King Rat (gkr) wrote,
King Rat
gkr

Eco 200: below cost

(group) Which of the following products are being sold below cost? With what other products are they competing? Is the competition unfair?

  1. Coffee offered by a bank to its customers without charge
  2. As many cups of coffee after dinner as the diner in an expensive restaurant requests, at no extra charge
  3. Commcercial television programs
  4. Soft drinks on an airline flight
  5. A roll of film given to each adult customer during a pizza shop's first week of operation

None of them seem to be sold below cost, if one considers the proper opportunity cost. Each of these is being offered to bring in more customers. The opportunity cost of the television show, for instance, is the advertising revenue. It may not even be advertising shown with the show itself. It may even be advertising revenue shown on the show following it (for instance, friends).

In none of the cases illustrated is there really a restraint on trade, so I wouldn't personally characterize them as unfair.

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