There is a real difference between starting a business and running it at a loss before reaching profitability and consciously entering a contract, where you know you are producing at a loss ( and your contract partner benefits ) that only furthers your profitability gap. If this is the opening bid, it is highly unlikely it will get better. If anything, it will only get worse. You don't make it up in volume when you sell at a loss already.

<< If they don't do it, someone else will

That is the interesting part. The pressure is so high that people are willing to forego their own self-interest and basic critical thinking skills, because someone will do it at or below cost anyway. It is great for Walmart, but it would explain why so many businesses fail so hard. They are way too nice to the other party.