes a huge concern.  No, Wal-mart isn't there yet, although I've seen proposed water rates by the municipal council where I live which would make it so.

Customer service is a part of the overall picture, but I will note that I don't consider Wal-mart associates all that friendly or pleasant, and requests for special products or for that matter even finding something they had for sale six months ago is often very difficult.  Wal-mart takes care of the main bulge of what most of its customers want, but they don't take care of the "long tail" very well.  Amazon.com, on the other hand, does go after that "long tail" perhaps to a fault where books which have been out of print for 30 years or more can be found with that business.

Regardless, you overall thesis is sound and businesses who listen to their customers are ultimately the ones who profit.  The "wealth", as such as it is, can be found with the service that they provide where access to those services is the true wealth.  A place without a Wal-mart store likely has overall higher prices in their stores.  It also makes those "mom and pop" shops to really have to earn their prices by being extra kind to customers, doing those special orders and filling niches that big box stores like Wal-mart won't provide.

[Timo Y]

I don't think it's as simple as this.

Amazon and Walmart were initially successful because they gave customers what they wanted, at a lower price, yes. Once they reach a certain size, however, network effects come into play, and network effects will give you an automatic advantage over your smaller competitors even if your customer service isn't better.

A company that makes lots of money in absolute numbers is a good sign, I agree.

A company that sustains excessive profit margins (over 20%) over more than 3 years is often a bad sign however, because it indicates an uncompetitive market. In a perfect market profit margins always tend to zero.

In the long term an uncompetitive market is bad for everyone, even for the companies making those kind of profits, because they encourage complacency.

[caveden]

A company that sustains excessive profit margins (over 20%) over more than 3 years is often a bad sign however, because it indicates an uncompetitive market. In a perfect market profit margins always tend to zero.

I agree but not entirely. By the way, where do you pop such numbers from?

It is true that if a certain market remains very lucrative for a long time, it is quite suspicious. One may say that there are artificial (coercive) barriers to entry in such market, protecting those who are already in. Banks are a good example. But that's not always the case... there are historical cases of companies capable of maintaining competitive advantages over everyone else for years.

Saying that in a "perfect market" profit margins tend to zero is too strong, and not true... if a particular market start to have lower profit margins than others, providers will migrate out of this market to those more profitable, what can stop the decline of the profit margins of this market. The "total average" must be positive as well, it's not a zero-sum game.... profit = wealth creation, and people are always looking for ways of creating more wealth. Free markets are good to everyone, providers and customers...
Instead of saying they "tend to zero", you could say they "tend to an equilibrium", which, of course, will never be reached, since society is always changing.

[Anonymous]

In the absence of the state companies can be pressured by market forces and boycotted / ostracized if necessary. When the profits can be used to lobby politicians however that is what truly distorts the market.

[kiba]

In the absence of the state companies can be pressured by market forces and boycotted / ostracized if necessary. When the profits can be used to lobby politicians however that is what truly distorts the market.

Pretty much every big company that we think of probably distort the market in some way.