I'm no economics expert, but if Uber loses money on subsidiaries, that's dumping(1) against local Taxi companies and these companies actually might have some valid points, no?
There's a fine line between predatory pricing and "forward pricing." It's a very common, and valid, business practice to price a good or service at a level that will be profitable in the long term, rather than try to be marginally profitable on every single transaction. For example, on UberPOOL or LyftLine, the companies are betting that they can support the reduced pricing for shared rides when they get a large enough customer base. The only way to prove out that business model and grow the scale is to offer the discount pricing for those rides from Day 1.
In my mind, the situation is a little more suspect if they are subsidizing standard rides in the market. However, at this point, there are two major competitors in almost every US market, Lyft and Uber, so they are making the market between them. Whether or not either of them is losing money, if they raised their prices at this point, they would suffer a precipitous drop in market share. Sooner or later, they'll find an equilibrium. Taxi companies can choose to ante up and participate in the market, or fold and get out -- that's how it goes. From a competitive standpoint, it takes two to tango, it doesn't take three.
> Would that mean that if two price-dumping companies collude, a third party cannot sue them -- because there is "competition"?
No, if they are actually colluding, that is an illegal combination in restraint of trade independent of whether that collusion involves dumping, and anti-trust law provides both private causes of action (for harmed competitors) and public causes of action (for the government) to address such collusion.
Anti monopoly laws are meant to protect consumers, NOT other businesses.
It is very hard for a company to get in legal trouble for price dumping, because as it turns out, price dumping in many cases is freaking awesome for consumers.
Collusion's another thing all together, and not the thing you're replying to. Complicated, as always, but in short the scenario you describe might very well be illegal.
Genuine question: is it safe to assume that dumping is bad for consumers? It's clearly bad for competitors, but it's basically like handing out free money to consumers. The concern is that once all the competitors die, the dumper will have a monopoly and jack prices up. But empirically, what are some examples of that happening? With few exceptions, it's only possible for monopolies to sustain above-market prices when laws block new competitors from starting up.
Look towards video rental back in the nineties. Blockbuster would move into a town, give very cheap rentals until the moon and pop stores went under, and then raise prices.
The interesting thing in the case of Uber/Lyft/etc. is that the end goal would almost have to be a situation in which on-demand ride sharing applications became nearly the sole mode of transit in the regions of interest. Otherwise, literally as soon as you drive out all the other transit competitors (taxi companies, other ride-sharing services, whatever) and begin to apply monopolistic prices, there will be a huge flood of lower-priced alternate options, like taxi companies popping up again.
For me, this is what's so scary about Uber. It's not "disruption" as many people seem to claim. It's engineered regulatory capture.
The goal isn't to disrupt a market, but rather to wipe it out and have the financial and political backing to secure some sort of regulatory environment in which lower-priced options cannot emerge after the VC-subsidy phase ends and the monopolistic price increases begin.
It's double sad that as the sort of flagship start-up of the era, Uber leads the way in deplorable executive behavior, shady business practices, and questionable labor policies ... and despite it, they've managed to win the PR war that has every naive tech youngster singing about how they are "disruptive" and singing how all criticisms against them are invalid because of precious, precious "disruption."
It seems to be coming around a bit, but people still talk about "taxi monopolies" and whine about how awful cities like Austin and Vancouver are to block Uber.
In a town here, we had basically the same with a doner kebab shop. The chain moved in, priced the doner at 1.20€ (local was 2.20€ which was already cheap), killed the competition after a few months and then raised prices to 3.50€.
If a monopoly keeps prices high, but has deep enough pockets to temporarily lower prices and put any competitor out of business, then no competitors will arise.
Unlike what the other commenter said... there are plenty of historical examples.
> The most notorious of the trusts were the Sugar Trust, the Whisky Trust, the Cordage Trust, the Beef Trust, the Tobacco Trust, John D. Rockefeller's Oil Trust (Standard Oil of New Jersey), and J. P. Morgan's Steel Trust (U.S. Steel Corporation).
Those monopolies were generally protected by tariffs, expensive licenses or regulatory costs, or other laws that blocked competition.
Some dominant companies of course emerged in that era, but I'd be interested to see evidence that companies that weren't insulated from competition by government policies actually used their dominance to harm consumers.
Those trusts arose at a time where there was very little regulation. There were tariffs protecting the industry as a whole from foreign competition, but that wouldn't have affected the rise of domestic competitors.
Foreign competition is important, because some things (like oil drilling or sugar farming) are only doable in a few places, so if one company captures those places it'll be tough to compete.
Also, the fact that some companies became very dominant doesn't mean ipso facto that they harmed consumers. If a company becomes huge fair and square (as opposed to via regulatory capture or other coercive means), it may just mean that people like their product the best.
> expensive licenses or regulatory costs, or other laws that blocked competition.
Those didn't exist in the 1800s. The rise of the corporation occurred after the 1830s, when Congress no longer had to approve of every single company's existence.
After that, it was Laissez-faire economics for over 50 years. https://en.wikipedia.org/wiki/Laissez-faire ... basically ending with the Sherman Anti-Trust Act when Americans realized that was a bad idea.
Globalization wasn't a big thing in the 1800s. US Companies basically only had to worry about other US Companies. There was some foreign trade, but not much.
Within the US, a major entity like the Tobacco Trust had the power to set prices. When you're the only company in the entire US, you have the ability to stomp out competition like that.
Time-Warner Cable, Verizon, Comcat, Google Fiber... plenty of competition.
The issue with natural-monopolies is that when one company starts serving a neighborhood, it makes no sense for a 2nd company to start serving the same neighborhood. That's just wasteful.
So there are huge amounts of Verizon-only neighborhoods or Comcast-only neighborhoods out there.
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Other countries solve this by highly regulating the "natural monopoly" part. IE: If you are going to lay wires to a neighborhood, you become subject to strict regulations. (Ex: utility).
Then, they force you to provide multiple choices. The deregulation of power companies for example allows me to pick a blend-of-energy, or I can pay a little bit more for clean energy providers.
Similarly, if we turn Comcast into a government-regulated utility (aka: accept the fact that it will always monopolize a neighborhood), and then force it to supply multiple ISPs in its pipes, things would probably get better.
My county actually has this deregulation, but it doesn't seem to work in practice because Comcast is both cheaper and got better customer service than the other ISPs that run on Comcast's networks.
The argument for "treat ISP infrastructure like a utility" has always been that quality of service will improve and prices will drop if competition is introduced. It sounds to me like the regulations did exactly what would be expected when an actual market is allowed to form. How does this arrangement not work if you have good customer service and low prices from Comcast? Are you suggesting that the alternatives are somehow even worse than standard Comcast?
> Are you suggesting that the alternatives are somehow even worse than standard Comcast?
Arguably, it forces Comcast to have better customer service. Because they're actually competing in my area. I actually go with Verizon in my neighborhood though.
Taxis once provided a good service. Just 20 years ago, you needed a specialist to take you to random places in a new city.
Then a little thing called the "GPS" was invented. Uber takes advantage of the GPS and anybody can now plot a course to anywhere without specialist knowledge of a city.
The strange thing is, people seem to have forgotten what life was like before GPS.
In Vienna (Austria), taxi drivers had to pass a pretty tough exam which required intimate knowledge of the cities streets.
A good driver still makes a difference in the age of GPS, because you can often safe quite some time by avoiding certain points of congestion and factoring in traffic.
But with GPS that incorporates (live) traffic data, the additional value is a lot smaller.
Fares are still the same, you just don't notice it because a VC is subsidizing it for you.
The day that ends, it will be back to business.
Think of Uber as a taxi company subsidizing your travel for a few years. Things will be back to normal once the VC realizes they can't make profits until they charge customers like other taxi companies.
There are no examples. Social/price dumping is the big boogie man here in Europe used to regulate, tax, sue or just plain forbid foreign companies from competing aggressively against local companies. Branding the permanent menace of social/price dumping is just cronyism and protectionism in disguise, it hurts customers, innovation and employment. I hate it when populists and even regular politicians uses it and I hate it even more when people buy it, really makes me cringe but there's nothing I can do I guess.
I dunno about European History, but here in the US, every child is taught the lesson of the monopoly era.
Rockefeller Oil, J.P. Morgan Steel / US Steel, Tobacco Trust, etc. etc. These companies monopolized the industry in the late 1800s and fixed-prices to kill competitors.
In the Spain of my youth, the regulation was way past avoiding a monopoly in commodities, and full on to protecting any incumbents on anything, like mom and pop retail.
One example was (and maybe still is), to ban discounts on textbooks, as the big margins were a big reason small bookstores stayed afloat.
Another was is to limit hours of operations in stores, including making stores be closed on sunday being mandatory, as many family retailers just couldn't man the store without hiring someone, and labor laws made hiring someone for little time expensive.
There was also a semi-recent outcry when the government stopped regulating rent hikes. for commercial property. There were plenty of stores in highly desirable locations that were on the same lease for a century! Their monthly rent could be two orders of magnitude away from the space next door.
Such level of protectionism of old business models just means that instead of going through pain and optimization for decades, they all get wiped off the map in one fell swoop the minute competition that can skirt the protectionist regulations comes in: Imagine what happens to tiny stores when, instead of first having to compete with US levels of efficiency in big box stores, they get to compete with Amazon. What happens to record stores that can get away with selling music for 25+ euros an album when spotify shows up?
So, while there is reason in fearing monopolies, the levels of regulation I describe just have little to do with what the US calls anti monopoly regulation.
> With few exceptions, it's only possible for monopolies to sustain above-market prices when laws block new competitors from starting up.
This is false. The 'exceptions' are the norm.
It's all but tautological that monopolies can only be established in markets in which there are meaningful barriers to entry.
Those barriers are seldom legal, and legal barriers are of arguably limited value.
The only way for a 'start up' to 'disrupt' is if they are extremely well funded relative to the monopoly holder's investment in the market.
As noted elsewhere today, that is precisely the business model of Uber/Lyft/AirBnB: use vast amounts of capital to attempt to break into locked markets, while unprofitable for years and years.
Absent funding at that level, monopolies that level are largely unassailable once established.
The pace of breaking them and evolving the market in the interest of consumers is thus measured on a very very long timescale, during which consumers take it in the shorts.
>The concern is that once all the competitors die, the dumper will have a monopoly and jack prices up
I'm not sure how relevant it is to ride-sharing, because the industry is not particularly vital to the economy, and the barrier to entry is low.
Where it becomes a concern is in crucial industrial infrastructure. Over the long term, China, for example, can dump cheap, government subsidized steel in the US, obliterating the domestic steel industry. 40 years down the road there's nowhere else to buy steel, which is bad both economically and militarily.
in addition, uber may be getting rid of one kind of competitor that has a hard time competing with it while laying the ground work for other low-end entrants to compete with it.
I really love seeing cars around town with both uber and lyft signs in the windows. ..I can imagine a sign with 8 of these.
While Uber competes with Lyft directly in the on demand rides space it by no means will gain a monopoly on all transportation, there are multiple levels of competition after all. So I don't believe we'll end up in a monopoly situation soon where we have to pay whatever Uber demands. If Uber gets too expensive (similar to how they started with pricey black car service), consumers will simply resort to alternative ways of transportation.
Technically predatory pricing rather than dumping which is for products. Probably hard to do them in the US:
>the U.S. Supreme Court has set high hurdles to antitrust claims based on a predatory pricing theory. The Court requires plaintiffs to show a likelihood that the pricing practices will affect not only rivals but also competition in the market as a whole
The two market leaders are losing money hand-over-fist in the hopes of becoming a monopoly. I'd say it's affected competition in the market as a whole.
Heck, if you buy Uber's logic, they don't actually compete with Taxi companies. Lyft is their only serious competitor, and both of them are losing a ton of money (arguably, but I'd like to see a court weigh in) because of Uber's irresponsible behavior.
It depends on bit on whether you think a ridesharing brand is a defensible monopoly.
Even if they figure out some onerous legal contract that forces drivers to work exclusively for Uber, other drivers will sign up for a company that charges consumers less and pays drivers more.
They get praise for their logistics expertise, but advanced routefinding using digital maps is literally a commodity (you can pay ~$0 for a route from lots of companies).
The brand is not the defensible monopoly. It's having a thick market. Drivers want to drive for Uber because they can expect to find riders, and riders want to order from Uber because they can expect to find drivers.
Destroy all competitors by dumping. This is financed through investment and disregarding all regulation (who needs background checks for taxi drivers anyway?)
AirBnB put about $10M in SF fighting regulation in the last election. Smart money.
Their problem today is that despite their success in that round, the fiction that their business is about a 'share economy' is unraveling as details emerge from third parties on their actual revenue stream:
Lyft and Uber both perform background checks on drivers. Lyft also has a mentorship program where new drivers are screened for safe driving, car quality/condition, and other criteria by an experienced driver.
What's insufficient about the background checks Uber already performs? If they're quantifiably less safe than other transportation mechanisms, customers will vote with their wallets.
I'd be opposed to adding additional regulation if not needed.
Dumping is really only applicable if they are undercutting their prices in specific regions. If I am under-charging across my entire lineup, that's just on me.
Which they absolutely do. AFAICT, Uber doesn't subsidize rides in Europe because predatory pricing is illegal there. But they do in new markets in the US and used to subsidize heavily in China, which opens them up to charges of dumping, it seems to me.
There's a bit of a difference on which government body enforces which rule.
In quite a few countries, taxi rules are governed by cities - so the municipality government is the enemy.
Anti-monopoly/ predatory pricing rules are at least national level - and if you are unlucky you can go against the EU itself, which historically has not been afraid to slap companies with gargantuan fines that would never be allowed from the pro-business USA SC.
Uber has lots of problems with legality in Europe. In Germany it's basically nonexistent. Note that the regulation for taxis in Germany really makes sense (for instance background checks for drivers).
I don't know what's the definition of "full" here, but I'd guess they leave the middle back seat empty. 3*18 is still 54 so there's clearly some profit to be made.
oh, that's a good point -- i was forgetting they can pair up 4 different paying customers. i think it must be rare though -- i see full ubers and full lyfts fairly often, but i've only ever seen 2 couples (& it's only $1 more for a pair).
I don't think ride-sharing companies and taxi companies are in the same market (kinda like cars and horse-drawn carriages aren't in the same market, even though the former killed the latter). Uber's losses don't stem from them trying to kill taxis, but rather from rapid expansion and intense competition from other ride-sharing services.
I'd say that Uber is more a taxi company than a car sharing company as people buy dedicated cars to provide service and earn a living. I'd go as far as to say it's a first trully global Taxi company with a very good app and payment implementation.
The whole car sharing is marketing bull, so that they can justify dodging regulation and dumping prices.
In my mind there isn't a clear view as to what Uber are.
A driver does not make money if his Taxi is not running or it's running idle.
What Uber are currently doing is at least trying to minimize idle times.
Also, Uber win ultimately if all Taxi drivers in all the countries only affiliate with Uber (if Uber are so good at reducing their idle time)
But then, there is the aspect of self driving taxis. In that case Uber will win if Uber are the only operator and no competition is EVER allowed... which seems to be very difficult in the longer run. Mass-transit solutions will be more efficient than transporting only a single individual or maybe 3 or 4 at the same time ? So Uber may be the cost-effective somewhat luxury transit providers ?
I'd also add that the proof is in the whole "let's create autonomous cars and drive people around without drivers", where it's kinda obvious that it can't be a sharing economy if they provide the car and the driver is not needed.
1. https://en.wikipedia.org/wiki/Dumping_(pricing_policy)