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Comment by habosa | Hacker News Reader

What Uber is doing here should absolutely not be allowed. Whenever you go to a city where Uber is in it's first year of operations the prices are insanely low. This also happens when Uber launches a new product like Pool. This enables them to crowd out any competition and then raise prices once they've got control of the market.

I have a friend in SF who takes Uber to work every day. It's about 3.5 miles. I assumed he was dropping boatloads of money but he told me it's $2.50 each way! The IRS estimates vehicles costs alone at about $0.55 a mile and that's not including actual pay to the driver and Ubers cut. Offering a service at this price is not only unfair to for-profit competitors but messes with public transport as well. It's using VC money to crowd out the market.

Unlike with cloud services (the other example) it's much harder for competition to Uber to reappear once it's disappeared. There's a fixed supply of willing drivers and big network effects at play.

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> big network effects at play

What is Uber's network effect? Most people I know will use whatever app gives them the cheapest ride / will drive for multiple companies.

There might even be an opportunity for a $1 app that tells you which service you should use at any given time/location.

You need enough drivers to get a ride on demand at any time/location and enough riders to keep them busy.

Too few drivers you get long waits or surge prices. Too few riders and the drivers start to disappear...

That's called a two-sided-marketplace. It quickly saturates (i.e. you need some minimum number of drivers and riders to bootstrap the marketplace).

Network effect is when each user brings additional users (or each user prevents other users from leaving).

It is not just about saturation.

For every additional driver, the density of drivers on a map gets higher. When this happens, statistically the closest driver will take X less time to get to you.

Two sided markets are not about having a minimum number of people.

Two sided markets are literally a network effect.

https://en.m.wikipedia.org/wiki/Two-sided_market

The "traditional" network effect is describing one sided markets. But it is a normal economic concept to talk about the two sided network effect as well.

Think of it this way. In a 1 sided network, ever user type A makes it more valuable for other user type As.

In a two sided market every User A makes the network more valueable for User type Bs. And every User type B makes it more valuable for user type As.

> When this happens, statistically the closest driver will take X less time to get to you.

If everyone is spaced evenly around the place and there's no congestion, you need four times as many drivers to halve response times. For a while you get good gains per additional driver, but as the numbers increase the marginal benefit tails off. This means a new player with some capital can likely compete (and is probably what the grandparent meant by "saturation".)

The same thing happens from the driver's point of view. Each additional rider adds a marginal value to any given driver; there's only so many rides they can make in a given day.

In most two-sided markets, the ratio of users on both sides plays a more important role than absolute numbers.

It doesn't quickly saturate when the two sides of the market need to be within a few miles of each other.

Network effects apply to any system with links and nodes.

Uber sees this through its financing, application, comms network, drivers, members/subscribers, and political influence.

Transport, comms, data/information, knowledge itself, and land are all classic networks, subject to network effects, and monopoly pressures.

  What Uber is doing here should absolutely not be allowed.

What Uber is doing is called loss leading. It would be very hard to outlaw or regulate in any sort of "fair" way. The result you fear--a monopoly with price control--is illegal and is tightly regulated.

You might be able to classify it as dumping.

Loss leading itself could also be regulated more. For example, in France it's illegal to resell something for less than the price you paid for it (except during regulated "sales" periods). This prevents companies coming in and using their funds to subsidize the products.

I could see the argument that Uber is a reseller, given they're not part of the actual taxi experience

What are the "sales periods"?

I can see what they're trying to address, but commerce is fickle and often times unpredictable.

What if I thought I saw an opportunity to do business but it turned out to be a bad judgement and now I have 20,000 count of something that isn't moving and I have better things to do than wait for the sale period and at least get half my money back and reinvest it in something else I think might turn a profit?

Maybe there is more to the law than the simple scenario you've laid out. Otherwise that seems stifling.

Same here in Belgium. The sales periods were regulated times of the year when selling at a loss was allowed. Outside of those periods it was only allowed to sell at a loss for goods that would spoil, or were damaged or outdated, or to match competitors’ pricing.

But, all of that has been struck down by the EU courts since it was found in violation of new EU consumer protection directives.

The sales periods are two times in the year. These periods are pretty long (6 weeks?).

There are exceptions for perishable goods and for products that have been rendered obsolete due to technological progress. I think there are some other force majeure exceptions.

It's a bit stifling, but it means that huge retailers can't destroy smaller businesses just due to their huge capital reserves. It helps to preserve competition in the retailing space. And worst case you just have to handle it for a couple of months.

I have not been to France in a bit, but I recall seeing lots of "Soldes" signs (perh clothing nad other retail is considered "seasonal" and therefore can be discounted whenever).

I'm not sure how preventing any time sales helps sole proprietor shops, as big enterprise can simply sell barely above cost till they sink the mom and pops. If they are looking to protect the consumer a better tact is preventing the boost and cut pricing tactic to make a sale seem like a good deal.

So I guess no BOGO/BOGOFs?

12 weeks out of the year is a pretty huge time, so it's likely you were present during those times. If you were in more touristy areas I think there are huge exceptions there (especially in Paris).

You can totally do things like BOGO if you're selling things way above cost, or if you're not a reseller but the actual manufacturer of the good.

An example of this is take out pizza, which usually offers BOGO if you don't opt for delivery.

The Sales rule is usually about when you are just being a market maker and not part of the production process itself. Similar rules exist for things like book sellers (you can not discount the price of a new book by more than 5% of the MSRP).

The claim that it is tightly regulated could be subject to debate. The amount of regulatory capture currently occurring plus what occurred in the previous decades squarely classifies the United States as a plutocracy. The AT&T merger may be blocked, just because Donald Trump (via the Justice Department) doesn't like CNN. Think about that. It's an incredible consolidation of power.

While I agree it's hard to outlaw or regulate loss leading, since it seems to be a common go-to-market strategy, it prevents the smaller guys from competing. It allows those with the upper hand (more capital) to remain dominant and starve out the competition. And the feared result, could very well occur. I wouldn't trust the United States to regulate as heavily as it used to, especially under the purview of Donald Trump.

>The result you fear--a monopoly with price control--is illegal

Monopolies are not illegal.

> Monopolies are not illegal

No, they aren't. But can you think of any examples of a company that built a monopoly and refrained from exploiting it to the detriment of the market and consumers in the long term?

Monopolies are not per se illegal, but it is illegal to create a monopoly.

Natural monopolies are not illegal, anti-competitive ones however...

Loss leading is different. It's when you discount a product to attract people to an overall experience (a supermarket, for example). Not when you discount the price of your core product.

If you were an Uber investor, and they told you that they are going to blow your money below margin of operations for years to come, would you feel happy about it?

Do you prefer to be the dumper or the dumpee? Because I prefer to be the latter.

> Unlike with cloud services (the other example) it's much harder for competition to Uber to reappear once it's disappeared.

It's just a car. Its super easy to break into that market. And there are competitors. They do not have a sustainable monopoly.

If they weren't they wouldn't let them do it. Maybe amateur investors will get upset, but as I said in another comment the pros know that this tactic will not only scare off competition, this will scare off potential competition.

Few will fund a company to compete against an incumbent who is large and powerful enough to do this to you. There are other battles to be fought, so why risk it?

I wouldn't compete against someone stabbing himself either...

I'd like to know how someone drives 3.5mi daily for $2.50 with Uber, even with pool, in SF. My pool rides start out at around $4 one-way, for .5mi and under. UberX is $7+ at minimum, and quickly tops $10 for 1mi+ trips.

Edit: "Express POOL is a new kind of shared ride that begins and ends at convenient Express spots. Update your app today to start riding for as low as $2.”

It's not Uber Pool it's some new product I hadn't heard of before he mentioned it. Shared ride with a fixed pickup point.

I see the same pricing you see when I use Uber/Lyft.

ergh why are we reinventing buses as an app

Agree. But since the bus in SF is $2.50 I can see why my friend takes the Uber.

The Uber is also safer, cleaner, and more reliable.

I highly doubt that "safer" is correct; on average, buses have fewer deaths per km traveled.

Uber drivers are generally decent drivers, but they're still not as well trained as bus drivers, they're more likely to be distracted by e.g. fiddling with the uber or map apps on their phone.

Unless you have numbers specifically about uber's fleet being significantly safer than typical drivers, your claim goes against the results of recent studies finding busses and rails safer than cars.

I believe GP equates "safer" with "no hobos, gangstas, creeps, drunkards or other people creating a nuisance for fellow travellers", and he is absolutely correct on this.

Public transport has the downside of being public, and given the rise of homelessness and the fall of noncommercial venues where e.g. youth can hang around, it's inevitable that they end up in public transport - and create a feeling of unsafeness for other users.

One factor is the reputation/blacklist system. If you are harrassed on a bus, you don't have much recourse. Sure, you can complain to the metro police, but all they can do is take a report. On a shared ride like this, Uber/Lyft can increment the "harassment complaint" counter of all of the other riders with you. A regular harasser will quickly add up multiple complaints, and will be banned from the system.

Honestly, the biggest change brought by Uber, AirBNB, etc. is the reputation and recourse systems. They have brought a lot of accountability to systems that historically were low on them on both sides. The newly-found accountability allowed a lot of new entrants to these markets that weren't saddled with the high levels of process that had been used in the past to impose even a little accountability on these services.

> If you are harrassed on a bus, you don't have much recourse. Sure, you can complain to the metro police, but all they can do is take a report.

Not my experience really. I've filed at least two successful reports of harassment with local police and one complaint against a bus driver at the responsible bus organization.

These policies of "harassment complaint", reputation, and recourse systems seem to me a bit like "you will be safe from the unwashed masses".

Paid service apartheid?

> These policies of "harassment complaint", reputation, and recourse systems seem to me a bit like "you will be safe from indecent people".

FTFY

My point was that these services are using technical terminology to soften and obscure the stratifying of spaces based on power/money. You've responded by softening the terminology again.

I see others pointing out in sub-threads that these services are better than buses because there are "no hobos, gangstas, creeps, drunkards or other people creating a nuisance for fellow travellers".

Should I break down those labels and across which lines they are dividing society? :)

> Should I break down those labels and across which lines they are dividing society? :)

Are you implying that only 'lower-class' people are "hobos, gangstas, creeps, drunkards or other people creating a nuisance"? I ride public transit daily, and there is a non-trivial number of 'high-class' people that make riding the metro a pain (The subway is full, why are you pushing and shoving to get in if there is another subway coming in 60 seconds?)

There are probably people who wouldn't want to take public transit because of the list of people strictly because they deem themselves above or as better than the "hobos, gangstas, creeps, drunkards". With no evidence to back my claim, I would argue that the majority of people who would opt for Uber over public transit do so because of lower cost, convenience, and "other people creating a nuisance for fellow travellers"

That is exactly what it is. As a car driver I already get that benefit, but people who cannot afford their own car can now also get higher comfort. Meanwhile free riders get punished, which gives them an incentive to shape up, thus improving the entire system.

I realize that this is a problem for a very small number of people who really can't conform because they don't have access to showers, but how often are homeless people really riding busses, let alone uber (other than as a place to get warmth, or in being dumped in another state)?

Because buses don’t provide the service that people want.

I am very happy. Uber has saved me from buying a car for 2-3 years now. Honestly this is the best time for consumers.

Productivity in any market requires investment. Here Uber needs to build a network of drivers and passengers, so they spend money subsidizing rides until the network grows to a sustainable size. How is this different than what any other competitor does? For example, bus transport companies need to buy buses and arrange routes before they can take passengers. Manufacturing companies need to design products and build factories before they can produce. Skilled workers need to go to school and practice before they can be hired as skilled workers. Etc. The exact nature of investment varies, but the general idea that competing effectively requires upfront investment is the same. Investment is not unfair; it is how productivity rises and civilization progresses.

> There's a fixed supply of willing drivers ...

The supply of willing drivers varies by wages. Also the supply of willing passengers varies by prices. Uber's success depends on being able to entice drivers with higher wages and passengers with lower prices. To the extent that they are successful, they make both groups better off.

> Unlike with cloud services (the other example) it's much harder for competition to Uber to reappear once it's disappeared. There's a fixed supply of willing drivers and big network effects at play.

This is exactly backwards. Once a large network of drivers and passengers connected by smartphones has been established, a competitor has only to offer its own smartphone app to compete. The hard part is building the network and changing people's behaviors.

GP's not talking about investing in infrastructure or training. GP's talking about selling the product for less than it costs to produce in order to have a monopoly in the region. This not only discourages the competition, it discourages the existence of competition.

Back in "the day," VCs (at least some) would tell you directly that they wouldn't invest in anything that competes with Microsoft. The legality of it all was irrelevant to the conversation- they weren't going to enter the fight.

Uber's network of drivers is way of providing transportation services. This network doesn't just spring into existence. It must be created and it costs money. A traditional bus service also costs money; the buses must be purchased, the drivers hired and paid, the routes established and signs posted, etc. Why isn't a bus company unfairly competing with taxis by offering lower fares based on massive upfront investments in bigger vehicles that are paid back over many years? Uber's "bus" is its network.

> monopoly in the region

There is no monopoly in transportation. People can drive their own cars, take buses, take taxies, ride Lyft, walk, bike, etc. Uber is creating a network.

> This not only discourages the competition, it discourages the existence of competition.

Discouraging competition is the same as discouraging the existence of competition.

To compete effectively against any good business requires investment. Uber is competing against the taxi network, bus services, zipcar, etc. Uber's strategy requires investment in building a network of drivers that can quickly reach anyone in the service area. To build this network, they have to invest in drivers and passengers. They do this by paying drivers more than they produce and offering passengers service for less than it costs. As more drivers and passengers join the network, costs come down, service gets better, prices may be able to be raised, and Uber may be able to recoup its investment and earn a profit. Maybe. if they earn too much of a profit by charging passengers too much or paying drivers too little, they risk being replaced by other app makers who offer Uber's network of drivers and passengers a better deal.

It's uncertain if Uber will be profitable. But in trying to be profitable, Uber is definitely offering drivers and passengers better options than what they already have (otherwise, the drivers and passengers would not be using Uber).

Uber's network of drivers is way of providing transportation services.

They provide a particular type of transportation services, just like the cable company provides a particular type of information service. The cable company can have a monopoly even though you can still read a newspaper for information.

I understand what they are doing, i.e., their strategy. That's not the question. The question is whether or not it is or it should be legal. I honestly don't know the answer to this but there is absolutely no question they are using their size to smash their competition. They could use an alternative strategy, like the rest of us do, such as start with a smaller size and grow demand 'organically' by having a better experience than the bus, taxi, and lyft. But they have a lot of financial muscle and they are using it, for better or worse, to demolish the competition that is in place and intimidate those who are considering it. My guess is that it'll be pretty effective if they can pull it off.

IRS vehicle costs are not the actual vehicle costs, which are lower.

> There's a fixed supply of willing drivers

i.e. there's a fixed supply of willingness?

Drivers aren't locked in, and neither are the passengers.

Ok, maybe it hurts competitors, but how in the world does it mess with public transportation?

Public transportation can't handle the load across the country. If everyone starts using VC subsidized services, that FIXES the public transportation under capacity problem.

Public transportation loses money. So if people find something better or cheaper, then all the better!

> Ok, maybe it hurts competitors, but how in the world does it mess with public transportation? ... If everyone starts using VC subsidized services...

If no one uses public transit, public transit will be hurt clearly.

The real risk though is that people who can afford uber start using it, public transit fails, and then uber increases its price since people have fewer options.

> Public transportation loses money. So

Public transit loses money in a narrow view of things. In the grand scheme though, it's paid for by tax dollars and is for the good of the public.

There have been a few studies that show accessible public transit is a huge factor in benefiting the poor[0].

The fact that it's subsidized by taxes (and thus moreso by the rich than the poor) is part of the reason it can benefit those people who aren't so well off.

If a VC subsidized service takes over, well, VC subsidization is a far less sustainable method of providing for the poor than taxes.

0: https://www.nytimes.com/2015/05/07/upshot/transportation-eme...

> There have been a few studies that show accessible public transit is a huge factor in benefiting the poor.

No doubt being able to travel is a huge benefit. But this does not require public transport. The poor could be given Uber-vouchers.

They could...or we could keep utilizing the multi-billion dollar investments that have been made in public transportation.

I'm curious as to the arguments that can be made for (presumably government) subsidies for privatized individual transport. I'd be shocked if we see Uber pivot from normal vehicles into mass transit so we have to assume they continue using the current model.

At that point we're offering vouchers for semi-private drivers because...we don't like public transit?

Public transit is overcrowded in many places. So the less people that use it the better, as it means that it won't be overcrowded and have to deal with the issues that overuse creates.

It is not about 'nobody' using it. It is about less people, than the already too much people who are using it.

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