The risk is that a well funded company gives away their product, drives all their competitors out of business and creates a monopoly, then jacks their prices up. It could be viewed as anti-competitive.
That being said, I also think this is overkill.
That being said, I also think this is overkill.
There should be some sort of regulation about starting off free and jacking up prices once the competitors are driven out of business. Or if such already exist, it must be enforced and made more stringent.
Isn't that almost universally true for everything? Is it an acceptable reason to stifle open market competition? I mean think about any other industry. Say a new airline wants to get into business. Is it okay for them to offer $1 tickets (while writing off taxes/airport fees as losses) until they gain enough market share? What would that do to other competitors in that industry?
As over 70% of business transactions in the US are done by small businesses, then most businesses can profitably exist at a small scale.
When something is only profitable at large scale, typically what's done in the western-style economic nations is to (a) make a public company like the US Post Office (b) tightly regulate the market so the inevitable large actors has to serve the public good as is done for insurance currently or (c) hand out monopolies at the local level as is done for telecom companies.
No "until", the point is that they would offer $1 tickets forever, it's just that they would only lose money while they scaled. So competitors would still be screwed even after the "dumping" part.
And in a sense, isn't any new business temporarily "dumping" its products? If you're a solo founder writing and selling a SaaS product for $20/month, your income won't pay for the costs (e.g. your salary) until you get enough customers. Is that dumping? What if the competitors' products all cost $1000/month?
I understand why this might appear to be the case, but that's not what this [0] HN front page article analysis asserts.
The article asserts that 'Uber’s actual financial results, which show no meaningful margin improvement through 2015 while the limited margin improvements achieved in 2016 can be entirely explained by Uber-imposed cutbacks to driver compensation. It is also contradicted by the fact that Uber lacks the major scale and network economies that allowed digitally-based startups to achieve rapid margin improvement'.
Interesting read.
[0]http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver...
* If you aggressively price to extract almost all of the value of your product or service because of an unnatural (i.e. not market based) advantage then you're price gouging.
* If you purposefully operate at a loss with the intended path to profitability being raising your prices later then you're being anti-competitive. We want to reward companies for real efficiency, not just who happens to have the largest VC war chest.
* If you charge the same as your competitor in good faith and don't find yourself in the first bullet because of collusion then there's no problem.
Eh, there's a strong political element to all these things. Political risk can't be ignored. Case in point: Uber versus Airbnb.
Now they may both "win" in the end and make many billions, so the end story may be "focus on growth not playing by the rules, if you have enough money you will eventually win anyway"
And then, very quickly, realizes to the surprise of no economist that they are no longer a monopoly.
No new roads, no new ports, no mineral leases, etc.
And while there might be some competitors that come in (no guarantee of that), it'll still take time. Time which the entrenched monopoly can use to entrench itself further.
[1] edit: or want -- the loss of platform size plus transaction costs might outweigh the extra revenue it would bring?
Or they go belly-up and leave people without insurance. Because selling things below cost isn't a sustainable business model, despite how that looks from the confines of Silicon Valley.
So... Uber? They aren't exactly "giving away" their product but the rides are massively subsidized.