I see. In that case, I don’t think the Walmart scenario is extortion. It is not to the detriment of Walmart to refuse to buy from a supplier who will not meet their demands, so long as they can find an adequate supplier who will.
I’m think of it this way: investigating a supplier to check they are reasonable costs $1 to Walmart. The minimum price any supplier will offer is $10. After investigating, one supplier offers $10.5. Walmart refuses, knowing the supplier will not got lower, and publicises the exchange.
The reason this is extortion, at least in the sense of this post, is that Walmart takes a cost (it will cost them at least $11 to investigate and hire another supplier) in order to build a reputation.
Okay. I think you’re saying this is extortion because Walmart’s goal is to build a reputation for only agreeing to deals absurdly favorable to them.
If the focus on building a reputation is the distinguishing factor, then how does that square with the following statement: “it is not useful for me to have a credible reputation for following up on brinksmanship threats?”
Because a reputation for following up brinksmanship threats means that people won’t enter into deals with you at all; extortion works because, to some extent, people have to “deal” with you even if they don’t want to.
This is why I saw a Walmart-monopsony (monopolistic buyer) as closer to extortion, since not trading with them is not an option.
I see. In that case, I don’t think the Walmart scenario is extortion. It is not to the detriment of Walmart to refuse to buy from a supplier who will not meet their demands, so long as they can find an adequate supplier who will.
I’m think of it this way: investigating a supplier to check they are reasonable costs $1 to Walmart. The minimum price any supplier will offer is $10. After investigating, one supplier offers $10.5. Walmart refuses, knowing the supplier will not got lower, and publicises the exchange.
The reason this is extortion, at least in the sense of this post, is that Walmart takes a cost (it will cost them at least $11 to investigate and hire another supplier) in order to build a reputation.
Okay. I think you’re saying this is extortion because Walmart’s goal is to build a reputation for only agreeing to deals absurdly favorable to them.
If the focus on building a reputation is the distinguishing factor, then how does that square with the following statement: “it is not useful for me to have a credible reputation for following up on brinksmanship threats?”
Because a reputation for following up brinksmanship threats means that people won’t enter into deals with you at all; extortion works because, to some extent, people have to “deal” with you even if they don’t want to.
This is why I saw a Walmart-monopsony (monopolistic buyer) as closer to extortion, since not trading with them is not an option.