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Unpopular opinion: I wish this law extended to startups using VC cash to offer products at artificially low prices. When done at sufficient scale (ex. Uber), i

Unpopular opinion: I wish this law extended to startups using VC cash to offer products at artificially low prices. When done at sufficient scale (ex. Uber), it massively distorts markets and is very much anticompetitive, even if consumers benefit for some time.

deleted 4y ago
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dcgudeman 4y ago
It's unpopular because it's a bad idea. Sometimes products or services aren't unit economical at small scale and need to be subsidized until they are adopted en masse.
- codeisawesome 4y ago
  “Chip War” by Chris Miller describes how Silicon Valley first successfully pulled this off, when Robert Noyce spearheaded the selling of chips at or under manufacturing cost in the 60s to wean off dependence on government contracts and get regular customers interested. It did work in that instance, but I guess the real question is when & how that framework should be applied. A tempting idea is to judge whether or not the final good/service is indispensable for the users (and how likely monopoly can be established), such that prices can be raised to recoup the losses. But that alone doesn’t seem to be sufficient as shown by the MoviePass collapse. Lots of ingredients to get right!
surement 4y ago
How is it anticompetitive? Charging lower prices means making less profit. If Uber somehow lost money to drive out competitors (an insane strategy), then the capital of any bankrupted taxi company could be bought up for cheaper than the company originally paid by someone who could then continue to compete with Uber.
- notacoward 4y ago
  If a company used its own prior profits, or profits from another product line, to lower prices and drive a competitor out of business before raising prices again, that would be illegal. Why is it any different when the subsidy comes from outside?
- thisisnotatest 4y ago
  Check out "Uber is a bezzle" by Cory Doctorow. His allegation is this scheme: 1. Early VC funds are used to subsidize Uber rides at a loss to Uber. 2. The deep discounts made Uber attractive to drivers and customers. 3. Uber's soaring popularity attracts more investment in Uber stock. 4. Uber's early investors cash out. Society is harmed as later investors lose their money, Uber drivers who invested in vehicles can no longer get work, public transit ridership is hollowed out, etc.
- alexb_ 4y ago
  >If Uber somehow lost money to drive out competitors (an insane strategy) This is quite exactly what they did.
- danaris 4y ago
  Read up on Wal-Mart's practices some time. Selling products or services at a loss in order to drive out competitors is a classic anticompetitive tactic that has killed countless otherwise-successful small businesses.
  - surement 4y ago
    what the hell does "anticompetitive" mean? driving competitors out of business is exactly what competition is; and there are still very many competitors to Walmart!
    - danaris 4y ago
      Nnnno; continuing to compete with competitors is what competition is. Once you have driven your competitors out of business, there's no one left to compete with. That's why it's "anticompetitive". And yes; there are still other companies in the same space as Walmart; that's not the point. The point is they drive out competitors in the local area where many of their stores set up, so that if the people who live there want to shop, they have no choice except Walmart. Then they raise prices.
habosa 4y ago
This. It’s not just startups, big companies do it too. The best recent example is Google Photos. Google announced “free and unlimited” photos storage to everyone one day. Every other paid photo app out there fell of a cliff. Nobody else could give away terabytes of cloud storage for free. Then once there were no good competitors left, Google suddenly reversed course. Now it’s only free for reduced quality. Ok now it’s only free up to 15GB … and if you fill up that 15GB you’ll stop getting your emails! Legitimate mafia behavior.
tumetab1 4y ago
I think that most problems being caused by VC cash would disappear if the interest rates would stay above 2%. Is pretty hard to keep Uber, Netflix, WeWork, etc. afloat if the VC cash was so cheap to VCs.

deleted 4y ago

[deleted]

dcgudeman 4y ago

It's unpopular because it's a bad idea. Sometimes products or services aren't unit economical at small scale and need to be subsidized until they are adopted en masse.

codeisawesome 4y ago
“Chip War” by Chris Miller describes how Silicon Valley first successfully pulled this off, when Robert Noyce spearheaded the selling of chips at or under manufacturing cost in the 60s to wean off dependence on government contracts and get regular customers interested. It did work in that instance, but I guess the real question is when & how that framework should be applied. A tempting idea is to judge whether or not the final good/service is indispensable for the users (and how likely monopoly can be established), such that prices can be raised to recoup the losses. But that alone doesn’t seem to be sufficient as shown by the MoviePass collapse. Lots of ingredients to get right!

surement 4y ago

How is it anticompetitive? Charging lower prices means making less profit. If Uber somehow lost money to drive out competitors (an insane strategy), then the capital of any bankrupted taxi company could be bought up for cheaper than the company originally paid by someone who could then continue to compete with Uber.

notacoward 4y ago
If a company used its own prior profits, or profits from another product line, to lower prices and drive a competitor out of business before raising prices again, that would be illegal. Why is it any different when the subsidy comes from outside?
thisisnotatest 4y ago
Check out "Uber is a bezzle" by Cory Doctorow. His allegation is this scheme: 1. Early VC funds are used to subsidize Uber rides at a loss to Uber. 2. The deep discounts made Uber attractive to drivers and customers. 3. Uber's soaring popularity attracts more investment in Uber stock. 4. Uber's early investors cash out. Society is harmed as later investors lose their money, Uber drivers who invested in vehicles can no longer get work, public transit ridership is hollowed out, etc.
alexb_ 4y ago
>If Uber somehow lost money to drive out competitors (an insane strategy) This is quite exactly what they did.
danaris 4y ago
Read up on Wal-Mart's practices some time. Selling products or services at a loss in order to drive out competitors is a classic anticompetitive tactic that has killed countless otherwise-successful small businesses.
- surement 4y ago
  what the hell does "anticompetitive" mean? driving competitors out of business is exactly what competition is; and there are still very many competitors to Walmart!
  - danaris 4y ago
    Nnnno; continuing to compete with competitors is what competition is. Once you have driven your competitors out of business, there's no one left to compete with. That's why it's "anticompetitive". And yes; there are still other companies in the same space as Walmart; that's not the point. The point is they drive out competitors in the local area where many of their stores set up, so that if the people who live there want to shop, they have no choice except Walmart. Then they raise prices.

habosa 4y ago

This. It’s not just startups, big companies do it too. The best recent example is Google Photos. Google announced “free and unlimited” photos storage to everyone one day. Every other paid photo app out there fell of a cliff. Nobody else could give away terabytes of cloud storage for free. Then once there were no good competitors left, Google suddenly reversed course. Now it’s only free for reduced quality. Ok now it’s only free up to 15GB … and if you fill up that 15GB you’ll stop getting your emails! Legitimate mafia behavior.

tumetab1 4y ago

I think that most problems being caused by VC cash would disappear if the interest rates would stay above 2%. Is pretty hard to keep Uber, Netflix, WeWork, etc. afloat if the VC cash was so cheap to VCs.