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by hueving
2962 days ago
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These companies losing investor money isn't anything like the broken window fallacy. If I pay a company $0.75 for a $1 widget with a $0.25 VC subsidy, I get the $1 widget and I'm ahead a widget. Nobody had to destroy a widget to make me buy a new one. The underlying widget suppliers still get the full price so the money is flowing into the economy. The VCs are the only ones losing anything. So paying people to clean parks is not better for the economy than VC subsidizing blue apron meals. The mistake you are making is assuming that a company losing money cannot provide more value to society than it loses. |
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The whole point of markets is that people decide where to spend their money based on the value they can get for it. When 3rd parties subsidize services like Moviepass or Blue Apron, they break the pricing mechanism that's supposed to lead us to efficiently use limited resources eg seats in a movie theater or space on mail trucks.
If a company losing money is providing more value to the customer than it costs to operate, they don't need to be losing money and they should raise prices. Otherwise, you're arguing these companies have a beneficial externality of some kind, and society at large gains in the transaction even though the company is burning more value than the customer gains from its product. I don't think that's the case for Moviepass or Blue Apron.
It's Bastiat's idea of the unseen alternative, except we're talking about LP money channeled through VCs instead of taxpayer money through the government.
I'm not blindly against VC-, cross-business, or any other kind of subsidies. If positive externalities exist they're a good thing. Eg, Amazon was "losing money" or barely breaking even on its physical goods business for a long time, but that money was strengthening our logistics network (both internal to Amazon and in USPS, FedEx, UPS) so they could be profitable later at the same or lower price points. Healthcare probably ought to be a money-losing business because a healthy labor force has huge positive externalities. I just don't think leisure or mild convenience/lifestyle products are positive on the balance.