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Virtually any business can eventually be profitable by operating at a loss until their competitors go out of business. Once the competition is gone profit is e

by blihp 6y ago

Virtually any business can eventually be profitable by operating at a loss until their competitors go out of business. Once the competition is gone profit is easy.

sokoloff 6y ago
Until the moment a new competitor realizes there are fat margins in a currently non-competitive market. "Your margin is my opportunity" as a famous business leader is fond of saying.
btilly 6y ago
This is the theory that airline companies have followed since forever. Cliff notes version, thanks to chapter 11 bankruptcies, the competitors never will go out of business. For another counter-example, take any business with low barriers to entry. Sure, one set of competitors go out of business, but you have new ones. Retail outlets tend to be a good example. Top retail brands change regularly as new ones come in and push old ones out. This has been going for as far back as I have looked. Therefore any retail brand should operate as if it will happen in the future as well.
WJW 6y ago
As soon as profits are easy, you can be sure the competition will no longer be gone.
98codes 6y ago
Amazon still loses money on its ecommerce side -- it is very much a cloud services company with a gift shop.
georgeecollins 6y ago
That's wrong. You are assuming a barrier to entry for a new competitor that is higher than the future profits for entering the market. Sometimes that exists (Google search?), but sometimes it doesn't. As a thought exercise, imagine WeWork drove every office rental company out of business in the United States by running at a loss. To make a profit, they would have to raise their rents. When they do, any company can re-enter the market by buying or building office space to compete with them.
rtempaccount1 6y ago
That theory implies a significant barrier to entry for new competitors. In some markets that is justified. Those where significant infrastructure is needed to compete. For example Amazon's network of warehouses and datacentres would be hard for a competitor to replicate at scale. For other markets, that's not justified. For example Uber, a small scale competitor can operate with some taxi's and an app. They won't have all of Uber's capabilities for sure, but they can compete in a locality.

by blihp 6y ago

Virtually any business can eventually be profitable by operating at a loss until their competitors go out of business. Once the competition is gone profit is easy.

sokoloff 6y ago

Until the moment a new competitor realizes there are fat margins in a currently non-competitive market. "Your margin is my opportunity" as a famous business leader is fond of saying.

btilly 6y ago

This is the theory that airline companies have followed since forever. Cliff notes version, thanks to chapter 11 bankruptcies, the competitors never will go out of business. For another counter-example, take any business with low barriers to entry. Sure, one set of competitors go out of business, but you have new ones. Retail outlets tend to be a good example. Top retail brands change regularly as new ones come in and push old ones out. This has been going for as far back as I have looked. Therefore any retail brand should operate as if it will happen in the future as well.

WJW 6y ago

As soon as profits are easy, you can be sure the competition will no longer be gone.

98codes 6y ago

Amazon still loses money on its ecommerce side -- it is very much a cloud services company with a gift shop.

georgeecollins 6y ago

That's wrong. You are assuming a barrier to entry for a new competitor that is higher than the future profits for entering the market. Sometimes that exists (Google search?), but sometimes it doesn't. As a thought exercise, imagine WeWork drove every office rental company out of business in the United States by running at a loss. To make a profit, they would have to raise their rents. When they do, any company can re-enter the market by buying or building office space to compete with them.

rtempaccount1 6y ago

That theory implies a significant barrier to entry for new competitors. In some markets that is justified. Those where significant infrastructure is needed to compete. For example Amazon's network of warehouses and datacentres would be hard for a competitor to replicate at scale. For other markets, that's not justified. For example Uber, a small scale competitor can operate with some taxi's and an app. They won't have all of Uber's capabilities for sure, but they can compete in a locality.