[hari_seldon_]

Agreed. The dominant strategy seems to be to undercut competitors until they are driven out of business, and then you can raise prices. However, raising prices then gives opportunity for a new ride-sharing service to come in and say that they can compete by offering lower prices for a period of time...

[crdoconnor]

This is a strategy that has "worked" in transportation markets before. This is what the post-privatization 1980s bus wars were all about in the UK.

A few companies won out, consolidation happened, unprofitable routes were dropped and prices rose on profitable routes to a level where bus riders could be more reliably tapped for profits - largely by monopolies and duopolies.

[clairity]

yes, that's how capitalism is designed to work. the window in which you can make outsized profits is meant to be temporary so companies can't just rest on their laurels.

it's beautiful when it works.

[EpicEng]

Capitalism is not "supposed to be" a race to the bottom and then the emergence of a single, monopolistic entity. That's far too simplistic. Price and value are a huge component of capitalism, yes, but the general idea isn't "price below what is sustainable by taking in massive amounts of funding until all of your competitors are sunk and then increase prices."

[zanny]

Capitalism is absolutely supposed to minimize costs, that is how competition works. It is more a consequence of economic reality than a function of capitalism that massive vertical integration and economies of scale can let market-spanning monopolies form.

But as others have said, unless barriers are put in place (economically natural like mindshare or opportunity cost or artificial ones like bribed legislation) the monopoly can't abuse their situation without opening up avenues for new competition to arise to compete with them.

On one hand, capitalism is obviously not optimal - a monopoly is only held to a price ceiling of what the most nascent newcomer is capable of. They are almost always able to take home the profit of their scale and integration even in the presence of competitors. On the other hand, the only way historically nations have battled this is to micromanage a market to guarantee enough strong entrenched and scaled competition to keep there from being a decisive market leader. But over time all markets trend towards that kind of centralization.

[mseebach]

There's nothing about this that will allow a single, monopolistic entity to emerge. There are probably hundreds of "Uber-ripoff" apps out there by now. Sure, as long as someone is willing to pour VC money into it and give people subsidized rides, sure, Uber can kill off contenders and stay dominant. But the second Uber starts raising prices to extract monopoly profits, someone else steps in and undercuts them. You can probably get started in a city for a few $100k, or even less if you have an existing operation of some sort you can leverage.

The low-barrier-to-entry nature of this market is pretty much perfectly suited for market conditions to prevail and ride prices to stabilize quite near their costs.

[emodendroket]

That's essentially the argument NC has presented for why Uber is not sustainable.

[mseebach]

In that case they make very bad arguments, because such an equilibrium would be expected to be quite stable (although Uber might not be part of it).

[emodendroket]

If Uber "is not part of the equilibrium" then that would suggest it wasn't sustainable.

[clairity]

> but the general idea isn't "price below what is sustainable by taking in massive amounts of funding until all of your competitors are sunk and then increase prices."

so there shouldn't be any startups then?

because every startup is unsustainable at the beginning. every startup wants to beat its competition and emerge as the sole winner. every startup wants to raise prices and make more money.

capitalism is an economic system where individuals own (and deploy) the means of production, not the state. capitalism employs competition to ensure those means of production are put to productive uses for the whole economy, not just the individual. profits (or more directly, the accumulation of wealth) are non-productive until redeployed.

that's exactly the way capitalism is designed to work.

[EpicEng]

>because every startup is unsustainable at the beginning. every startup wants to beat its competition and emerge as the sole winner. every startup wants to raise prices and make more money.

With the idea that they will eventually become sustainable. And let's not pretend that manu (most?) startups are a massive cash sink-hole run by people who don't really know what they're doing. Regardless, if your startup's plan is to start cheap, grow their user base until they have a network effect, and then raise their prices significantly _and_ the product they offer can be easily replicated... then yes, that startup should probably not exist.

[emodendroket]

That's not really how it's "supposed to" work. It's called predatory pricing and the most ardent free-market defenders claim it doesn't exist because it's economically irrational (check out the contentious discussion and Frankenstein-like text of the Wikipedia entry on the topic).

[sol_remmy]

"predatory pricing"

So they're offering prices below cost and that is considered "predatory"? Last time I checked low prices are good for consumers

[emodendroket]

It's predatory because it is below cost and is just intended to preserve a monopoly on a market. The goal is to eliminate all competitors, then charge a price that a competitive market couldn't sustain. The harder it is for new competitors to enter your market the better it works.

[jfrankamp]

In the long run, higher prices for consumers. After the predatory prices have driven out competition.

[mseebach]

> most ardent free-market defenders claim it doesn't exist

Yes, and the people on the other side of that debate are perfectly reasonable, dispassionate truth-seekers.

[emodendroket]

Do you feel I've unfairly presented someone's position? I don't agree with it but I think I have presented their case reasonably. Unless your objection was to my claim that they are "ardent defenders of the free market," but I think that is a reasonable characterization of the Adam Smith tie types.

[mseebach]

You've misrepresented the conflict as being one-sided, when it's not. There's a real difference of opinion and analysis, and plenty of "ardency" on both sides.

[emodendroket]

On one side you have people who believe that predatory pricing is an issue and likely also that government regulation is needed to prevent it. On another you have people who believe that markets are so efficient that predatory pricing cannot happen. What do you think I'm missing here? Can you be any more specific than just vaguely saying I'm missing some nuance?

[albertgoeswoof]

So if you invest when a company is at the end of that temporary window, you’re going to lose money? Remind me of the difference between that an MLM scheme again?