Best Buy messed up

In an effort to keep making profits like all businesses should do, Best Buy tried to outsmart their competition by paying as little as possible for some of the products they sell – in the case I am going to talk about, namely computer parts. However in their attempt to drown out rivals like Circuit City and Radioshack (which they’re doing a great job at), Best Buy became too greedy and it cost them 31 million dollars. Like most business firms, Best Buy received several bids from different companies that make these computer parts to buy from them. Basically these companies are setting a price they are willing to make and sell the computer parts, a price where their opportunity cost is at least equal to the income they will receive from the sale. It is much like the supply and demand curve that we see in class where some firms can afford to produce at a much lower cost than others, and so have to charge less to make the same profit as a company that has a higher cost. Well like any profit seeking company, Best Buy accepted the bid from the lowest bidder, much like the government does, except in this case it ended up costing them a huge sum of money.

The computer parts being sold to Best Buy came from a company called Chip Factory, who offered them up at shockingly low prices, which Best Buy eagerly accepted, but then managed to actually sell the parts at a much higher price. In one such case, Chip Factory won a bid for 20 computer parts at forty-two dollars per part, but ended up selling them for 571 dollars per part – obviously a huge increase. How was Best Buy not aware that they were being taken for a ride? The reason for this is that Chip Factory was bribing a man inside the company that managed to steer away any questions and suspicions. But the huge juggernaut that Best Buy is, someone should have seen the error. With the next highest bid for the contract in this case being seventy one dollars, someone should have asked how a company could make money at that low price, especially when no other company was willing to sell for less than seventy dollars per piece. Chip Factory could not have possibly been producing the computer parts at prices almost thirty dollars below the next cheapest firm. Not only that, but Best Buy’s accountants should have seen exorbitant amounts of money being charged for the contract. In a move to benefit the majority of people by allowing Best Buy to make a larger profit, sell products to consumers at a cheaper price, and make sure the company that was best at making these parts stayed in business, Best Buy managed to do almost the exact opposite by losing millions of dollars, which is inevitably going to be assessed to customers, and keeping money out of the hands of the firm that had the lowest opportunity cost for making certain computer parts. Schemes like these benefit no one except the criminal, and no one if the criminal is caught. Granted 31 million may have a relatively small impact on the economy as a whole, but in a recession like this, it never helps.