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Ask HN: What could be done to stop funded startups undercutting businesses?
Because here at Hacker News, I've seen quite a few people complaining that venture backed startups distort the market, since they don't have to be profitable to keep going and could hence undercut other (bootstrapped) businesses.
But what's the 'solution' to this? Because to a certain degree, this happens at all levels and in all industries. It's basically what killed the media industry, since the best funded traditional outlets are mostly kept alive by billionaires pumping in money for 'charitable' reasons, and the internet has created a market of hobbyists doing the same work for free on the side.
And it's true in many other fields too.
So what's the solution? How can regulators stop saying, a venture capitalist putting millions into an unprofitable business to drive competitors out of business?
- hidenotslide 9y agoIn the US predatory pricing only applies to companies who use their market power to earn above-competitive profits. So the earlier actions could only be dealt with by the FTC after they drove competitors out of the market and raised prices. But another distortion is the regulatory arbitrage angle. Ride sharing companies that don't comply with taxi regulations, Airbnbs that don't have to follow hotel or zoning laws, etc.
- matt_the_bass 9y agoSometimes such regulations are for health or safety. I agree with those. Other times they are simply barriers to entry established by the current players. I don't agree with those. I do think companies like ride-sharing and home sharing should have regulations that are health and safety related.
- hidenotslide 9y agoSo are you against municipalities having the right to determine their own laws and regulations then? Just because you don't like the law doesn't mean you can ignore it. My point is not whether or not the regulations should exist, in many cases they probably should not. I was just pointing out that having companies willing to operate in legal gray areas could have a distorting effect on the existing market. The original question was what regulators could do, and an answer is to enforcing existing laws where applicable.
- matt_the_bass 9y agoI'm for municipalities having the right to create laws and regulations that are in the best interest of their overall population. I'm not in favor of municipalities making laws that favor rich special interest groups that only serve a small subset of the population. I'm in favor of protecting small companies from practices of large companies that are unsustainable (like subsidizing rider costs to win market share) in which small companies can't compete. I'm not in favor of protecting small companies just because they are sustainable. And I agree with you about enforcing all rules including ones I don't agree with. But I'd like to get rid of those that I don't think are for the protection of the community at large. I guess I should have said that I agree with some of those regulations and not others (rather than saying one should or shouldn't ahear to them). Thank you for pointing that out.
- twobyfour 9y agoI'm pretty sure we also have laws against "dumping" (flooding the market with under-priced goods as a way to drive out the competition) that aren't predicated on dominant market position.
- hidenotslide 9y agoPlease provide a source if you have one. Dumping usually refers to the international trade context, I don't see how it could be applied in this case.
- twobyfour 9y agoYou're right. Apparently "dumping" is the wrong term here. It's a subset of "predatory pricing"[1], which is regulated and which Uber is arguably engaging in: Pricing below your own costs is also not a violation of the law unless it is part of a strategy to eliminate competitors, and when that strategy has a dangerous probability of creating a monopoly for the discounting firm so that it can raise prices far into the future and recoup its losses. [1] https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/single-firm-conduct/predatory-or-below-cost https://www.ftc.gov/tips-advice/competition-guidance/guide-a...
- chrisbennet 9y agoI don't doubt that venture backed startups distort the market but I also can't recall anyone on H.N. complaining about it. At the end of the day, regulations aren't supposed to protect incumbents business models, they are supposed to protect the consumer. As for the newspaper business, I think Craigslist is the culprit there. Traditionally, newspapers sold ads to pay for their journalists, etc. Craigslist destroyed that model. (And Craig did it on shoestring budget.)
- claudiulodro 9y agoDon't compete primarily on cost. It is much more difficult for venture capitalists to provide better service or or a better product than it is for them to provide a cheaper one.