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The risk is that a well funded company gives away their product, drives all their competitors out of business and creates a monopoly, then jacks their prices up

The risk is that a well funded company gives away their product, drives all their competitors out of business and creates a monopoly, then jacks their prices up. It could be viewed as anti-competitive. That being said, I also think this is overkill.

openmosix 10y ago
Like... Google or Facebook?
reacharavindh 10y ago
Yes, this looks like a simple effort to safeguard against anticompetitive behavior of a well funded company. I think there should be proper regulation against this sort of freebies. Even more straight forward example would be Uber vs all other ride-sharing companies. They started off offering steep steep discounts to both drivers and riders (from their VC coffers) while running at a loss, making it impossible for any less funded competitor to even think of entering the business. There should be some sort of regulation about starting off free and jacking up prices once the competitors are driven out of business. Or if such already exist, it must be enforced and made more stringent.
- Eridrus 10y ago
  I don't think Uber's case is more obvious. Uber's business only works at scale, therefore they need to get there and deep discounts to get to scale make sense regardless of competitors. This is particularly clear in the case of Uber Pool which only makes sense with lots of riders using it, which you need to bootstrap somehow, or it will not be feasible for anyone.
  - reacharavindh 10y ago
    "Uber's business only works at scale, therefore they need to get there and deep discounts to get to scale make sense regardless of competitors." Isn't that almost universally true for everything? Is it an acceptable reason to stifle open market competition? I mean think about any other industry. Say a new airline wants to get into business. Is it okay for them to offer $1 tickets (while writing off taxes/airport fees as losses) until they gain enough market share? What would that do to other competitors in that industry?
    - dismantlethesun 10y ago
      Not really. "Only works at [large] scale" means that you cannot be profitable and be a small business. As over 70% of business transactions in the US are done by small businesses, then most businesses can profitably exist at a small scale. When something is only profitable at large scale, typically what's done in the western-style economic nations is to (a) make a public company like the US Post Office (b) tightly regulate the market so the inevitable large actors has to serve the public good as is done for insurance currently or (c) hand out monopolies at the local level as is done for telecom companies.
    - icebraining 10y ago
      Is it okay for them to offer $1 tickets until they gain enough market share? No "until", the point is that they would offer $1 tickets forever, it's just that they would only lose money while they scaled. So competitors would still be screwed even after the "dumping" part. And in a sense, isn't any new business temporarily "dumping" its products? If you're a solo founder writing and selling a SaaS product for $20/month, your income won't pay for the costs (e.g. your salary) until you get enough customers. Is that dumping? What if the competitors' products all cost $1000/month?
  - vic-traill 10y ago
    > Uber's business only works at scale, therefore they need to get there and deep discounts to get to scale make sense regardless of competitors. I understand why this might appear to be the case, but that's not what this [0] HN front page article analysis asserts. The article asserts that 'Uber’s actual financial results, which show no meaningful margin improvement through 2015 while the limited margin improvements achieved in 2016 can be entirely explained by Uber-imposed cutbacks to driver compensation. It is also contradicted by the fact that Uber lacks the major scale and network economies that allowed digitally-based startups to achieve rapid margin improvement'. Interesting read. [0]http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver-part-one-understanding-ubers-bleak-operating-economics.html http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver...
  - Avshalom 10y ago
    Uber's business is taxi dispatch which has been successfully turning a profit for many companies much much smaller for many years.
    - Eridrus 10y ago
      I would argue that dispatch was never a large or profitable part of taxi companies. The profitable part was picking people up off the side of the road where network effects do not matter.
  - st3v3r 10y ago
    That's not the regulator's problem, though. That's Uber's problem to figure out, without acting in an anticompetitive manner.
- dnautics 10y ago
  The old joke is if you charge more than your competitor, you're price gouging. If you charge less, you're anticompetitive, if you charge the same, you're colluding. Basically, government can arbitrarily terminate any business it so wishes.
  - Spivak 10y ago
    If you do any of these in good faith then you wont run into any trouble. * If you aggressively price to extract almost all of the value of your product or service because of an unnatural (i.e. not market based) advantage then you're price gouging. * If you purposefully operate at a loss with the intended path to profitability being raising your prices later then you're being anti-competitive. We want to reward companies for real efficiency, not just who happens to have the largest VC war chest. * If you charge the same as your competitor in good faith and don't find yourself in the first bullet because of collusion then there's no problem.
    - JumpCrisscross 10y ago
      > If you do any of these in good faith Eh, there's a strong political element to all these things. Political risk can't be ignored. Case in point: Uber versus Airbnb.
      - lmm 10y ago
        What's your point re Uber vs AirBNB?
        brianwawok 10y ago
        Both have been kicked out of markets for not playing by the rules. Now they may both "win" in the end and make many billions, so the end story may be "focus on growth not playing by the rules, if you have enough money you will eventually win anyway"
        deleted 10y ago
        [deleted]
larrik 10y ago
Or worse, kills all the competitors then dies anyway.
SilasX 10y ago
But is this a case of dumping? It looks like Zenefits doesn't actually need[1] to charge for the software, in order for their revenue model to work; and it's not dumping if your costs of production are actually that much lower. [1] edit: or want -- the loss of platform size plus transaction costs might outweigh the extra revenue it would bring?
- nickff 10y ago
  'Dumping' is just a scare word, used to slander competitors; there is rarely (if ever) any evidence that 'dumping' is used as a tactic to destroy competitors, then hike prices. This irrational fear has been around for a long time, at least since Bastiat's time.[1] [1] http://bastiat.org/en/petition.html http://bastiat.org/en/petition.html
cmdrfred 10y ago
That is the logic they tell the voters, but we all know the reason this law was passed was campaign contributions and speaking fees paid to politicians from incumbent companies.
baddox 10y ago
> creates a monopoly, then jacks their prices up And then, very quickly, realizes to the surprise of no economist that they are no longer a monopoly.
- JBReefer 10y ago
  That's the part where its a misapplication. These are fundamentally websites we're talking about, not steel mills. The barriers to entry, especially for competitors operating in other states, are incredibly low. No new roads, no new ports, no mineral leases, etc.
  - st3v3r 10y ago
    It's not just a website, though. There's the services offered through the website. And while there might be some competitors that come in (no guarantee of that), it'll still take time. Time which the entrenched monopoly can use to entrench itself further.
  - pulisse 10y ago
    Barriers to entry aren't the only thing protecting a monopolist's position. In many markets, network effects work against a newcomer's ability to acquire customers.
forgetsusername 10y ago
>The risk is that a well funded company gives away their product, drives all their competitors out of business and creates a monopoly, then jacks their prices up. It could be viewed as anti-competitive. Or they go belly-up and leave people without insurance. Because selling things below cost isn't a sustainable business model, despite how that looks from the confines of Silicon Valley.
enraged_camel 10y ago
>>The risk is that a well funded company gives away their product, drives all their competitors out of business and creates a monopoly, then jacks their prices up. It could be viewed as anti-competitive. So... Uber? They aren't exactly "giving away" their product but the rides are massively subsidized.
legitster 10y ago
The irony of anti-dumping laws is that they are usually used by corporations to protect their turf against cheaper upstarts.

openmosix 10y ago

Like... Google or Facebook?

reacharavindh 10y ago

Yes, this looks like a simple effort to safeguard against anticompetitive behavior of a well funded company. I think there should be proper regulation against this sort of freebies. Even more straight forward example would be Uber vs all other ride-sharing companies. They started off offering steep steep discounts to both drivers and riders (from their VC coffers) while running at a loss, making it impossible for any less funded competitor to even think of entering the business. There should be some sort of regulation about starting off free and jacking up prices once the competitors are driven out of business. Or if such already exist, it must be enforced and made more stringent.

Eridrus 10y ago
I don't think Uber's case is more obvious. Uber's business only works at scale, therefore they need to get there and deep discounts to get to scale make sense regardless of competitors. This is particularly clear in the case of Uber Pool which only makes sense with lots of riders using it, which you need to bootstrap somehow, or it will not be feasible for anyone.
- reacharavindh 10y ago
  "Uber's business only works at scale, therefore they need to get there and deep discounts to get to scale make sense regardless of competitors." Isn't that almost universally true for everything? Is it an acceptable reason to stifle open market competition? I mean think about any other industry. Say a new airline wants to get into business. Is it okay for them to offer $1 tickets (while writing off taxes/airport fees as losses) until they gain enough market share? What would that do to other competitors in that industry?
  - dismantlethesun 10y ago
    Not really. "Only works at [large] scale" means that you cannot be profitable and be a small business. As over 70% of business transactions in the US are done by small businesses, then most businesses can profitably exist at a small scale. When something is only profitable at large scale, typically what's done in the western-style economic nations is to (a) make a public company like the US Post Office (b) tightly regulate the market so the inevitable large actors has to serve the public good as is done for insurance currently or (c) hand out monopolies at the local level as is done for telecom companies.
  - icebraining 10y ago
    Is it okay for them to offer $1 tickets until they gain enough market share? No "until", the point is that they would offer $1 tickets forever, it's just that they would only lose money while they scaled. So competitors would still be screwed even after the "dumping" part. And in a sense, isn't any new business temporarily "dumping" its products? If you're a solo founder writing and selling a SaaS product for $20/month, your income won't pay for the costs (e.g. your salary) until you get enough customers. Is that dumping? What if the competitors' products all cost $1000/month?
- vic-traill 10y ago
  > Uber's business only works at scale, therefore they need to get there and deep discounts to get to scale make sense regardless of competitors. I understand why this might appear to be the case, but that's not what this [0] HN front page article analysis asserts. The article asserts that 'Uber’s actual financial results, which show no meaningful margin improvement through 2015 while the limited margin improvements achieved in 2016 can be entirely explained by Uber-imposed cutbacks to driver compensation. It is also contradicted by the fact that Uber lacks the major scale and network economies that allowed digitally-based startups to achieve rapid margin improvement'. Interesting read. [0]http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver-part-one-understanding-ubers-bleak-operating-economics.html http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver...
- Avshalom 10y ago
  Uber's business is taxi dispatch which has been successfully turning a profit for many companies much much smaller for many years.
  - Eridrus 10y ago
    I would argue that dispatch was never a large or profitable part of taxi companies. The profitable part was picking people up off the side of the road where network effects do not matter.
- st3v3r 10y ago
  That's not the regulator's problem, though. That's Uber's problem to figure out, without acting in an anticompetitive manner.
dnautics 10y ago
The old joke is if you charge more than your competitor, you're price gouging. If you charge less, you're anticompetitive, if you charge the same, you're colluding. Basically, government can arbitrarily terminate any business it so wishes.
- Spivak 10y ago
  If you do any of these in good faith then you wont run into any trouble. * If you aggressively price to extract almost all of the value of your product or service because of an unnatural (i.e. not market based) advantage then you're price gouging. * If you purposefully operate at a loss with the intended path to profitability being raising your prices later then you're being anti-competitive. We want to reward companies for real efficiency, not just who happens to have the largest VC war chest. * If you charge the same as your competitor in good faith and don't find yourself in the first bullet because of collusion then there's no problem.
  - JumpCrisscross 10y ago
    > If you do any of these in good faith Eh, there's a strong political element to all these things. Political risk can't be ignored. Case in point: Uber versus Airbnb.
    - lmm 10y ago
      What's your point re Uber vs AirBNB?
      - brianwawok 10y ago
        Both have been kicked out of markets for not playing by the rules. Now they may both "win" in the end and make many billions, so the end story may be "focus on growth not playing by the rules, if you have enough money you will eventually win anyway"
      - deleted 10y ago
        [deleted]

larrik 10y ago

Or worse, kills all the competitors then dies anyway.

SilasX 10y ago

But is this a case of dumping? It looks like Zenefits doesn't actually need[1] to charge for the software, in order for their revenue model to work; and it's not dumping if your costs of production are actually that much lower. [1] edit: or want -- the loss of platform size plus transaction costs might outweigh the extra revenue it would bring?

nickff 10y ago
'Dumping' is just a scare word, used to slander competitors; there is rarely (if ever) any evidence that 'dumping' is used as a tactic to destroy competitors, then hike prices. This irrational fear has been around for a long time, at least since Bastiat's time.[1] [1] http://bastiat.org/en/petition.html http://bastiat.org/en/petition.html

cmdrfred 10y ago

That is the logic they tell the voters, but we all know the reason this law was passed was campaign contributions and speaking fees paid to politicians from incumbent companies.

baddox 10y ago

> creates a monopoly, then jacks their prices up And then, very quickly, realizes to the surprise of no economist that they are no longer a monopoly.

JBReefer 10y ago
That's the part where its a misapplication. These are fundamentally websites we're talking about, not steel mills. The barriers to entry, especially for competitors operating in other states, are incredibly low. No new roads, no new ports, no mineral leases, etc.
- st3v3r 10y ago
  It's not just a website, though. There's the services offered through the website. And while there might be some competitors that come in (no guarantee of that), it'll still take time. Time which the entrenched monopoly can use to entrench itself further.
- pulisse 10y ago
  Barriers to entry aren't the only thing protecting a monopolist's position. In many markets, network effects work against a newcomer's ability to acquire customers.

forgetsusername 10y ago

>The risk is that a well funded company gives away their product, drives all their competitors out of business and creates a monopoly, then jacks their prices up. It could be viewed as anti-competitive. Or they go belly-up and leave people without insurance. Because selling things below cost isn't a sustainable business model, despite how that looks from the confines of Silicon Valley.

enraged_camel 10y ago

>>The risk is that a well funded company gives away their product, drives all their competitors out of business and creates a monopoly, then jacks their prices up. It could be viewed as anti-competitive. So... Uber? They aren't exactly "giving away" their product but the rides are massively subsidized.

legitster 10y ago

The irony of anti-dumping laws is that they are usually used by corporations to protect their turf against cheaper upstarts.