"Similarly, I spoke on a panel a few months ago in Congress on airlines, and Adam Goldstein, the former CEO of flight travel booking site Hipmunk, talked as well. I used to love Hipmunk, but it’s terrible now and I don’t use it. Goldstein explained why. He noted that after the wave of consolidation among airlines during the Obama years, airlines stopped allowing his site to have access to pricing data unless they hid certain routes to consumers. This move to avoid competition destroyed the business and harmed consumers. (It’s also obviously illegal, and the Department of Transportation has antitrust authority it doesn’t use to stop it.) Why did Goldstein speak publicly? Hipmunk sold itself off and he’s no longer there."
I'm not sure it's as obvious as the author assumes. In the shopping sector, there's a concept of 'minimum advertised price' that every online store respects, which is set by manufacturers under the same carrot-stick arrangement (i.e. it's the price the manufacturer believes would drive the value of the entire market sector down if it were common, shopping aggregators aren't allowed to show products below that price, and if they do the manufacturer cuts the high-density pre-digested feed of feature descriptions for the product).
It's clearly anti-market practice (in the sense that it adds information asymmetry between some part of the market and consumers in an attempt to keep prices higher), but it's being done by hundreds to thousands of manufacturers and it's real unclear on what criteria it'd be considered illegal.
Many information asymmetries (even artificial ones) are not illegal, and indeed, even the moral argument for changing the law may not be as cut-and-dry as one assumes at first glance (for example, if sale below M.A.P. drops the bottom out of a market and kills an industry, the product can disappear from common production and the consumer doesn't benefit in the long run).
> if sale below M.A.P. drops the bottom out of a market and kills an industry, the product can disappear from common production and the consumer doesn't benefit in the long run
Is there an example of this happening anywhere in recent history? I ask because it seems absurd to me that there is an industry so fragile that retailers taking a bit less profit would lead to sudden, total collapse. (And doubly absurd this might apply to airlines.)
This exact scenario happened in Hawaii, a small regional market for local (inter-island) flights. There were 2 airlines (Hawaiian and Aloha) competing on price and service, but it was essentially a duopoly with moderate and almost identical prices. Then both started expanding their routes to the mainland US, got overextended when the next downturn hit and declared bankruptcy one after the other (they kept flying at the same prices while restructuring). One potential acquirer was Mesa Air, but they only looked at the books and started a 3rd competing airline (called Go) with $5 fares. So they started a price war, and Aloha never recovered and shut down (as they probably intended), but Go had only small jets and somehow Hawaiian kept them away from the good gates, so nobody liked them at the regular price. Now only Hawaiian is left, but at 50-100% more of the old equilibrium price. An archipelago like Hawaii needs air connections, but with too many players or too much price war, it's not sustainable.
I do not see how this is an example of what GP was speculating about. Flights between Hawaiian islands still exist, they just cost more now. What GP seemed to be gesturing at is price competition killing an entire market segment, and nobody moving in afterwards to occupy it again.
You say it isn't sustainable, but you also say Hawaiian is still going. Which is it?
The claim was "kills an industry", but from what you say, the industry's still going. And you say the critical factor was "kept them away from the good gates", which is exactly the kind of thing that is solved with careful regulation, not deregulation.
I think the parent comment is saying that the situation of having a price war between too many players isn't sustainable. And it seems not to have been here, since all but one of those players either died or exited the market as a result, leaving the remaining one with monopoly pricing power.
Sure, wars aren't supposed to be sustainable. That's why people start them.
I agree a monopoly over a small market niche sometimes happens even in antitrust contexts. That can happen with or without price wars. I also agree monopoly pricing power is bad. (Although not nearly as bad in a niche, because other well-funded competitors get an incentive to step in the more prices get out of line.) But none of this is proof of the death of an industry.
The industry of mobile apps and games has seen rates go unsustainably low, often to 99c or free, causing them to make up the difference with in-app purchases, ad networks, tracking, and lots and lots of psychological tricks.
Nobody can dare simply sell a game on the iOS or Google Play store for $5 or $10 anymore, because there's far more "free" ones out there. This has turned lots of people off of these storefronts. The race to the bottom is real.
> Nobody can dare simply sell a game on the iOS or Google Play store for $5 or $10 anymore
Except that's patently false. All you have to do is look briefly on the iOS App Store and you'll find plenty of games for $5+. Sure, there are a lot more that are "free (with in-app purchases)", but the idea that no one can make money in the space is just totally absurd.
Furthermore, even if what you said was true, it would not be a genuine example of what the previous poster was describing, because people are still making money off those freemium games. What the other poster was describing was prices going through the floor, no one being able to make money in that space, and the entire industry drying up and blowing away.
> All you have to do is look briefly on the iOS App Store and you'll find plenty of games for $5+.
Yeah. They tend to have low sales numbers. I worked on one. Just because they exist, doesn't mean they make return on investment. When we switched to a free-to-play model for our next game, we made a lot more money in ads and IAPs.
> because people are still making money off those freemium games
Airlines took up of the practice of nickle-and-diming the customer to get the initial sticker shock down, since that's basically all anybody ever competed on. If that price gets any lower, the amount of extra addons and fees will have to go way up to compensate, or service will get cut.
Just because some people are making money, doesn't mean it's a healthy market. I think most experts would agree that the mobile game market is incredibly unhealthy.
I was curious — right now in the US store, 1/25 most popular (This War of Mine) is not freemium. 1/25 “Essential Picks” (Minecraft) is not freemium.
I think your second point depends on how you divide things: clearly there is money in gaming but it does seem like it’s hard to make a game which doesn’t rely on IAP and slot-machine design — so much so that Apple launched an entire service to change the market dynamics.
I wonder how much these in-app-purchase tactics would be mitigated by Apple/Google listing the median per-person spend for each app: e.e “Free (with average $5.00 in-app fees)”
The median will likely be 0 for almost all apps; it would be outrageously, extraordnary successful for a freemium app to convert 50% of its users to paying customers.
The mean is also uninformative - for many games the majority of revenue is provided by a small number of 'whales', and their behavior is not representative for a normal user.
Perhaps a histogram would give an accurate impression, but I'm unsure whether app devs and Apple/Google would want to make that info public.
The latest numbers I've heard is that if you get 10% of your userbase to pay at least once, you're doing incredibly healthily. Whales tend to be a handful-per-100,000 ratio, but they spend like nothing else. Loot boxes are ridiculously effective because whales will roll for them until they get the rare prize, spending thousands of dollars in the process.
Alternatively, mobile game developers can't be assed make a game that's worth more than a dollar. Mobile devs aren't victims; their users are victims and they are the victimizers.
I've worked extensively with various luxury brands that do this (to be honest almost all of them do). The reason is almost always brand integrity, they don't want consumers to think of their brand as being cheap so they only ever discount to a point. Add to that that some brands will allow unsold stock to be returned - obviously this means the seller will only reduce the price to a certain point before it doesn't make financial sense. And finally in some cases it makes more sense from a tax perspective to write off the unsold stock as a complete loss than sell it at a low amount.
Sure. That's because they're not mainly selling a product, they're selling exclusivity. But if every single "luxury" handbag company goes out of business because map violations get people to stop caring about "luxury" handbags, that doesn't mean that handbags getting manufactured.
I believe something like this happens in pharmaceuticals where creating or recertifying manufacturing capability is incredibly expensive.
If a drug price drops below the point where there is insufficient margin to create or sustain manufacturing capability, it stops getting made. This is one source of drug shortages and, to my understanding, why the world health org created a list if essential medicines. This would be a list that countries could use to develop availability controls.
Huh? Airlines have a long history of self destruction through price wars. When I was in college, I would fly southwest to catch baseball games in Baltimore, for less than $100.
Sure. That's how competition works. But they claim is "kills an industry". As far as I know, people still fly to Baltimore despite a history of sometimes-low prices.
Retailers will never take less profit in the long run. Especially in industries where ROIC is extremely important. The retailer will always squeeze the manufacturer and the manufacturer, depending on the volume of the account, will typically fold to keep the (extremely expensive) line running. This plays out over long time horizons (a few years) but eventually price erosion will happen and capacity will go offline.
Nobody is disputing that when prices decrease, capacity might also decrease. But the claim was that capacity drops to zero, which I still think is absurd.
Well, I think the claim that worldwide capacity will drop to zero is absurd. But after enough price erosion, domestic capacity will dwindle significantly and these companies' goal is to remain in business.
I love low airfare as much as anybody but the claim that price transparency leads to price erosion isn't ridiculous. I honestly think that the trend towards lower prices has led to the reduction in quality of the flying experience as the airlines try to accommodate both low prices expected by consumers and high margins expected by Wall Street.
But your point is fair. The capacity rarely disappears completely because of price transparency. Only innovation and obsolescence will completely take that capacity offline.
Of course not, because it's absolutely ridiculous. The theory doesn't pass the basic smell test, it utterly defies common sense. I don't know if this user is a shill for some retailer or just extremely gullible, but this kind of absurd misinformation shouldn't be welcome on this website.
> and if they do the manufacturer cuts the high-density pre-digested feed of feature descriptions for the product
Are you sure that's the case? Most descriptions of MAP I've seen incorporate a "shared" advertising budget that the manufacturer will stop paying if you don't abide by the MAP. This is a subtle but significant difference in actual implementation, further, while this may be acceptable under current federal law or at least the current interpretation they aren't the sole holders of anti-monopoly jurisdiction.
> (for example, if sale below M.A.P. drops the bottom out of a market and kills an industry
That's an incredibly long tail argument. How likely do you think is to actually happen? Is there any evidence this would occur? Is this endemic to all industry, or just to those who rely on these pricing agreements to hold market position?
As part of our agreement to be an authorized dealer of a product, we aren't allowed to sell it below the MAP which they set. If we do, they will cancel our agreement and we lose our discount. (Not sure if that is helpful, but wanted to give you a real world example.)
Interestingly I have seen a source of arbitrage in the music/pro audio gear space. If I (in US) go to Thomann music (Germany) many non US origin goods are between 50-80% of the US MAP. Part of this seems to be exchange rate related but it also looks like a company like Thomann has more leverage on price. Even paying the flat 30 Euro shipping and 5-10 dollar foreign currency fee I save about 20-40%. That part infuriates me to the point Im tempted to start an import business. I’m not going to, but MAP is just price fixing with a nicer name.
> It's clearly anti-market practice (in the sense that it adds information asymmetry between some part of the market and consumers in an attempt to keep prices higher), but it's being done by hundreds to thousands of manufacturers and it's real unclear on what criteria it'd be considered illegal.
If sellers are colluding to keep prices high.. isn't this just a cartel?
They aren't colluding to keep prices high; they're each individually deciding what their MAP should be, but the minimum MAP in the system may be higher than the minimum some consumer is willing to sell for, so that sale offer won't show up on an online shopping center.
I tried Hipmunk once because I loved the site's personality, but it wasn't able to find any flights on Delta to Atlanta (Delta's primary hub). As much as I liked the site, the inability to find such a basic route made me lose confidence in it from the start :(
I tried delta.com but it wasn't able to find some international flights on their own alliance airlines. I called them about this and they confirmed this is done deliberately when booking using points. This made me lose confidence in delta.com and I went back to using Skyscanner.
(Yes it's basically a scam that their "partner" airline flights are hidden when buying with points.)
If your points are with Air France (another airline in the same "partnership") I believe you can. And if your points are with the exact same carrier as the flights you also can. But apparently points on one "partner" are not fungible with others, and you can't use Delta miles to book award flights on other carriers' websites.
This was when I found out that frequent flyer experts choose their "home" airline very carefully. To Delta's credit their points never expire...but if they block the flights I want what good are the points?
Their website offered me an alternative: fly with a different partner airline into the destination country then fly domestic on the airline that flies to the actual destination. That was bookable using (a lot of) points, but would make the journey twice as long.
I'm not sure that's true. I worked for a flight meta search for years and that was never mentioned by anyone (we were very candid internally).
It is however true that consolidation of airlines gave them more bargaining power. For already established companies with access to a lot of customers (Kayak, Skyscanner, Google Flights etc) that came with pros and cons. But for smaller players like Hipmunk I can easily see how that would shift the balance of power towards the airlines, lowering margins and access to data.
I loved the design of Hipmunk and really wanted it to work. Tried it for a direct flight from Detroit to SF. I think it showed only a single flight. I then went to Delta's site and found a half dozen.
After a couple more tries on different trips I decided that whatever Hipmunk's algorithm was optimizing for just didn't work for me.
I think to offer a differentiated product in this space, you have to be hostile towards the airlines. I know that Skiplagged will show me hidden city tickets that I won't find elsewhere. I know that Scott's Cheap Flights will alert me to fares so cheap that they seem like pricing mistakes. All of the aggregators that play ball with the airlines just offer the exact same results.
> after the wave of consolidation among airlines during the Obama years,
Ah the "too big to fail" years where everything consolidated and only got bigger including the big evil banks which took the brunt of the public's fury following the 2008 crisis (and occupy).
It's funny how so much of the regulations put in place had the opposite effect and made running small firms (ie, with more liability than the big ones) became almost impossible. Following the crisis there are now 5 mega banks who control everything and tons of the small banks shutdown and found it impossible to operate in the market with the new conditions,
It's sad that most people's consumer-interfacing perception of markets is often through these megacorps which exist in heavily regulated systems (which everyone then blames their poor experiences on markets), which are often structures which were the result of reactions to bad behaviours of a few big bad guys, which then resulted in policy only designed for the big bad firms. Meanwhile the other 90% of the marketplace, who did nothing wrong and who aren't the same size, were left dealing with the new overhead.
Automotive, airlines, finance, energy, bio/pharma, etc are all getting consolidating into smaller and smaller groups of megafirms or owned by opaque equity groups.
I don't know what the solution is but in so much of dystopian fiction the world is run by a few giant companies who control everything. That sort of system naturally creates a greater disconnect between the needs of the average consumer using the service and the whims and needs of the company (for ex: boycotts become meaningless/ineffective and consumer power lessens).
Meanwhile data is showing the number of new businesses being created are lessening and people are wondering why inequality keeps increasing, when forming small/medium sized companies used to be the main way to become upwardly mobile.
Soon the only option for upwards mobility is working your way up megacorps or making small companies who just get sold off to a bigger firm within the first 10yrs of operations.
I don't mean for this to be a diatribe against regulations but this sort of thing concerns me and regulation is only one of many forces pushing the economy towards this structure. I still think entrepreneurship is forever underrated in inequality discussions but its such a complex problem to confront, I just hope that the future really isn't just endless consolidation and an endless series of political barriers put in place preventing new shops from improving the mistakes of the past (which was a reliable source of progress for a long time).
I don't understand you using consolidation and abuse of power as a reason to dislike regulation. There are plenty of non-regulatory incentives for consolidation. Why not simply regulate consolidation? Target large holding companies and megacorps with aggressive taxation policies on revenue or headcount or market cap or similar? And then enforce the regulation with teeth?
There are always going to be creative people coming up with new ways to be bad actors, so regulation has to be an evolving constant. But responding with an aversion to regulation is just giving the game to the bad actors.
I have always used this argument and agree with it. When it becomes obvious that a corporation is large and too powerful bust it up. Don't regulate the industry so much that you price control things (essentially) and add so many regulations that an army of lawyers is necessary to navigate. Industries almost always tend toward monopolies/oligopolies as people tend to try and concentrate power. Our Constitution (as long as we respect it) demands a split of power but the lassez-faire markets do not.
I have similar views regarding nation state sizes. secessions are extremely rare and all we're left with is legacy states as guiding examples. Apparently federalism and confederation within larger entities has long ago lost it's allure, especially in the US.
I'm convinced the "political divide" that the US has long featured, well before the internet and the 2016 election, was largely to due to its size and expansive heterogeneousness.
Meanwhile the liberals look with envy at the governments of smaller states like Scandinavia, Australia, Canada, and others, with by compartision - a far smaller representative governments and very often less direct gov economic intervention (they prefer to gloss over that part) parthttps://www.wikiwand.com/en/Index_of_Economic_Freedom.
The US used to value its state-driven system with priority, the judiciary branch still seems to which I why I adore them - but the same can't be found in confress and senare, and I think it's long due for them to remembrance state sovereignty.
Each state should be as originally designed - individual experimental grounds for which other states to learn. If California or Oregon wants to be a super-liberal mecca - let them be - with aggressive climate policy and what not. Then they provide the world with a functioning model which to copy assuming it works well for them. Same with Texas or New Hampshire...if they really want to adopt a more
I loathe this trend towards the federal government doing and enforcing everything. It defeats a fundamental founding principles of the founding fathers - liberty via strong state sovereignty.
Oh hell no. More lawyers to find more loopholes. How about addressing the root cause: the lack of competition? The way to do this is lower the barrier to entry, which is made of 100% over-regulation.
You can involve all the antitrust you want, as long as you don't lower the barrier to entry you're just lying to yourself and adding more useless middlemen.
The barrier to entry is definitely not "100% over-regulation". Starting an airline would be extremely difficult even if it were entirely unregulated. You need airplanes, pilots, and a variety of flight and ground crew. You need landing slots at busy airports. And then you need a customer base big enough to fill up your flights.
Even if all of that were easy, you still want anti-trust regulation, because airlines are a cutthroat business. If you start up NerdBird Inc, specializing in SF-Austin flights, it is absolutely in the interests of United and American to undercut you on that route for as long as it takes to drive you out of business. Which will probably not be very long, as airlines are expensive to run and margins are thin.
Look at what happened to Virgin America? It was a consumer-focused airline that was doing very well financially, and it was forcibly acquired because of regulations that US airlines must be US owned.
Yeah, read the article. He was against the merger - regulation drove the forced consolidation, which he did not want. He posted about it a ton when it happened.
If you remove regulations, businesses will raise barriers to entry. Businesses don't like to compete. Competition is a zero-sum game that they might lose. Instead, they prefer to form cartels and turn it into a non-zero sum game where they all win (and consumers all lose).
World history clearly shows that lack of regulation inexorably leads to trusts, cartels, price fixing, price dumping, and all sorts of other anti-competitive agreements. It's trivially easy for a monopoly or cartel to raise their own barriers to entry to maintain their hegemony.
In fact, there's a good argument that the governmental barriers to entry you are lamenting were in fact driven by entrenched businesses as an example of regulatory capture and not a flaw in regulation itself.
If you let businesses get so big that not only are they not regulated, but they have taken over control of regulation itself, you're in a real pickle.
But what is the minimum size for a business to "get so big they have taken over control of regulation"? I have seen very small companies (like, think size of one) deftly manipulate state- and federal- level regulations to their advantage.
> But what is the minimum size for a business to "get so big they have taken over control of regulation"?
This is sort of like asking, "What is the minimum weight you can put on a seesaw before it tips?" The answer depends entirely what's on the other side.
One way to look at free markets is that they provide economic stability in the same way that tensegrity [0] structures provide physical stability. They work not because any element provides stability, but because — when very carefully composed together! — the elements exert opposing forces which all balance out leading to a stable system.
The "brilliant idea" of markets is taking advantages of forces that already exist — human selfishness and the desire to profit — and harness that to produce a system with some level of efficiency. The downside is that there's no real way to evaluate market participants in isolation.
At least on its face, I don't buy that high barriers to entry in every market is "made of 100% over-regulation." Depending on the market in question, there may be extremely high capital costs that have little to do with regulation. What you're trying to do may be highly dependent on partners who be motivated not to give you the best products/services available at reasonable prices. Competition may be entrenched simply by virtue of having been in business much longer than their new competitors, taking advantage of their scale in ways that startups can't -- including locking up potential customers through contracts.
I don't have experience in Hipmunk's field, but I do have experience, in another life, with CLECs, "competitive local exchange carriers." CLECs bloomed thanks to deregulation of their industry in the early 1990s, which is great -- but they were virtually all gone within a decade, not due to re-regulation but to the simple fact that achieving scale and profitability was monumentally expensive and difficult. The company I was at, Intermedia Communications, was bringing in close to a billion dollars of revenue annually by the time they threw in the towel and agreed to be purchased... and they still hadn't come close to turning a profit. But by that point the writing was already on the wall, and the industry was collapsing from hundreds of players to dozens. (The rise of wireless, of course, was the final death blow, but the industry was basically undead by then.)
I don't take Hipmunk's demise as a sign of "too much regulation" at all; airlines went through a similar contraction to CLECs, and what killed Hipmunk -- airlines choking off their pricing data -- will act to prevent any new competitors. That's not a function of too much regulation -- it's a function of not regulating the right things. What if airline pricing data was subject to FRAND ("fair, reasonable, and non-discriminatory") licensing?
Regulation is absolutely used too often to protect incumbents, but you simply can't blame lack of competition in every industry on too much regulation. Arguably, when implemented correctly, regulation can increase competition, not harm it.
Do you expect to ever end the arms race of finding loopholes vs closing them? What would this look like?
I don't believe it's possible. You can't fight bad actors by hoping they'll just somehow lose. The unregulated "more competition" market quickly turns into a "less competition" market as the most ruthless parties establish dominance through whatever means necessary. Your barriers to entry, in the extreme case, become things like physical intimidation.
Right, because the biggest financial crisis since the Second World War has nothing to do with the consolidation. It must have been the regulations.
Despite the fact that the new regulations were a fraction of what was done in several decades before that time, and the fact that states that are more regulated tend to show no more monopolisation than states that are less regulated (if anything the opposite is true).
>It's funny how so much of the regulations put in place had the opposite effect and made running small firms (ie, with more liability than the big ones) became almost impossible.
What did you expect? Obama was a policy wonk, preferring to craft intricate rulesets and mandates to coddle entrenched players rather than prosecute fraud directly or engage in structural reform. He tours the country now on the corporate talk circuit shouting down reasonable populist policy.
We have a choice to change that now, in the Democratic primary.
"Similarly, I spoke on a panel a few months ago in Congress on airlines, and Adam Goldstein, the former CEO of flight travel booking site Hipmunk, talked as well. I used to love Hipmunk, but it’s terrible now and I don’t use it. Goldstein explained why. He noted that after the wave of consolidation among airlines during the Obama years, airlines stopped allowing his site to have access to pricing data unless they hid certain routes to consumers. This move to avoid competition destroyed the business and harmed consumers. (It’s also obviously illegal, and the Department of Transportation has antitrust authority it doesn’t use to stop it.) Why did Goldstein speak publicly? Hipmunk sold itself off and he’s no longer there."