Probably not great, but what if the model of both businesses just isn't actually viable without massive injections of funds?
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.
it's beautiful when it works.
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.
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.
If so, that is indeed then a normative observation, and it's also a pretty silly argument. Thus, my incredulity that is actually the case. I'd be interested in knowing what, then, their argument actually was.
Okie dokie, forget what I said. Sorry.
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.
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.
So they're offering prices below cost and that is considered "predatory"? Last time I checked low prices are good for consumers
Yes, and the people on the other side of that debate are perfectly reasonable, dispassionate truth-seekers.
Search for the truth is about collecting and reviewing evidence. Being passionate (synonym of ardent) about one side (rather than possibly the inquiry itself) is a bad quality.
The idea that predatory pricing not only exists, but is prevalent, is the main plank of the argument that competition doesn't work and wont generally sort out bad behaviour in the market, so lots of people who ideologically need that to be true cling very dearly to that idea. On the other side of the debate are a lot of people with an incomplete appreciation of the complexity of what markets can and can't sort out, especially the pretty non-ideal ones we're stuck with in a world where among other things governments and regulations play, for better or for worse, a non-trivial role.
Lost in this mess is any nuanced discussion of when predatory pricing might and especially might not occur.
And now we're getting to the point. A reasonably free market for taxis (and a such can well include requirements for insurance, background checks and rigorous book keeping) will not allow predatory pricing to occur, and this is trivially easy to show. This does not mean that predatory pricing doesn't or can't exist, just that it certainly can't on a market with these characteristics.
That seems pretty unlikely. We need to move on from this unsupportable "ride sharing pricing is unsustainable" narrative.
Hell, Uber tried being a predatory car loan business for quite some time, which you would think would be one of the easiest ways to make surefire money, but they lost on that one too: http://www.businessinsider.com/uber-subprime-auto-loans-runn...
This is conspiracy-theory level evidence and rationalizing.
Sonic can be competitive with Comcast where it operates, but it is still a tiny blip on Comcasts radar. Uber has way, way more market volume and penetration than any one competitor, and in many places are the only game in town.
Apparently some investors think the answer to both is yes. Otherwise, Uber wouldn’t get the money they get.
Other people disagree, though. I’m one of them. I think it is worthwhile to invest in getting some users to your platform, but I fear they attract way too many customers who are cost conscious, and will move to a different provider without blinking an eye.
> what if the model of both businesses just isn't actually viable without massive injections of funds?
I don't know if Uber's valuation or investors are correct. The question is whether or not the business (or one like it) can fundamentally exist without investors pouring money into it.
By your claim, it sounds like you'd agree with me because a competitor is likely to emerge with similar or cheaper rates. I agree. But that in no way supports parent's claim that the price (or business model) may be unsustainable.
The only way the price is subsidized is if the business couldn't be run without Uber's cut covering the non-driving parts of the business, which is unlikely. They're taking ~25% (or more) on each fare. That's a huge margin for a SaaS app and administrative work.
If Uber disappeared tomorrow, it would not be that difficult for someone to build something similarly and price it the same way. In many areas, it's already happened. That suggests the price is not unsustainable.
A driver tears up their car there's a ton of people to replace them but that isn't very supportable on the individual level.
But it's been years now and they've got drivers, so they can't possibly be paying too far below market rate. That means the only way VCs could be "subsidizing" the price is if the remainder of the price (the cut Uber takes) is too low, which is difficult to imagine.
We already know what's actually happening--they're spending a ton of money expanding into new geographic areas and new markets (like Uber Eats). Yet that doesn't stop every Uber discussion on HN from becoming about the bubble popping on "subsidized" ride prices.
Why do you say that? It's well-known that they've toyed in every possible way with driver rates, including showing different rates to the consumer and the driver in an attempt to hide lower-than-market-rate wages.
I don't think they are, though. If they were, they'd be having trouble keeping drivers working and we'd see complaints about long waits and unavailability.
Low-income "gig economy" workers might not have the mobility to leave for better jobs. Perhaps that's a privilege only certain classes of well-paying jobs have.
If the drivers are being paid below market rate and still driving for them, then they are the ones subsidizing.
But that's basically every business focused on growth.
https://www.vox.com/new-money/2017/1/9/14194202/uber-lost-22...
> In an epic five-part series of blog posts, transportation industry analyst Hubert Horan lays out the case for skepticism about Uber’s hype. In his view, Uber just doesn’t have a cost advantage over its competitors the way Amazon did. Amazon saved money by getting rid of expensive retail stores and sales clerks. In contrast, an Uber ride still requires a car, a driver, and some fuel just like a conventional taxi ride. So there isn’t much room for Uber to undercut its competitors.
> “This industry has a simple cost structure,” Horan told me in January. “Labor is about 58 percent, fuel is 9 percent, and so forth.”
> Of course, this flies in the face of many customers’ experiences. It sure seems like Uber has figured out how to provide a cleaner, faster ride at a lower fare. But Horan argues that this is entirely a reflection of the subsidies provided by Uber’s investors. Uber rides aren’t actually cheaper to provide than conventional taxi rides, Horan believes, it just seems like it because Uber is taking a loss on every ride.
> An obvious objection here is that Uber’s investors are not idiots. They know perfectly well that “lose money on every ride and make it up on volume” isn’t a viable business model. And when they made their investments, they presumably had access to internal financial data that isn’t available to the rest of us. It seems very unlikely that Uber could convince investors to give it $11 billion to continue pursuing a business model whose numbers didn’t add up.
> Horan told me Uber is accepting big losses now in an effort to drive conventional taxi companies and rivals like Lyft out of business. “Their growth is predatory,” Horan argued. “They are trying to displace more efficient producers.”
The article I linked also offers an argument against this logic, but I'm not persuaded by it.
The argument cannot be made without claiming the non-driving part of the business cannot be run for the 25% rake they take on every fare. Period. And I don't think anyone is willing to make that claim.
That doesn't mean Uber's a good investment, or Uber is doing it right, or Uber isn't pursuing monopolistic practices, or Uber isn't ripping off drivers, or that Uber isn't doing something sufficiently different that a competitor won't beat them--none of that matters.
All that matters is whether or not the business model is sustainable without burning through investor cash. That was the question. And if someone else beats them doing it while turning a profit, the business model is still sustainable.
This is meaningless semantics. The business is growing and spending money to expand. That does not mean each ride is not priced profitably, or that each ride does not bring in more money than is spent providing that ride. It's just a more convoluted way of saying the business--at a high level--sells rides and is not turning a profit.
They are priced at a rate that entirely covers the driving after a 25% cut. For it to not be sustainable, it'd have to be not possible to run the rest of the business on that cut, which is difficult to imagine.
Your whole argument hinges on not understanding these concepts.
> By contrast, in the hundred years since the first motorized taxi, there has been no evidence of significant scale economies in the urban car service industry. That explains why successful operators never expanded to other cities and why there was no natural tendency towards concentration in individual markets. Drivers, vehicles and fuel account for 85% of urban car service costs. None of these costs decline significantly as companies grow. As the P&L data above demonstrates, Uber has not discovered a magical new way to drive down unit costs.
Sure they have drivers still...a whole lot of people who are basically just cashing out the equity on their cars today to make a couple bucks on the side.