same thing with cable/internet providers, there is a reason that America overpays for less bandwidth compared to a lot of other places. Pretty sure Comcast is the most hated company in America yet millions are basically forced to use them because there is no alternative.
But if Uber only raises prices to the point of sustainability, the whole predatory pricing phase was just a grand opening sale. The purported problem is that Uber is going to use low prices to entrench a monopoly AND THEN make a bunch of money off it by raising prices. But if potential competition restraints their ability to charge high prices, what’s the problem?
Really, everyone assumes that VC funds are not just underwriting big sales out of disinterested generosity. Obviously loss-fed growth is expected to let the business achieve a high-valued state. The question is why is the big state worth more than the small state. The old-style predatory pricing answer is that you can kill the competition, then recoup your investment through monopoly pricing. The official VC answer is that tech companies have high fixed costs (paying goofyballer to write the software) but low marginal costs (“the cloud”). A small business with that cost profile goes bankrupt, but a very large one is enormously valuable. The Stoller explanation is a bit inscrutable. The closest I can find to an actual answer is this:
Competitors have to copy their fraudulent competitors. It’s a variant of Gresham’s Law, which says that "bad money drives out good.” If you can counterfeit something for cheap, the counterfeit will eventually take over the entire market and drive out the real commodity.
It’s not even clear what the words here mean. Is the “commodity” the product that’s being sold, like an Uber is a counterfeit cab? Or is the commodity business models, where Bird is a counterfeit version of…something more respectable (a local bike shop??)? But whatever the interpretation is supposed to be, WHY? It makes sense that customers flock to low prices, but why do investors bankroll projects that lose all their money? What’s in it for them? Why not invest in deals that make money?
EDIT: If you read Matt Levine, you doubtless know that the answer to why investors invest in money-losing businesses is that there aren’t better investments out there and investors gotta invest. If that’s the “problem” though, and Stoller’s solution is to regulate against businesses that lose too much money because investors are competing with each other and can’t hold the line themselves… what he’s actually saying is that government should cartelize industry against customers for the benefit of capital! (His hero FDR would approve!)
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State subsidies are a little bit different than conventional predatory pricing, because government investments don’t necessarily have a profit motive. So it makes more sense that a government would subsidize with no expectation of making the money back. I don’t know if you’ve read Joe Studwell’s How Asia Works, but he has a pretty interesting argument that the form of state-led economic development that works is subsidizing/compelling firms to invest in export industries. The theory is that the subsidies and compulsion force business to make investment in higher value-add industries, then export discipline helps weed out the bad apples. The result is that the government loses a ton of money on bad investments, but can “profit” by growing advanced industries.
The weird thing about Uber is there really Is only one thing that make them better than a cab. The app. How has yellow cab or whatever not simply built a tracking gps app that allows payment.
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A lot of companies sell low and lose money for a long time and then go out of business because they lost so much money. In the mean time they hurt competition. See SolarCity. They weren’t planning on going out of business though, they were just trying to buy market share. I guess Amazon did the same thing, but pulled it off.
Barriers to entry something something . . .
I haven’t read Studwell, thanks for the recommendation. I definitely used to subscribe to the standard libertarian economic view of well even if China is subsidizing industries that ultimately just benefits everyone else on net. Which, maybe that’s true. But then I actually started working in an industry where that was happening and met and worked with the folks who would need to learn to code, and they’re definitely not going to learn to code. So there’s no way that slightly cheaper everything is worth the devastation that wholesale decimation of entire industries inflicts on communities.
Well, it probably depends who you ask, doesn’t it? I’m sure that it’s not worth it to the guy who’s put out of work at the paper factory (although <4% unemployment…), but I’m equally sure it is worth it to the Chinese guy who gets to have a middle-class life rather than being a peasant.
Sure. But the government of our country has an obligation to protect it’s own people and their well being and the well being of their communities.
We really do need to stop talking about top line unemployment and gdp. Both metrics are wildly flawed and do a truly shit job of describing conditions on the ground for the bottom 75% of the population.
“Corporate monopolies, maybe they’re a good thing?” feels like an instant classic Libertarian hot take.
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For real. Big market dominating companies use their power to drive down costs in 2019 not to raise prices. Look at how Amazon treats third party vendors once they become integral to their business model. Predatory is an understatement.
Well, there’s another answer for those folks, and that’s a more robust welfare state. I grant that people do want and need things to do on top of meeting their basic needs, but there’s more than one way there, as long as that’s the goal. I’m not sure it’s a solved problem which of these two strategies is better overall.
Isn’t that what we want to do with single-payer health care? So Democrats are the ones who want to run government like a business?
There is a difference between a monopoly with a profit motive accountable to shareholders and a monopoly with an election motive accountable to voters.
This was a long discussion (maybe IT very T), but I don’t really agree with that statement as a general principle. In a lot of practical matters, it’s an irrelevant distinction, because most of what a government does affects its residents more than anyone else, so doing the best for everyone is congruent with doing the best for citizens (although even here, what claims do noncitizens residents have?) But for cross-border questions, it’s very important. If China decides that the Chinese people would be better off with an economic development program, is the US obliged to retaliate if it’s bad for Americans? No one truly believes that you can resolve this questions by answering that the US’s only obligation is to maximize the wellbeing of Americans. We can’t extort cash protection payments from Canada under threat of invasion, even if we’re guaranteed to get away with it. That’s not a reductio, not an analogy, but it shows that there has to be some kind of moral principle to help you draw a line. A better view is that the U.S. government is obligated to protect the legitimate interests of its citizens. Then you have a more interesting question of whether paper-workers have a legitimate interest in being protected from foreign competition, at the expense of consumers at large and foreign peasants who could obtain a higher standard of living. That’s not a trivial question, but I think that’s the corner you need to fight. It’s not enough merely to say that foreign competition is bad for affected workers or even for Americans at large.
looks like recession is back on the menu boys
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If there’s one single thing that will actually get Trump nuked by his own, it’s a stock market crash. Down 3.5% since yesterday.
He’ll just say that it’s because of the impeachment hearings and his base will lap it up.
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Right, and it seems clear to me that tariffs and other trade policies that react to China and other countries heavily subsidizing industries that threaten American industries and communities is a legitimate interest. It isn’t initiating an unfair trade practice, it’s reacting to an unfair trade practice.
Well I think President Donald Trump is the first symptom of a popular reaction to an American ruling class that cares about a Chinese peasant roughly as much as it does an American worker.