While reading yet another article about scooter startups I came across an obvious quote by Gao Lufeng, CEO of Segway-Ninebot, the leading scooter manufacturer: “As one of the biggest battery buyers, we have the bargaining power to get the lowest price in the market.”

This is obvious and we see it everywhere: buying in bulk gets you a discount. As a consumer I can go to Amazon and look at any item and the per unit price when buying a single item is going to be higher than when buying a pack. And the more I buy the more the discount on a per unit basis. The business world is no different and it’s not surprising since both sides benefit in this situation: the buyer is able to get a cheaper product and the seller is able to get guaranteed sales while hopefully getting more efficiencies of scale and which further reduces the manufacturing cost.

While rational in the short term it may not be optimal for the seller in the long term. By treating one buyer better than the others the seller is giving that buyer a market advantage. And if that buyer is already the dominant player then they become even more dominant. In the short term it’s not a big deal since the seller is selling each item at the maximum price a buyer is willing to pay but in the long term it may drive out other companies in the market and end up in a monopsony where the seller has no other buyers.

This reminds me of a point I heard in a Exponent.fm podcast about Spotify: the studios want as much competition in the streaming space as possible since it prevents any single buyer from becoming dominant enough to drive the market. In this way Spotify, Apple Music, Google Music, Amazon Music, Pandora, Tidal, and all the others are competing with one another which gives the studios pricing power over each individual company. If there was a single buyer for all the music then the studios would be in a much weaker negotiating position.

Of course, this is all just speculation and the fact that this practice goes on across industries implies that this short term vs long term trade-off is worth it. In most industries there’s likely a lot more driving the success of a business than their unit costs and these discounts don’t actually influence market dynamics. At the same time there probably are industries where the margins are what determine market power and success. And in these industries it would be interesting to see sellers give everyone the same price based on their total manufactured volume. This would give each of their customers the same playing field and encourage competition which improves the suppliers leverage in the long term.

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