This is interesting. I just read in La Razon that Bolivia’s most important beer manufacturer, CBN, has been sanctioned by AEMP (the industry regulator in the country) for allegedly behaving in an “anticompetitive” manner. What was the sin committed? Apparently CBN priced their products below its competition (and supposedly below their own average cost) and used price discrimination for different geographical regions in Bolivia.
Why should CBN be sanctioned for charging less for their products? This is really weird. The idea, I suppose, is that by setting low prices, CBN can outcompete other beer manufacturers and potentially command a monopoly. If the prices set are below their own costs, regulators call it “dumping.” And this is seen as a terrible practice that distorts the competition in the market. I completely disagree. First, setting prices lower than the competition is what free market competition is all about. How you afford to set lower prices is completely up to your company and strategy. Second, if you set prices so low that you make a loss, how long can you sustain such strategy? Even if your bet pays off and your low prices outcompete everybody from the market only to be increased again once you are monopoly, how long can you sustain that monopoly? Wouldn’t the competitors you outcompeted (and new ones) be willing to re-enter the market once your prices are higher? In general, over time, dumping never pays off.
Regulators will never know better than the market what prices should be charged for a product.