What Uber is doing here should absolutely not be allowed. Whenever you go to a city where Uber is in it's first year of operations the prices are insanely low. This also happens when Uber launches a new product like Pool. This enables them to crowd out any competition and then raise prices once they've got control of the market.
I have a friend in SF who takes Uber to work every day. It's about 3.5 miles. I assumed he was dropping boatloads of money but he told me it's $2.50 each way! The IRS estimates vehicles costs alone at about $0.55 a mile and that's not including actual pay to the driver and Ubers cut. Offering a service at this price is not only unfair to for-profit competitors but messes with public transport as well. It's using VC money to crowd out the market.
Unlike with cloud services (the other example) it's much harder for competition to Uber to reappear once it's disappeared. There's a fixed supply of willing drivers and big network effects at play.
For every additional driver, the density of drivers on a map gets higher. When this happens, statistically the closest driver will take X less time to get to you.
Two sided markets are not about having a minimum number of people.
The "traditional" network effect is describing one sided markets. But it is a normal economic concept to talk about the two sided network effect as well.
Think of it this way. In a 1 sided network, ever user type A makes it more valuable for other user type As.
In a two sided market every User A makes the network more valueable for User type Bs. And every User type B makes it more valuable for user type As.
> When this happens, statistically the closest driver will take X less time to get to you.
If everyone is spaced evenly around the place and there's no congestion, you need four times as many drivers to halve response times. For a while you get good gains per additional driver, but as the numbers increase the marginal benefit tails off. This means a new player with some capital can likely compete (and is probably what the grandparent meant by "saturation".)
The same thing happens from the driver's point of view. Each additional rider adds a marginal value to any given driver; there's only so many rides they can make in a given day.
In most two-sided markets, the ratio of users on both sides plays a more important role than absolute numbers.
What Uber is doing here should absolutely not be allowed.
What Uber is doing is called loss leading. It would be very hard to outlaw or regulate in any sort of "fair" way. The result you fear--a monopoly with price control--is illegal and is tightly regulated.
The claim that it is tightly regulated could be subject to debate. The amount of regulatory capture currently occurring plus what occurred in the previous decades squarely classifies the United States as a plutocracy. The AT&T merger may be blocked, just because Donald Trump (via the Justice Department) doesn't like CNN. Think about that. It's an incredible consolidation of power.
While I agree it's hard to outlaw or regulate loss leading, since it seems to be a common go-to-market strategy, it prevents the smaller guys from competing. It allows those with the upper hand (more capital) to remain dominant and starve out the competition. And the feared result, could very well occur. I wouldn't trust the United States to regulate as heavily as it used to, especially under the purview of Donald Trump.
Loss leading is different. It's when you discount a product to attract people to an overall experience (a supermarket, for example). Not when you discount the price of your core product.
Loss leading itself could also be regulated more. For example, in France it's illegal to resell something for less than the price you paid for it (except during regulated "sales" periods). This prevents companies coming in and using their funds to subsidize the products.
I could see the argument that Uber is a reseller, given they're not part of the actual taxi experience
I can see what they're trying to address, but commerce is fickle and often times unpredictable.
What if I thought I saw an opportunity to do business but it turned out to be a bad judgement and now I have 20,000 count of something that isn't moving and I have better things to do than wait for the sale period and at least get half my money back and reinvest it in something else I think might turn a profit?
Maybe there is more to the law than the simple scenario you've laid out. Otherwise that seems stifling.
Same here in Belgium. The sales periods were regulated times of the year when selling at a loss was allowed. Outside of those periods it was only allowed to sell at a loss for goods that would spoil, or were damaged or outdated, or to match competitors’ pricing.
But, all of that has been struck down by the EU courts since it was found in violation of new EU consumer protection directives.
The sales periods are two times in the year. These periods are pretty long (6 weeks?).
There are exceptions for perishable goods and for products that have been rendered obsolete due to technological progress. I think there are some other force majeure exceptions.
It's a bit stifling, but it means that huge retailers can't destroy smaller businesses just due to their huge capital reserves. It helps to preserve competition in the retailing space. And worst case you just have to handle it for a couple of months.
I have not been to France in a bit, but I recall seeing lots of "Soldes" signs (perh clothing nad other retail is considered "seasonal" and therefore can be discounted whenever).
I'm not sure how preventing any time sales helps sole proprietor shops, as big enterprise can simply sell barely above cost till they sink the mom and pops. If they are looking to protect the consumer a better tact is preventing the boost and cut pricing tactic to make a sale seem like a good deal.
12 weeks out of the year is a pretty huge time, so it's likely you were present during those times. If you were in more touristy areas I think there are huge exceptions there (especially in Paris).
You can totally do things like BOGO if you're selling things way above cost, or if you're not a reseller but the actual manufacturer of the good.
An example of this is take out pizza, which usually offers BOGO if you don't opt for delivery.
The Sales rule is usually about when you are just being a market maker and not part of the production process itself. Similar rules exist for things like book sellers (you can not discount the price of a new book by more than 5% of the MSRP).
No, they aren't. But can you think of any examples of a company that built a monopoly and refrained from exploiting it to the detriment of the market and consumers in the long term?
If you were an Uber investor, and they told you that they are going to blow your money below margin of operations for years to come, would you feel happy about it?
Do you prefer to be the dumper or the dumpee? Because I prefer to be the latter.
> Unlike with cloud services (the other example) it's much harder for competition to Uber to reappear once it's disappeared.
It's just a car. Its super easy to break into that market. And there are competitors. They do not have a sustainable monopoly.
If they weren't they wouldn't let them do it. Maybe amateur investors will get upset, but as I said in another comment the pros know that this tactic will not only scare off competition, this will scare off potential competition.
Few will fund a company to compete against an incumbent who is large and powerful enough to do this to you. There are other battles to be fought, so why risk it?
I'd like to know how someone drives 3.5mi daily for $2.50 with Uber, even with pool, in SF. My pool rides start out at around $4 one-way, for .5mi and under. UberX is $7+ at minimum, and quickly tops $10 for 1mi+ trips.
Edit: "Express POOL is a new kind of shared ride that begins and ends at convenient Express spots. Update your app today to start riding for as low as $2.”
It's not Uber Pool it's some new product I hadn't heard of before he mentioned it. Shared ride with a fixed pickup point.
I see the same pricing you see when I use Uber/Lyft.
One factor is the reputation/blacklist system. If you are harrassed on a bus, you don't have much recourse. Sure, you can complain to the metro police, but all they can do is take a report. On a shared ride like this, Uber/Lyft can increment the "harassment complaint" counter of all of the other riders with you. A regular harasser will quickly add up multiple complaints, and will be banned from the system.
Honestly, the biggest change brought by Uber, AirBNB, etc. is the reputation and recourse systems. They have brought a lot of accountability to systems that historically were low on them on both sides. The newly-found accountability allowed a lot of new entrants to these markets that weren't saddled with the high levels of process that had been used in the past to impose even a little accountability on these services.
That is exactly what it is. As a car driver I already get that benefit, but people who cannot afford their own car can now also get higher comfort. Meanwhile free riders get punished, which gives them an incentive to shape up, thus improving the entire system.
I realize that this is a problem for a very small number of people who really can't conform because they don't have access to showers, but how often are homeless people really riding busses, let alone uber (other than as a place to get warmth, or in being dumped in another state)?
My point was that these services are using technical terminology to soften and obscure the stratifying of spaces based on power/money. You've responded by softening the terminology again.
I see others pointing out in sub-threads that these services are better than buses because there are "no hobos, gangstas, creeps, drunkards or other people creating a nuisance for fellow travellers".
Should I break down those labels and across which lines they are dividing society? :)
> Should I break down those labels and across which lines they are dividing society? :)
Are you implying that only 'lower-class' people are "hobos, gangstas, creeps, drunkards or other people creating a nuisance"? I ride public transit daily, and there is a non-trivial number of 'high-class' people that make riding the metro a pain (The subway is full, why are you pushing and shoving to get in if there is another subway coming in 60 seconds?)
There are probably people who wouldn't want to take public transit because of the list of people strictly because they deem themselves above or as better than the "hobos, gangstas, creeps, drunkards". With no evidence to back my claim, I would argue that the majority of people who would opt for Uber over public transit do so because of lower cost, convenience, and "other people creating a nuisance for fellow travellers"
> If you are harrassed on a bus, you don't have much recourse. Sure, you can complain to the metro police, but all they can do is take a report.
Not my experience really. I've filed at least two successful reports of harassment with local police and one complaint against a bus driver at the responsible bus organization.
I highly doubt that "safer" is correct; on average, buses have fewer deaths per km traveled.
Uber drivers are generally decent drivers, but they're still not as well trained as bus drivers, they're more likely to be distracted by e.g. fiddling with the uber or map apps on their phone.
Unless you have numbers specifically about uber's fleet being significantly safer than typical drivers, your claim goes against the results of recent studies finding busses and rails safer than cars.
I believe GP equates "safer" with "no hobos, gangstas, creeps, drunkards or other people creating a nuisance for fellow travellers", and he is absolutely correct on this.
Public transport has the downside of being public, and given the rise of homelessness and the fall of noncommercial venues where e.g. youth can hang around, it's inevitable that they end up in public transport - and create a feeling of unsafeness for other users.
Productivity in any market requires investment. Here Uber needs to build a network of drivers and passengers, so they spend money subsidizing rides until the network grows to a sustainable size. How is this different than what any other competitor does? For example, bus transport companies need to buy buses and arrange routes before they can take passengers. Manufacturing companies need to design products and build factories before they can produce. Skilled workers need to go to school and practice before they can be hired as skilled workers. Etc. The exact nature of investment varies, but the general idea that competing effectively requires upfront investment is the same. Investment is not unfair; it is how productivity rises and civilization progresses.
> There's a fixed supply of willing drivers ...
The supply of willing drivers varies by wages. Also the supply of willing passengers varies by prices. Uber's success depends on being able to entice drivers with higher wages and passengers with lower prices. To the extent that they are successful, they make both groups better off.
> Unlike with cloud services (the other example) it's much harder for competition to Uber to reappear once it's disappeared. There's a fixed supply of willing drivers and big network effects at play.
This is exactly backwards. Once a large network of drivers and passengers connected by smartphones has been established, a competitor has only to offer its own smartphone app to compete. The hard part is building the network and changing people's behaviors.
GP's not talking about investing in infrastructure or training. GP's talking about selling the product for less than it costs to produce in order to have a monopoly in the region. This not only discourages the competition, it discourages the existence of competition.
Back in "the day," VCs (at least some) would tell you directly that they wouldn't invest in anything that competes with Microsoft. The legality of it all was irrelevant to the conversation- they weren't going to enter the fight.
Uber's network of drivers is way of providing transportation services. This network doesn't just spring into existence. It must be created and it costs money. A traditional bus service also costs money; the buses must be purchased, the drivers hired and paid, the routes established and signs posted, etc. Why isn't a bus company unfairly competing with taxis by offering lower fares based on massive upfront investments in bigger vehicles that are paid back over many years? Uber's "bus" is its network.
> monopoly in the region
There is no monopoly in transportation. People can drive their own cars, take buses, take taxies, ride Lyft, walk, bike, etc. Uber is creating a network.
> This not only discourages the competition, it discourages the existence of competition.
Discouraging competition is the same as discouraging the existence of competition.
To compete effectively against any good business requires investment. Uber is competing against the taxi network, bus services, zipcar, etc. Uber's strategy requires investment in building a network of drivers that can quickly reach anyone in the service area. To build this network, they have to invest in drivers and passengers. They do this by paying drivers more than they produce and offering passengers service for less than it costs. As more drivers and passengers join the network, costs come down, service gets better, prices may be able to be raised, and Uber may be able to recoup its investment and earn a profit. Maybe. if they earn too much of a profit by charging passengers too much or paying drivers too little, they risk being replaced by other app makers who offer Uber's network of drivers and passengers a better deal.
It's uncertain if Uber will be profitable. But in trying to be profitable, Uber is definitely offering drivers and passengers better options than what they already have (otherwise, the drivers and passengers would not be using Uber).
Uber's network of drivers is way of providing transportation services.
They provide a particular type of transportation services, just like the cable company provides a particular type of information service. The cable company can have a monopoly even though you can still read a newspaper for information.
I understand what they are doing, i.e., their strategy. That's not the question. The question is whether or not it is or it should be legal. I honestly don't know the answer to this but there is absolutely no question they are using their size to smash their competition. They could use an alternative strategy, like the rest of us do, such as start with a smaller size and grow demand 'organically' by having a better experience than the bus, taxi, and lyft. But they have a lot of financial muscle and they are using it, for better or worse, to demolish the competition that is in place and intimidate those who are considering it. My guess is that it'll be pretty effective if they can pull it off.
Ok, maybe it hurts competitors, but how in the world does it mess with public transportation?
Public transportation can't handle the load across the country. If everyone starts using VC subsidized services, that FIXES the public transportation under capacity problem.
Public transportation loses money. So if people find something better or cheaper, then all the better!
> Ok, maybe it hurts competitors, but how in the world does it mess with public transportation? ... If everyone starts using VC subsidized services...
If no one uses public transit, public transit will be hurt clearly.
The real risk though is that people who can afford uber start using it, public transit fails, and then uber increases its price since people have fewer options.
> Public transportation loses money. So
Public transit loses money in a narrow view of things. In the grand scheme though, it's paid for by tax dollars and is for the good of the public.
There have been a few studies that show accessible public transit is a huge factor in benefiting the poor[0].
The fact that it's subsidized by taxes (and thus moreso by the rich than the poor) is part of the reason it can benefit those people who aren't so well off.
If a VC subsidized service takes over, well, VC subsidization is a far less sustainable method of providing for the poor than taxes.
Public transit is overcrowded in many places. So the less people that use it the better, as it means that it won't be overcrowded and have to deal with the issues that overuse creates.
It is not about 'nobody' using it. It is about less people, than the already too much people who are using it.
They could...or we could keep utilizing the multi-billion dollar investments that have been made in public transportation.
I'm curious as to the arguments that can be made for (presumably government) subsidies for privatized individual transport. I'd be shocked if we see Uber pivot from normal vehicles into mass transit so we have to assume they continue using the current model.
At that point we're offering vouchers for semi-private drivers because...we don't like public transit?
Regarding Amazon, I seem to recall reading similar accusations leveled at Wal-Mart around the turn of the millennium. Their low prices were going to destroy local small retail businesses, then they'd reap monopoly profits after the competition died.
It looks like the first thing happened but the second didn't. Prices might have rebounded a bit at a Wal-Mart after their initial arrival in a community, but they didn't rebound enough to match (much less surpass) the old prices of Bob's Local Hardware Store or Alice's Wine and Spirits.
It's hard to tell if Amazon's retail aim is genuinely predatory the way the author accuses it, or if Amazon's just planning to legitimately, sustainably live with lower margins than other retailers, by dint of huge scale and long term cost-containment efforts. They're investing in roboticized warehouses and have no brick-and-mortar retail locations apart from Whole Foods.
Thing is, the profit margin is still there or even greater for Wal-Mart than 'Bobs Local Hardware Store'. Wal-Mart items are generally poor quality (cheaper) and they are notorious for bullying manufacturers and distributors for meeting a target price. They often win in these cases, which keeps their prices lower. But make no mistake, some of the cheaper items are not the same items you would get from even another big box retailer, let alone the mom and pops that used to be in business.
Yes, I've read elsewhere that they're often not the same items. Whether this is good or bad for consumers is hard to say. Are the corners being cut things that their customers care about? If the customers are happy with what they get, the lower price is a win, and Walmart is right to encourage their suppliers to economize where they can.
Of course, there are also places where quality shouldn't be cut, and other side-effects of the drive to lower prices (lower pay for workers, etc). But this still seems like a subjective judgment call to be made on a case-by-case basis, not an obvious black-and-white issue.
It's not as simple as making caveman noises and saying "China junk bad" there's economic forces at play that dictate what does or doesn't go on a store shelf. Consumers usually want the cheapest. When everything is coming from the same five factories in China whoever has some other advantage (like economics of scale, lack or morals, etc) will be able to sell at the lowest price while still making a profit.
Most of the cheap stuff on the bottom shelf at $LocalStore can also be bought at Walmart. The difference is that at more specialized stores you have options other than "value-priced" and big box stores tend to have house branded products that are as cheap or slightly cheaper than the cheapest thing at a specialized store.
I can go to my hardware store and get Lenox blades for my reciprocating saw or I can get Black and Decker. I might or might not be able to get the lowest end product line from a reputable brand or some Chinese re-brand that's an unlicensed copy of said lowest end product line. At Walmart I can only get whatever the cheapest product line Black and Decker is because that's not their specialty.
In cases where there only consumer options available are the "value priced" options there's no difference. The one tube cutter you can buy at your local hardware store is going to be the same one you can buy at Walmart, Harbor Freight, or from an eBay drop shipper. If you want a Reed, Rigid or some other "professional" brand you'll have to go to somewhere else. If your local hardware store specializes in plumbing or HVAC you might find one but I wouldn't count on it.
There's still value in having local shops where you can just go and pick up whatever you need immediately, which is why I frequently buy stuff from Fry's rather than Amazon. Although it does help that they do price matching, so you can be certain you're getting the lowest price.
I would say that almost all VC money goes towards executing various predatory strategies.
VCs have a monopoly over user attention through their connections to industry influencers. They essentially control all the tech blogs and media channels and they use them to drive traffic to companies that they have invested in.
Bloggers are rewarded for doing writeups on VC-backed startups and they are punished for doing writeups on bootstrapped startups.
VCs also drive up online advertising prices to make it not viable for small players to compete based on CPC.
Finally, VCs have a monopoly over acquisition channels within most large corporations so they can make sure that your startup will never be acquired by a large corporation unless you accept VC funding.
For the last decade, the tech industry has been ripe with corruption and injustice. That's why we have cryptocurrencies now, it's a desperate solution to allow people to sidestep the entirety of the existing system.
> I would say that almost all VC money goes towards executing various predatory strategies.
It's not just VC money.
For example, YouTube has been financed by Google search, operating at a loss for many years, driving competitors out of business and raising barriers to entry.
True, what's particularly unfair about it is that the companies tend to use proceeds from an industry in which they have a monopoly to fund their price war in other industries where they don't yet have a monopoly. The strategy seems to be to monopolise each industry one after another, using the proceeds of the previously captured monopoly to capture the next one.
If this keeps going, eventually we're going to end up with one giant mega-corporation which owns everything. There will be no more government to protect citizens; everyone will work for that company and it will be the most unfair class system imaginable.
the thing is, will it work. I can understand it has worked in the past but it seems to me in the case of Amazon, it seems they've been doing this for more than a decade and it hasn't seemed to work yet in that they are not yet at the level where they can raise their prices.
The same with Uber, will they ever really kill off Lyft, local taxi services (especially with local government fighting them doing so) and public transit, as well as the other competitors springing up.
It seems like a massive transfer of VC wealth to the public without a really well thought out plan as to when and how they will be in a position that they can securely raise the prices. I think they will never be able to. That a tactic has worked in some industries and situations does not mean it will work in every situation.
I mean where I live there are other, non-Uber services that allow you to easily pick up cars sitting around the city by using your app to get into them. These are also competitors. Self driving cars might allow them to cut costs, but these will also allow others to compete on other services.
In short, I think the VCs who dream of Uber someday gouging their customers are deluded, and the same for Bezos - if that day was ever gonna come it would have come some time ago.
This analysis seems pretty shallow. It's interesting that Amazon is losing money in North America. But why? That's clue worth investigating further, not a reason to immediately assume predatory pricing.
It's interesting that Amazon is losing money in North America.
Not even losing money, just lower profits than last year. But apparently it's now evil for companies to invest for the long term rather than boosting their quarterly numbers.
This article should have led with Uber, the author picked only on quarterly YoY and posted a misleading statement about losses, when it was just a decline in income. Yes, very shallow analysis.
Well, given there's shipping costs here blowing out and Prime has been proven to be losing money the more a customer buys, not sure your statement holds up.
I'm certain there's some compelling argument to made about Amazon abusing its market position but this isn't it.
You say "Prime has been proven to be losing money the more a customer buys" like that isn't an obvious consequence of having flat pricing for shipping. The idea that Prime and Amazon's shipping as a whole are a loss leader isn't a new insight.
Even if they don't, Amazon's still huge here. According to my annual income, I am in the top 0.2% of Indians, but there are 13 million Indians who earn more than me. I bet at least they are using Amazon as much as me and my friends.
The term monopoly originates from the concept not of pricing behaviour, but of control:
"exclusive control of a commodity or trade," 1530s, from Latin monopolium, from Greek monopolion "right of exclusive sale," from monos "single, alone" (from PIE root men- (4) "small, isolated") + polein "to sell," from PIE root * pel- (4) "to sell."*
There's a related term, little used today, that references actively seeking to control a market with an interest in manipulating price:
To purchase either the whole or large quantities of, for the purpose of enhancing the price and making a profit; hence, to take or assume in undue quantity, proportion, or degree; as, to engross commodities in market; to engross power.
Much of modern economics underplays this at best. The Libertarian favourite, Henry Hazlitt's Economics in One Lesson, fails to mention the matter of monopolies at all.
> It has been almost 20 years since Amazon got started. When are those mythical monopoly price increases coming?
They're already here! Over the last few years Amazon has become notorious for the level of counterfeit goods making their way through their storefront - including Prime[1]. With moves like mixing supposedly identical goods from different sellers in their distribution centres, Amazon seems to be indicating that they don't really care about this problem - regardless of how much lip service they pay it. In effect, they're getting some percentage of their customers to accept inferior goods for similar prices. I don't think they could get away with it if they had robust competition in online retail.
"When are those mythical monopoly price increases coming?"
They are not.
But the "promise" that they are, or could, inflates Amazon's stock price.
This is how they bank profit, not by traditional profit on income. This has the advantage that they don't need to pay tax, since they don't make any accounting profit.
The focus on price, alone, is a distraction. The monopolist can choose winners and losers, favour or exclude sellers or buyers, unilaterally determine and dictate dispute resolution (e.g., Amazon's purchase dispute process), in favour of buyers, or sellers, or parties specified on other bases.
Or as comms providers have done in the past, and it is feared they might do if network neutrality obligations are lifted, as the FCC are attempting to ram through presently.
The monopolist isn't answerable to the public or citizenry, as a government body is.
A monopoly market is not a competitive market, with many buyers and sellers, to which any given buyer or seller has a recourse should one counterparty decline business or terms.
A monopolist creates a situation of rents, by controlling and regulating supply. This allows for price inflation if demand can then be influenced, much as is the case with land.
That's just off the top of my head. Any further questions?
But my argument is that there must be provable consumer harm, and that consumers are the only thing that matters.
So all those bad things that you mentioned, do they hurt consumers AND is Amazon actually doing them? That is the only thing that matters, and would be the thing that should be determined by whatever court case happens.
There may be highly probable harms which cannot be directly proven, or for which various standards of proof are thwarted by the monopolist itself. Since "wealth is power" (Thomas Hobbes, Adam Smith), monopoly power itself conveys additional power. There's a strong argument for additional responsbility, limits, and/or oversight as a result, for which there's a long list of supporting argument (Smith, Mill, Marx, Galbraith, off the top of my head).
Secondly, consumers are only one of several parties potentially affected. The other groups may be competitors, suppliers, vendors, the public at large, natural systems, etc. I'd have to think over this at greater length.
The argument that price and "consumers" are the only factors of significance in considering monopoly harms is a distinctly modern one, promulgated almost exclusively by monopolists themselves. To rather great effect.
"If prices forever stay low, then consumers ALWAYS benefit, right?"
Not necessarily. The system is much more complex than simply "low prices = good".
Markets are an ecosystem, if you allow one retailer to dominate, they will exert control. That could be by hiking prices, or it could be by picking favorites among their suppliers, deciding which products are "suitable" and so on, and by squeezing suppliers, possibly to the point where the result is stagnating quality and innovation, as suppliers race to the bottom on price alone.
Quite apart from consumer political issues of having such a dominant presence in the market. Eg, if they refuse to serve you for whatever reason (or serve you badly, perhaps with "custom" pricing), you are disadvantaged.
The consumer ultimately loses in this long game, and it should go without saying that enabling a monopolist, even one with low prices and supposedly a focus on "customer satisfaction" (though is that merely a vector for dominance?), is likely to end badly.
The author seems to be confused on cause and effect. The newspaper example shows customers were better off 3+years with "The Times" pricing.
The whole thing needs to be understood by looking at how things actually started. Let's take the example of Uber. People weren't happy with the way taxi services were operating so it was ripe for "disruption". But, getting into a stranger's car for a ride was not really a solution.
So Uber had to create a two way market - entice people to offer their cars and entice people to take a stranger's car. They also had to offer up incentives on both sides of the market to ensure participation - offer drivers with perks and higher payouts while the riders got cheap pricing. Once the market was established and verified they had to find a way to make money. The only problem was riders or customers could not be inconvenienced, at least a lot. So, now the drivers had to bear the brunt.
But, this will lead to some unintended consequences. An example is that instead of trying to charge customers fairly Uber uses "surge pricing" - so much so that there are place which are mulling to ban this practice. Then there are cases of drivers trying to defraud riders too.
This invariably causes lowered customer experience.
Its very important for people here to remember that there are three ways to increase price:
1. I increase the nominal price
2. I decrease the amount I give you
3. I lower the quality of what I give you.
So all the comments that state: "There's no observed increase in price by [insert monopolist]" have to also assert that points 2 and 3 didn't occur.
If I sell you a chocolate bar and I start using food grade wax in increasing quantities I'm effectively increasing the price of chocolate (and recreating Hershey's ;).
So, if I can't reliably buy genuine batteries (or much of anything really) with Amazon and I have to choose between them and Costco, then Amazon's are effectively more expensive.
Not saying amazon is or isn't awesome... but they have been jacking their prices!
The most damaging effect of predatory pricing is the squeezing of the labor force providing the underlying goods or services. Amazon, Uber and their customers win, and the low income people working the textiles, assembling the electronics, or driving the cars, lose.
Ironically, if they charged more, the odds are there would be scores of articles about how they are making TOO MUCH profit and should give the money away to worthy causes instead of being "greedy" and keeping the money for themselves.
In truth, people will always complain about something when you are successful. This probably means Amazon is doing something right.
Alternatively people are complaining because Amazon is doing something bad.
Imagine if you're trying to sell lemonade on the street at a reasonable price, and the rich kid down the block sells at 50% the cost of goods. And all that just being funded by their dad.
At one point they're going to be the only lemonade salesperson on the block, and those subsidies are probably going to end. Meanwhile a market was up-ended and everyone who isn't the "winner" ends up losing.
Short term, customers are happy because someone is just giving them free money! But in the end it's not sustainable.
If we think we should let VCs subsidize services, we can just cut out the middlemen and tax their money away instead of playing these kinds of games.
And what happens when the prices get jacked up? Ideally (perhaps too optimistically) new competitors will arrive on the newly competitive market.
If the loss-leading is unsustainable then it hardly needs to be discouraged, and if it's sustainable it's not really loss-leading. (If it's funded by some other venture with higher margins, like AWS, other players can compete in that market without the albatross of having to maintain the cross-subsidies.)
Capitalism ultimately requires basic disclosure of product content, manufacture, and other costs. Simply informing people of the percentage of spreadsheet magic in offerings along with the ingredients, labor costs, and so on could allow market to observe and react to this kind of thing without external regulation.
>> “I’m all for capitalism. But predatory pricing to build market share isn’t capitalism. It’s simply anti-competitive and we must call it out. “
I have to disagree, creating a monopoly is part of the capitalistic process of creating profits in the long term and I would say it’s one of the aims of capitalism itself: when you compete do you want as many competitors as possible? It could be for some reasons but it certainly can be the opposite for more reasons as well.
While I do agree that this may have some negative consequences for customers, I can’t understand how they would legislate this:
If they keep with this strategy they either fail (or just crash very hard) for not having a scalable business or they prosper in some way, let’s say by increasing prices:
if they prosper the only thing we could do is making sure that customers can access more convenient offers elsewhere.
That’s why I think having transparent and accessible information is truly enforcing meritocracy, while preventing monopolies is not
Interesting read, but the analysis felt super surface level. It would be useful to understand what expenses cause Amazon to be unprofitable and whether they can become cheaper over time through market dominance.
The article is clearly written by someone who has a vested interest in the incumbents who are now up against Uber and Amazon.
Uber burns cash like pretty much any funded startup but there's nothing in the article suggesting their unit economics are flawed. Is the author really suggesting that competition law should force companies like Uber to set their price higher than the competition?
> The article is clearly written by someone who has a vested interest in the incumbents.
How is that clear? Have you researched this author and established that they have ties to competitors, or are you just flinging poo with no justification at all?
> Uber burns cash like pretty much any funded startup
See the title of the article: Big tech is built on predatory pricing
I have a friend in SF who takes Uber to work every day. It's about 3.5 miles. I assumed he was dropping boatloads of money but he told me it's $2.50 each way! The IRS estimates vehicles costs alone at about $0.55 a mile and that's not including actual pay to the driver and Ubers cut. Offering a service at this price is not only unfair to for-profit competitors but messes with public transport as well. It's using VC money to crowd out the market.
Unlike with cloud services (the other example) it's much harder for competition to Uber to reappear once it's disappeared. There's a fixed supply of willing drivers and big network effects at play.