# At what point is it illegal to operate at a loss? **URL:** \ **Category:** Factual Questions\ **Created:** [January 23, 2006, 6:03am UTC](https://boards.straightdope.com/t/at-what-point-is-it-illegal-to-operate-at-a-loss/341221 "2006-01-23T06:03:03Z")\ **Posts on this page:** 15\ **Page:** 2
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [January 23, 2006, 4:51pm UTC](https://boards.straightdope.com/t/at-what-point-is-it-illegal-to-operate-at-a-loss/341221/21 "2006-01-23T16:51:50Z")
> [@RandomLetters](#): > > To expand on this example, Microsoft’s entire home & entertainment division (mostly Xbox and games) lost $391 million last year, and, IIRC, a total of about $4 billion since the first Xbox was released. MS’s bread and butter is Windows and Office. Monopoly is determined based on a market segment. The console market is very different from the PC operating system of office productivity market, and MS clearly does not have a monopoly in the console market. If they forced you to buy an Xbox to get a copy of Windows, then there would be a connection. The browser issue was not just them giving it away for free. They also used their monopoly power on the OEMs to discourage loads of Netscape on the desktop for new machines, and prevented the OEMs from removing IE, by claiming it was an integral part of the OS. I doubt that them offiering it as a free download would have gotten them in trouble. ---
**Author:** ![Lemur866](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lemur866/32/434_2.png) [@Lemur866](https://boards.straightdope.com/u/Lemur866)\ **Post date:** [January 23, 2006, 5:58pm UTC](https://boards.straightdope.com/t/at-what-point-is-it-illegal-to-operate-at-a-loss/341221/22 "2006-01-23T17:58:21Z")
And note that the idea of driving all your competitors out of business by running at a loss for years, then jacking up your prices, hardly ever actually works. Yes, there are barriers to entry for most businesses. But while Wal-Mart might drive mom and pop stores out of business by underselling them, they don’t charge monopoly prices after those mom and pop stores go under, because if they did new mom and pop stores would open up again. Wal-Mart has to keep their low low prices to keep getting customers. Where are all the high-priced Wal-Marts? They don’t exist. Wal-Mart’s strategy isn’t to sell at a loss until they remove competition, it’s to make a profit while selling at prices that other stores can’t match. Wal-Mart can make a profit doing this because they can get lower prices from their suppliers than other stores can. The minute Wal-Mart tries to jack their prices through the roof is the minute a new Target opens up next door. ---
**Author:** ![Garfield226](https://avatars.discourse-cdn.com/v4/letter/g/9e8a1a/32.png) [@Garfield226](https://boards.straightdope.com/u/Garfield226)\ **Post date:** [January 23, 2006, 7:03pm UTC](https://boards.straightdope.com/t/at-what-point-is-it-illegal-to-operate-at-a-loss/341221/23 "2006-01-23T19:03:17Z")
> [@chrisk](#): > > Well, that’s a tricky case, in that the magazine industry is less of a straight commodity sales situation and more of a, erm, a commercial matchmaking thing? (In a slightly weird way.) > > A magazine publisher’s PRIMARY source of revenue, I believe, is delivering circulation to the advertisers. Charging to deliver content (and advertising) to the readers is just an incidental, a way of defraying some costs. (Also, there are further nuances to it… if you can get people to actually pay for what you’re printing, it’s easier to convince advertisers that they’re actually reading it than if you’re giving it away for free.) 🙂 This is correct, and newspapers work in the same way. Many papers even give their “product” away for free, and rely on advertising to make up the printing, distribution and employee wages. ---
**Author:** ![zoid](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/zoid/32/336_2.png) [@zoid](https://boards.straightdope.com/u/zoid)\ **Post date:** [January 23, 2006, 8:07pm UTC](https://boards.straightdope.com/t/at-what-point-is-it-illegal-to-operate-at-a-loss/341221/24 "2006-01-23T20:07:34Z")
> [@Garfield226](#): > > This is correct, and newspapers work in the same way. Many papers even give their “product” away for free, and rely on advertising to make up the printing, distribution and employee wages. Hmmm… If only we could think of a real life example of this… ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [January 23, 2006, 8:49pm UTC](https://boards.straightdope.com/t/at-what-point-is-it-illegal-to-operate-at-a-loss/341221/25 "2006-01-23T20:49:12Z")
This brings to mind a case from my childhood. In the 70s, Detroit Edison (an electric power supplier) gave away free light bulbs to its customers. I remember visiting the bulb place with my mom. She’d bring in the old bulbs. A worker would place them into a bin with a trap door at the bottom. And then–whoosh! The trapdoor would open and the bulbs would plummet to an unseen death. We would leave with new bulbs. Then some spoilsport druggist went and sued for antitrust violations, and the program stopped. [http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=us&vol=428&invol=579](http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=us&vol=428&invol=579) The Supreme Court case only deals with a technical defense because the lower court never addressed the merits. I’m betting that the case never went to trial. ---
**Author:** ![David\_Simmons](https://avatars.discourse-cdn.com/v4/letter/d/9de053/32.png) [@David\_Simmons](https://boards.straightdope.com/u/David_Simmons)\ **Post date:** [January 23, 2006, 9:23pm UTC](https://boards.straightdope.com/t/at-what-point-is-it-illegal-to-operate-at-a-loss/341221/26 "2006-01-23T21:23:35Z")
> [@DrDeth](#): > > That’s not nessesarily true. It depends on many factors such as: > why you are losing money > how much money are you losing > do you have a real negative cash flow or is it only a “paper loss” > are you doing a lot of business with relatives > is your busines one that others do as a hobby > and so forth. > YMMV- see your tax expert. True. However, if you continually write off losses against income I suspect that you will be called for an audit to justify your accounting procedures to make sure that it’s a real loss. ---
**Author:** ![marshmallow](https://avatars.discourse-cdn.com/v4/letter/m/df705f/32.png) [@marshmallow](https://boards.straightdope.com/u/marshmallow)\ **Post date:** [January 23, 2006, 10:07pm UTC](https://boards.straightdope.com/t/at-what-point-is-it-illegal-to-operate-at-a-loss/341221/27 "2006-01-23T22:07:30Z")
Microsoft is doing nothing new. This is a standard practice in the console market – you sell them for a loss but make it up by massive software sales. Nintendo has done this at every console launch I can remember. ---
**Author:** ![Derleth](https://avatars.discourse-cdn.com/v4/letter/d/b9e5f3/32.png) [@Derleth](https://boards.straightdope.com/u/Derleth)\ **Post date:** [January 24, 2006, 1:21am UTC](https://boards.straightdope.com/t/at-what-point-is-it-illegal-to-operate-at-a-loss/341221/28 "2006-01-24T01:21:10Z")
Well, thank you all for the wonderful replies. I don’t know if an of this will make a difference in my little discussions, but it pleases me to know my instincts were correct. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [January 24, 2006, 5:01am UTC](https://boards.straightdope.com/t/at-what-point-is-it-illegal-to-operate-at-a-loss/341221/29 "2006-01-24T05:01:24Z")
> [@mstay](#): > > Microsoft is doing nothing new. This is a standard practice in the console market – you sell them for a loss but make it up by massive software sales. Nintendo has done this at every console launch I can remember. The phrase for this (and it predates consoles) is razor and blades. And it works. I got a Schick Quattro for free attached to the newspaper bag, liked it, and now I’m hooked on the expensive blades. ---
**Author:** ![picunurse](https://avatars.discourse-cdn.com/v4/letter/p/7bcc69/32.png) [@picunurse](https://boards.straightdope.com/u/picunurse)\ **Post date:** [January 24, 2006, 9:31am UTC](https://boards.straightdope.com/t/at-what-point-is-it-illegal-to-operate-at-a-loss/341221/30 "2006-01-24T09:31:17Z")
> [@Steve MB](#): > > **Predatory Pricing:** Selling for a lower price than the competition. > > **Price Gouging:** Selling for a higher price than the competition. > > **Collusion:** Selling for the same price as the competition. nitpick: Collusion is when you and your competitor talk it over and agree on a set price. Selling at the same price is fine, as long as you aren’t [price-fixing](http://business-law.freeadvice.com/trade_regulation/price_fixing.htm) ---
**Author:** ![Derleth](https://avatars.discourse-cdn.com/v4/letter/d/b9e5f3/32.png) [@Derleth](https://boards.straightdope.com/u/Derleth)\ **Post date:** [January 24, 2006, 11:29am UTC](https://boards.straightdope.com/t/at-what-point-is-it-illegal-to-operate-at-a-loss/341221/31 "2006-01-24T11:29:22Z")
> [@picunurse](#): > > nitpick: Collusion is when you and your competitor talk it over and agree on a set price. I think that was facetious, like the old verb conjugation gag: I have preferences. You have biases. He has prejudices. ---
**Author:** ![chrisk](https://avatars.discourse-cdn.com/v4/letter/c/6de8d8/32.png) [@chrisk](https://boards.straightdope.com/u/chrisk)\ **Post date:** [January 24, 2006, 1:33pm UTC](https://boards.straightdope.com/t/at-what-point-is-it-illegal-to-operate-at-a-loss/341221/32 "2006-01-24T13:33:44Z")
> [@zoid](#): > > Hmmm… > > If only we could think of a real life example of this… hmm? OHHHHH!!! Wow! You know, I never realized that the chicago reader was, well… a freebie. (Can I say that without being insulting to our hosts?) Umm, what I meant was, I thought they were one of those DESPICABLE daily papers that actually _charged_ readers for copies. (Maybe that’s because I wanted to feel sorry for those poor offline sods who I thought had to pay to hear the words of the Perfect Master. Yeah, that’s it.) 🙂 ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [January 24, 2006, 1:47pm UTC](https://boards.straightdope.com/t/at-what-point-is-it-illegal-to-operate-at-a-loss/341221/33 "2006-01-24T13:47:53Z")
> [@Jonathan Chance](#): > > A better example is magazines. Many, possibly most, consumer magazines sell to the subscriber at a rate that doesn’t cover print and postage, much less salarys and benefits. Not to mention television networks, who give away their product for free. ---
**Author:** ![David\_Simmons](https://avatars.discourse-cdn.com/v4/letter/d/9de053/32.png) [@David\_Simmons](https://boards.straightdope.com/u/David_Simmons)\ **Post date:** [January 24, 2006, 7:24pm UTC](https://boards.straightdope.com/t/at-what-point-is-it-illegal-to-operate-at-a-loss/341221/34 "2006-01-24T19:24:18Z")
> [@Derleth](#): > > I think that was facetious, like the old verb conjugation gag: > > I have preferences. > You have biases. > He has prejudices. Or: I am firm. You are stubborn. He is pigheaded. ---
**Author:** ![Steve\_MB](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/steve_mb/32/5339_2.png) [@Steve\_MB](https://boards.straightdope.com/u/Steve_MB)\ **Post date:** [January 25, 2006, 3:55pm UTC](https://boards.straightdope.com/t/at-what-point-is-it-illegal-to-operate-at-a-loss/341221/35 "2006-01-25T15:55:16Z")
> [@picunurse](#): > > nitpick: Collusion is when you and your competitor talk it over and agree on a set price. Selling at the same price is fine, as long as you aren’t [price-fixing](http://business-law.freeadvice.com/trade_regulation/price_fixing.htm) In the immortal words of Cecil: Remind me to explain the concept of a “joke” to you sometime. 🙂 [Previous page](https://boards.straightdope.com/t/at-what-point-is-it-illegal-to-operate-at-a-loss/341221.md?page=1)