Comment by VHRanger
6 years ago
Just a note: it's not a tried and proven concept.
Predatory pricing hardly works in economic theory and is working disastrously for a lot of the companies trying it (eg. Ubers financials)
6 years ago
Just a note: it's not a tried and proven concept.
Predatory pricing hardly works in economic theory and is working disastrously for a lot of the companies trying it (eg. Ubers financials)
Where I live, one company has taken over all meal delivery nationally. After destroying the competition, this company had started raising prices each year. They ask for a percentage (13%, rising each year) in an industry where the margins are already very thin.
They money grab got a lot worse after they pushed out all the alternatives and just like with Google, everybody has to play by their rules or they'll be mostly undiscoverable for a large portion of the general public. Their delivery people are still underpaid, but by increasing their percentage of the bill they take for themselves they're now turning a profit. It's gotten to the point where companies are not even allowed to lower their prices when people use other delivery systems (or the restaurant's own personnel) which are cheaper.
The company only got this large because they could afford making losses for many years. Now other companies such as Doordash are trying to cut into the market as well, using hundreds of millions of foreign cash flows and putting business owners under even more pressure. Had there not been a company doing this since 2014, Doordash or any of its competitors would have taken the market regardless.
This is the biggest problem with the reality of predatory pricing compared to the theory of it: after years of undercutting your competitors, you're finally ready to jack up prices and take a profit....just as a new competitor comes in with a new infusion of cash and undercuts your artificially inflated price. (Remember, you can't just turn any old profit, you need a large enough profit to offset the years of purposefully selling at a loss.)
Surely at some point the competition (assuming a lack of innovation to drive down prices) will realize THEY don't want to be the ones who lose money for years only to get unseated when they're ready to jack up prices? How many times can this cycle repeat?
Rappi?
Predatory Pricing absolutely works... when you have a working business model and capital to back it up.
Walmart and McDonalds are masters of this approach.
Uber is a long-term play at disrupting cabs/transportation cartels and incorporated self-driving cars into a non-literal roadmap. They're in it for the long play, and even if they hemorrhage money for a while longer it may, in fact, play out in their favor.
Walmart and McD don't do predatory pricing -- they just have lower prices while being profitable.
Predatory pricing is intentionally setting loss-making prices to drive out competition to then hike prices to profitable levels.
Notice this isn't what "ultra returns to scale" businesses are doing -- they're just profitably pricing low.
American Airlines famously killed upstart after upstart that attempted to fly out of Dallas Love Field. They kept a lease on two gates, but left them unused almost all of the time (AA generally flies out of the larger Dallas-Fort Worth International Airport). Whenever any new company tried to start new service out of Love field, American would open those two gates, match routes exactly to the startup, and charge substantially less, clearly incurring a loss for each plane flown. As soon as the new company was driven into bankruptcy, AA would again shutter those gates, leaving them available to crush the next company that tried to start at Love Field. See, e.g., Legend Airlines.
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Of all the ways I can imagine self driving cars becoming a reality, Uber creating a fleet of honest to goodness self-driving taxis seems to be about the most far fetched.
On balance of probability, I think that is just a bullet point to keep the juicy AI flavoured investment funds flowing.
How can you call McDonald's predatory pricing? They have been cheap and profitable for decades.
At best you could try to argue that they make their money fleecing dumb "business owners" who pay for franchises.
> How can you call McDonald's predatory pricing? They have been cheap and profitable for decades.
Their pricing and food is a gimmick, didn't that movie The Founder and the subsequent articles from various outlets pretty much lineout how Mcdonald's actual business model relies on Property Management and franchising? [1]
The food, competitively priced (questionable food costs and sources are the bigger story not told) or not is only the hook/marketing costs to get you to show up in Corporate's business model, the real money is in leasing the property and the brand name to the Local owner.
Personally speaking, I had the misfortune of eating at Mcdonalds during this COVID shutdown on more than one occasion as grocery stores were closed by the time I got off work.
And other than nostalgia for what was once a haven of my childhood, I cannot bring myself to put that stuff into my body without feeling nausea afterward. Everything is overly sweet, or salty; I remember the pickles and the fries from the happy meal being pretty decent as a kid in the 90s that went down with the Hi-C orange soda, having had one of those value-meals ($15 is hardly a value mind you) as an adult with the same items was atrocious.
1: https://medium.com/@alexcjensen/forget-burgers-mcdonalds-is-...
It only works if you have an easy path to monopoly once you price your competitors out. A company like WalMart or Amazon can leverage their returns to scale on logistics to actually price out Mom&Pops. That way, even after the drive the small stores out of business it’s just not worth it for anyone else to try to cut in unless they can also operate at WalMart scale and afford to bleed money for a while until WalMart gets tired of undercutting them.
But there are no appreciable logistical or operational efficiencies in how these delivery services operate. And there aren’t any barriers to entry. The workforce is completely fungible so they aren’t locked in. And just the fact that delivery services are popping up like mushrooms suggests it doesn’t take much to start one up.
In theory they could eke put some advantages to scale that keep out upstarts by using machine learning to optimize delivery routes or something. But I doubt that gets them the kind of efficiency gains they would need to actually turn a profit. From what I’ve seen, it looks like their main attempt to freeze out competition is just coming from flooding your search engine hits. I don’t know how sustainable that is either.