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Comment by inkaudio | Hacker News Reader

This is a regulatory response to Silicon Valley’s implementation of predatory pricing.

Let me explain:

Predatory pricing is defined as “the pricing of goods or services at such a low level that other suppliers cannot compete and are forced to leave the market.”

For silicon valley startups like Doordash and Grubhub this is accomplished by acquiring customers at a significant loss in ways that may often seem idiotic.

example: Doordash and Pizza Arbitrage https://news.ycombinator.com/item?id=23216852

The End game is to be the dominant food ordering platform in any given town where you get to dictate rates like 25%.

Since predatory pricing is illegal, this response is justified. However, it would be better if regulators enforce predatory pricing rules to begin with, which they rarely ever do.

for more info on predatory pricing rules in America see: https://www.ftc.gov/tips-advice/competition-guidance/guide-a...

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The problem is that this response is in the wrong direction. By forcing prices lower, we guarantee that only over-capitalized predatory businesses can compete in the space.

The problem is that consumer advocacy and anti-monopoly are practically the opposite thing. The end result of government action here should be short-term higher prices to the consumer, that reflect the actual cost of operations, rather than lower prices to the consumer (i.e. "free delivery") that is achieved by pricing at a loss to drive out competitors.

You realise free shipping on ebay and amazon is.. anything but free right?

Yes, but neither is the rent for an in-store experience. Having the item of the price subsidize the shipping vs. pay the merchant's rent is not all that different.

You realise merchants have to pay fees on ebay/amazon too right?

Maybe that's whats next -- online only restaurants. Food made in a warehouse.

Or in the vehicle that delivers it to you, like Zume Pizza.

Wouldn’t last long. Perhaps if most energy was removed first.

Then local depots could store them in thermal insulators.

Not sure if anyone would ever eat a pizza that has stored below freezing point

> Not sure if anyone would ever eat a pizza that has stored below freezing point

DiGiorno would like a word.

I keep a stock of various Totino's pizzas in my freezer at all times.

Portland already has them. Started infesting the city last year: https://www.wweek.com/restaurants/2019/11/12/at-delivery-onl...

A turnkey solution for delivery-only restaurants

https://www.cloudkitchens.com/

Deliveroo already does something a little like that:

https://foodscene.deliveroo.co.uk/promotions/deliveroo-editi...

They take existing, established chefs or restaurants and clone the cuisine so that the food can be produced in a larger kitchen, potentially reaching a wider delivery area.

It's funny you explained that concept way better in a single sentence than that whole 'explainer' 10 paragraph page on Deliveroo's site.

"We combine our customer insight, logistics experience and relationships with restaurants all over the world to bring an Edition to you." blah blah.

Generic corporate speak is so overrated.

Isn't the 10% cap making the end game of monopoly and higher prices impossible though?

Only if they don't change it in the future in response to "market forces", or if they start charging consumers fees directly or some other workaround and then the city council has to retract this guidance because people are complaining about the higher prices.

The restaurant should get paid regular price for their food and maybe even a little extra to cover boxing it nicely for delivery, keeping it warm. The delivery company should charge the customer the price they need pay to have it delivered to them. I expect the 10% max fee if around the margin the restaurant is making so I'm not sure this fixes anything.

Food delivery is an awesome service but it costs money, consumers should expect to pay a higher right for food and grocery delivery in the long term.

And delivery companies should expect smaller margins for coordinating it.

You think all of that hasn't been tried already? Why would the delivery services leave free money on the table if it worked? Consumers would not pay those high costs in enough numbers to make it work so we end up with this model. It's a very price sensitive market.

OTOH, maybe the restaurant should get paid less for the food because the patron isn't tying up a table, isn't using the restroom, isn't consuming any water/ice, isn't creating any linen/silver/plates/glasses that need washing.

> we guarantee that only over-capitalized predatory businesses can compete in the space.

Assuming you can't make money at 10%, why would even a well-capitalized company that's OK with having a loss leader enter that market? The Uber strategy has been to enter a market fast, drive competitors out (possibly taking a loss), then (and looking at their earnings, this never happened, probably because there's a competitor in most of their markets) raise prices and finally turn a profit. If you can never turn a profit, why would you enter the market?

Because you’re funded by investors who have been lied to about eventual automation.

Netflix delivered DVDs at a loss to build a brand and content licensing for their streaming service.

AFAIK Netflix still delivers DVD's at profit.

Was that really the case? Netflix delivered DVDs for a decade before it started online streaming.

If I remember correctly Netflix’s original business model was more like a gym membership than brand building for an online platform that was a decade in the future.

>Netflix delivered DVDs at a loss

source? I've never heard that one before

Because they want to make a bet on the future being different. Or they just want to pump up the company's value enough that the initial investors can get out with their cash and leave the shareholders/acquirer holding the bag.

If the delivery companies start shifting the burden to consumers, or if they start forcing bicycle couriers to comply with the rule, or if they can successfully contest it in court, then it makes sense to some degree to stay in the fight.

> If you can never turn a profit, why would you enter the market?

Because you can still raise money, sell your company, and make money in the process. An extreme form would be a pyramid scheme where early investors make lots of money, leaving later investors with the problems.

> "consumer advocacy and anti-monopoly are practically the opposite thing."

Only true in the short term. Long term, monopoly prevents competition and is bad for consumers.

They aren’t forcing prices lower. The companies are free to charge a higher delivery fee.

I'm just repeating what another comment said. The 10% cap doesn't include the delivery fee. It's about the price of the food. Delivery services can't charge more than $55 for $50 worth of food but they can still charge $10 for the delivery if that is what it costs.

I'm struggling to call this predatory pricing when most of the food delivery app industry is unprofitable.

The correct industry action: push through higher pricing for the end users, share gains with drivers and restaurants to get to a sustainable business model, and accept the resulting decline in unit volume. (which also means fewer drivers will have jobs, so there's a human cost here as well)

It's easy to tell "corporations" to just suck it up, but you're dealing with a pure variable cost business here. If you make it unprofitable to serve a particular geography, they'll just exit the market. That only consolidates future market power in the surviving businesses....

"Predatory" refers to competing businesses, not customers. The fact that the industry is unprofitable is the main indication that the pricing is predatory.

It's unclear to me if this industry would exist at all if it were profitable. There's a minimum volume needed to make the industry viable, once you fall below some (quite high) density of people ordering food delivery, it doesn't work.

> The End game is to be the dominant food ordering platform in any given town where you get to dictate rates like 25%.

You fight back by calling your order in and having them deliver it or pick it up yourself. I do this 99%* of the time as I refuse to pay a web server $8+ order+delivery fee for a meal that costs the same. It's absurd to think that people are so lazy that they cant pick up a phone or walk a few blocks/cycle/drive to get their meal.

*save for the rare late night drunk+high AF Dominoes orders.

In my experience, most restaurant staff get super upset about this -- especially if you ask them to bring your order out. Restaurant owners need to be more clear with their staff about needing to support this.

I have not experienced this at all. If anything, restaurants has been appreciative I picked it up because they made more money from the sale.

I've never had a restaurant employee get upset about taking a take-out order.

They'd likely expect a couple bucks tip for a curbside pickup, though.

Sounds like a restaurant that doesn't want to stay in business.

Many of these platforms charge a fee for phone calls to the restaurant too.

Platforms like Seamless go so far as to set up websites for restaurants (that often have better SEO than the restaurant's original website), so the phone number listed routes through Seamless, helping to ensure they get their cut of any order.

No one is forcing the restaurant to accept the fee, and if they do, then the restaurant should charge higher prices to offset it.

Otherwise google maps and Apple Maps is sitting right there not charging any fees for the phone number.

I think you misunderstand.

There are a number of restaurants listed on Yelp in my area for whom the phone number listed is answered by GrubHub. I refuse to deal with GrubHub, so I make an effort to search for a direct number, but it is often difficult to find.

I'm not sure how GrubHub is getting themselves set as the primary number for restaurants in Yelp, but it's happening.

The solution to that is using google maps or Apple Maps or duck duck go or a phone book.

If people don’t understand that a middleman adds cost as an adult, then that is an education issue.

>If people don’t understand that a middleman adds cost as an adult, then that is an education issue.

I think the point is that middlemen are now using deceptive business practice to obscure the fact they are involved and in many ways cannibalizing direct business to the restaurants using "dark patterns". In the case of middlemen changing the phone number of the restaurant on services like Yelp/Google Maps without the consent of the restaurant should be fraud...its almost like I go to a bank and put my ATM machine in front of the bank ATM machines and charge customers withdraw fees...then claiming well I am a 3rd party of course I had fees (even disclosed it in order to proceed), while ignoring the totality of the circumstances.

> The solution to that is using google maps or Apple Maps or duck duck go or a phone book.

You can try.

https://www.yelp-support.com/article/How-did-the-information...

> Yelp provides Apple with access to some of our business page information

Yelp also provides DDG results.

"The solution is high-resistance individual actions to address a situation with no societal benefit created by a company with more money than you can even begin to visualize."

This is the sort of thing one says to either feel very, very clever about themselves or because they don't want things fixed. Which is it?

I don’t consider using a browser or google maps or Apple Maps to search name and phone number of a restaurant to be high resistance.

If people want to give their money to middlemen because they are too lazy to call or use a search website, that is their problem. We don’t need laws around every single idiotic behavior people do, and if they find value in paying an app maker an extra $10, so be it. I’ll continue to do the common sense thing and spending 30 seconds calling them because I can’t afford $10 to door dash for what is a useless service to me.

How much money they may or may not have is irrelevant.

Apple Maps returns results from Yelp, which sometimes have GrubHub's interposed phone numbers in them. So your very own solution doesn't work.

You are falling for the okeydoke.

Break these assholes' backs and we are all in a better place.

maybe it has something to do with GH buying Eat24 from Yelp for stock? ¯\_(ツ)_/¯

actually it was all cash nm https://qz.com/1045776/grubhubs-purchase-of-yelps-eat24-may-...

If a restaurant doesn't comply, wouldn't this be fraudulent representation?

AFAIK last time it came up people mentioned that they were allowed to do that because of a clause in their EULA

https://news.ycombinator.com/item?id=20321705

Then it seems like a good legal remedy might involve labeling requirements for advertising by third-parties?

This cap... is not that.

> It's absurd to think that people are so lazy that they cant pick up a phone or walk a few blocks/cycle/drive to get their meal.

You don’t have kids. Calling me lazy because I don’t have time to load up for small children in the car to drive a few miles then have to wait 0-25 minutes — potentially having to get out of the car and unloading said four kids to pick up the food, then reloading them to return home. Such an assumption that I am “lazy” is just bullshit and represents a failed understanding of a good portion of the market. We aren’t all childless adults sitting around smoking pot playing XBox waiting around for a key lime pie to be delivered. (Not saying you are, but that people who value their time more than the delivery costs are “lazy” is exactly the point you are making.)

I am happy to pay 25% for the time I am saving. It’s the same reason I don’t wash my own car: sure I could do it, but I have more valuable uses for my limited time.

Very true - I think it's important to be careful we don't generalize our own experience to others.

If people ARE paying 25%, (i.e. 60% of US consumers order at least once a week [1]) then the service is valuable enough to them (for whatever reason) to pay that much.

[1] https://upserve.com/restaurant-insider/online-ordering-stati...

> You don’t have kids. Calling me lazy because I don’t have time to load up for small children in the car to drive a few miles then have to wait 0-25 minutes

My mother did that all day long when we were children.

She also didn't have a choice because delivery apps didn't exist

I really hate this sort of argument... that people who use the newer, more convenient, technology are just lazy and should keep using the old way of doing things.

Why stop at delivery apps? Why are lazy people driving cars instead of just riding horses? Why are you ordering things online instead of just going to the store? Why are you farming using that tractor instead of a horse drawn plow?

Small conveniences add up. I don't want to live in a world where we aren't allowed to make things slightly easier.

Because sometimes the net result of individual optimization (predatory food delivery apps) is social deoptimization (local restaurants close).

And for the same reason that we don't allow health insurance to charge people different rates on the basis of their genetic profiles, the exercise of government prerogative to optimize for the greater good, on behalf of all, is apt here.

Whether or not this particular approach is the best way to produce that good is a valid debate.

We don't even let health insurance to charge people different rates based on pre-existing conditions anymore, which is what drove health insurance premiums through the roof.

Healthcare premiums were steadily marching higher from the 1970s onwards, and continued to do so post-ACA at about the same annual growth rate.

Almost in perfect correlation as one by one pre-existing condition limits were legislatively banned over the years. And ACA eliminated almost all remaining pre-existing conditions, so of course it drove insurance costs and pricing sky high.

Except it didn't.

See Exhibit 1 at https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2018..... The "sky high" jump you portray doesn't exist. It's been a quite steady annual rise.

If pre-existing conditions were the primary cause for premium increases, the ACA's one-fell-swoop removal of them would've had far more significant impact on that chart.

Limits on pre-existing conditions mainly affect individual policy pricing, corporate health insurance are already pooled and because of that always had fewer pre-existing condition limits.

The whole reason for health insurance in the first place is for healthy, wealthy, or young people to pay for unhealthy, poor, or old people.

That’s the whole reason for any kind of insurance. It’s a mechanism for lucky people to pay the costs of unlucky people. And even lucky people pay for it it because you never know how your luck will change.

If you take your idea for a pricing model to the extreme, everybody pays pretty much what they need to cover their own costs, which could be extremely low or extremely high. This is no different than if nobody had insurance at all.

No, that’s the reason for government to provide necessary medical care to those who can’t afford it.

Insurance is pooling of risks so participants in the pool are insured against medical costs they can’t afford.

The difference is statistically, most people are going to get old. Lucky is if you either don’t need insurance when you’re young or you live to be old.

That's fine, just pay a fair price for the service.

I always tip well, and I am not going to pay Grubhub more than they charge... that isn't going to help the situation.

"You fight back by calling your order in" -- if they are offering free delivery through an app, all you are doing is paying inflated prices to subsidize their delivery customers. If they are not offering you an explicit called-in or picked-up discount, you're not really helping anyone except all those people using the app.

I've noticed more and more restaurants in the Seattle area are listing higher prices for the GrubHubs/UberEats (some have explicitly told me during pickup to just call it in if I want to save some money). The picked up discount already exists within the app. So what you're saying is starting to happen as restaurants wise up.

I am really glad to hear that! I can only hope that this practice spreads. I want there to be a viable business model in the restaurant delivery business, but it has to be actually viable, which most likely means that it will have to be local approaches.

That makes no sense. Maybe normally ordering at my favorite place nets them about $5. I don't want any gig economy startup cutting into that profit, when I pay it. I understand it is worth it for the restaurant to take GH orders and net $3 on them, I just think using that service is the wrong option.

I care about supporting my favorite local eats. Same reason we should all be tipping full even when getting take out. Support your local restaurants. Many are about to go out of business.

Sometimes it’s really hard to do this though. I recently wanted to order from a sushi place and I couldn’t find the paper menu with their number so I searched DDG. The first three or four things I clicked on weren’t the direct website of the restaurant. And only one was an ad.

I get that for some of these small local restaurant owners the margins are tight and I’ll do my best to make sure my money goes directly to them and not GrubHub/Yelp/Uber but I also understand that most of these places aren’t run by front-end developers and SEO experts. I’m not sure what the answer is but I also don’t think it’s always quite as simple as you’re making it out to be.

The answer is another tool that reduces friction to setting up a website. I'm friends with a bunch of bands that don't have websites, but they do have facebook pages! Why? Because they're free and they do what the band needs from a website.

A restaurant doesn't need more than a page with contact info and link to a pdf menu. But even standing that up is a massive hurdle for <people who don't browse HN casually>.

I'd rather pay the 10% than touch facebook with a 10-foot pole.

>For silicon valley startups like Doordash and Grubhub

Ah, yes, Grubhub, the Silicon Valley startup that was founded in Chicago, is headquartered in Chicago, and has been a public company for 6 years.

Isn't this a price cap, to prevent prices from getting too high? What does that do to protect against prices that are too low?

If prices are only legally allowed to rise so far it will be harder to find investors willing to throw money in the "make prices low to grab market share fire" as the highest possible rate in now 10% regardless of market share.

I think this has little to do with predatory pricing, but more with abuse of power. This power has been obtained in an unfair way, by collecting money from investors.

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