I think it's because Massachusetts has nothing that can be described as a large commercial crop. However, it isn't the largest, and Massachusetts isn't the largest producer of them.
Wisconsin produces 60% of cranberries in the US(1), with Massachusetts producing half of what Wisconsin does(2), 201k tons vs 94k tons, out of 343k tons total. The rest of the producing states combined are half of Massachusetts.
As for, what is their largest crop, if it isn't Cranberries? Nursery products like ornamental flowers and shrubs(3).
Does anyone know, by what logic are the auctions price fixing? Generally they seem like one of the fairest ways to determine a price - are they doing something odd in their auctions? Or are they just grasping at straws?
The idea is to force other people out of the market because they can't continue to sell at your price. If Apple gave away their iPhone for free (and could sustain that with the cash they have) they could drive every other phone manufacturer out of the market (assuming everyone wanted iPhones). This works better if the product is homogenous.
In web products maybe Gmail is an example? Hard to compete with free and the # of features they have. It's hard to come up with a better example because features is a big differentiator.
Once your competitors go out of business you're the only guy left in town so you raise your prices to the moon and profit.
Blockbuster video was notorious for this around the year 2000. Put small video rental shops out of business with 99 cent rentals, then jack it up to $4 once the competition was gone.
Happened in my home town - small indie ISP started that provided faster speeds and much lower prices than the mega-cableco. that served a small section of the city - and was a huge it.
Mega Cable Co. proceeded to drop prices to the floor only in the postal codes covered by the indie ISP and drove them out of business. Now it's business as usual for Mega Cable Co.
I can't find any verification, but my dad always claimed Wonderbread did this. Entered new markets with absurdly low prices until local bakers went out of business and then raised their price.
This one is a little harder for me to believe, since wonderbread has some pretty dramatic quality differences from local bread. They compete, but they don't compete directly and there's a significant chunk of people who would never buy wonderbread even if it was free.
Wonderbread didn't need to take all the market to make the bakery unprofitable, just reduce bakery sales enough (say 30%) to make it unsustainable....
After all profitable only comes after fixed costs are covered. If sales drop below the amount required to cover those fixed costs the business is no longer viable....
It's basically the approach Uber takes. When they enter a new market they pay drivers more and keep fares low to develop both sides of their business. As they capture that market they decrease driver compensation and increase fares.
Isn't this exactly what happens with a monopoly?
The New Zealand supermarket situation had this happen (despite government intervention, which concluded that having 2 supermarket chains rather than 3 would lower prices, as they would have more purchasing power. Yeah right).
> De Beers is well known for its monopoloid practices throughout the 20th century, whereby it used its dominant position to manipulate the international diamond market. The company used several methods to exercise this control over the market. Firstly, it convinced independent producers to join its single channel monopoly, it flooded the market with diamonds similar to those of producers who refused to join the cartel, and lastly, it purchased and stockpiled diamonds produced by other manufacturers in order to control prices through limiting supply.
Thank you. I agree that this is close enough to be relevant.
But as a counterpoint:
> In the cigarette racket, for example, predatory price-cutting was common around the turn of the century, when the Tobacco Trust, composed of the American Tobacco Company and several allied firms, cornered 95 percent of the market, typically by selling its products at a loss in a given area until local competitors went bankrupt or sold out. In 1911 the Supreme Court ordered the trust broken up into 16 successor companies (many of which are still around today). Since then the companies have mostly been content to compete on the basis of largely imaginary differences in quality, which they promote through extensive advertising. National ad campaigns are quite expensive, of course, which discourages new firms from entering the market, and as a result the existing manufacturers have the field pretty much to themselves [in 1981].
> This all sounds pretty snaky, I suppose, but it's worth pointing out that oligopolies can't just set any old price they want to. In 1931, for instance, all the major tobacco companies followed Reynolds's lead in raising cigarette prices, despite the fact that the price of tobacco leaf had fallen to a 25-year low. This stupid move permitted several small manufacturers to introduce 10-cent brands to compete with existing brands, which were going for 13 cents a pack. By 1932, the 10-cent brands accounted for 23 percent of the market, setting off a price war in which wholesale prices were slashed 20 percent. Despite this, several relatively small companies, such as Philip Morris, were able to gain a foothold in the market and eventually overtook some of their previously impregnable competitors.
But that's completely different. Shkreli's plan worked because everyone else was legally prohibited from selling his product. There was never any period of "dumping", either - he bought the only vendor for a drug, protected by a legal pseudo-monopoly, and jacked up the price.
Calling it a legal pseudo-monopoly is probably even going too far, it was just regulatory friction that stopped another company from setting up production of daraprim, there were no exclusive rights involved.
Well, that's why I called it a pseudo-monopoly and not a monopoly. There was an exclusive right involved, but it was exclusive more or less by coincidence; you have to pay millions of dollars to get a license to sell the product, and only one party had done that. Someone else could have.
You can do that when nobody else is allowed to start selling your product, sure. There's an important difference between being the only vendor in a market because nobody else has bothered, and being the only vendor in a market because nobody else is allowed to compete with you. In the second case, we always see prices "raised to the moon". But it can't be usefully compared with the first case; potential entrants may not exist yet, but they're still a constraint on the prices existing vendors can charge.
When Gmail arrived, the market was already dominated by free services. The main ones were Hotmail (bought by Microsoft) and Yahoo Mail (Yahoo bought Rocketmail in 1997).
The auctions are run by the dominant leader in the space (Ocean Spray). Supposedly they are selling off "excess product". The accusation is that they are selling with a starting bid that is lower than the actual cost to make the cranberry concentrate...on purpose, to manipulate the market.
It sounds like the demand for is juice low due to sugar labeling requirements. The demand for the husks is high however and the left over juice is a byproduct of harvesting the cranberry husks for craisans.
So what is the right answer? Dump the juice in the river? That's like throwing away money since it seems like someone is willing to buy it.
But it is still an auction, right? As in, if the starting price is less than the market price it should still get bid higher and there won't be a market irregularity?
I don't see how this can be considered predatory though.
It's still an auction. It should sell at the market price.
In theory, they should be able to open their action at $1 and that would be totally fair. If they were selling at $1 that would be a different matter, but the auction structure should guarantee that goods aren't sold at substantially below-market.
I assume that's why it's currently just an accusation and not a given. It is still possible to control pricing with an auction if you dump enough product with no reserve price...basic supply/demand.
A cynic might say they chose the auction route specifically to avoid the appearance of dumping, but ensured they would dump enough volume to get the effect they wanted.
Nobody seems to be debating that the sales price is currently lower than the actual cost to produce the product.
Cranberries are incredibly bitter to the average palette. While they have a distinct taste, they need sugar to balance out the bitterness enough to enjoy it.
Grapes have the opposite problem. If you've ever wondered why there isn't grape ice cream (long shot!), it is because all of the flavor in a grape is in its skin. The center is a generic, unidentifiable "sweet". That's great for juices, where other fruits can add taste, but bad for ice cream. Grape skins don't do well in ice cream—the texture freaks people out.
I throw bags of green grapes into the freezer and then they become balls of grape ice sorbet. Just gotta eat them before they melt otherwise they become a sad soggy mess.
In my experience, if you put grapes in the freezer they come out with the approximately the same texture as icecream. So if you really want to know what grape icecream would taste like there's an easy way to find out.
I bought unsweetened cranberry juice once for the same reason. You do not want it, it's for experts only. People who are gnarly about gastrointestinal health, and even then only for a reason.
After reading the whole story, I feel that cranberries are a crop most people don't care much for but is easy for a section of the country to grow. There should be less growers to match demand.
And this is where economics conflicts with reality. The farther north you get, the more limited your crop options are, especially in the boggy farmland that hosts cranberries. If the world made sense we would have the southernmost growers transition to alternate crops more likely to prosper in their regions, but in practice go try telling PA farmers they need to change crops while the MA ones can keep continuing on as they always have.
And that is the problem with Ocean Spray - its a coop of too many farmers making too much of a crop, and it is hard for such an arrangement to just cut its own workforce when all are meant to be equal.
I love Quebec syrup, but are you implying that there are freaky alternative maple preparations that never see the market? See also: having to smuggle raw milk cheese into the US.
So the company was saved 13 years ago because the CEO had a brilliant moment to market Craisins more? Does anyone else find this hard to believe? All the people working for him, pushing possible solutions, and HE is the one that saw the other guys eating these things as a snack, and that is what saved the industry?
I had no idea that cranberries of all things, fit the bill as the largest commercial crop in Massachusetts. I'm shocked actually.