I suspect the pricing system has always been more 'broken' than many, certainly Hayek, would like to believe. Selling under the 'true cost' because of subsidy from investors is in some sense just another form of 'externalization', like not paying for environmental devastation byproducts which has always been traditional, since at least 1492. (Or 'artificially' low prices due to a labor force held hostage by enslavement, or violent retaliation to organizing, at different points in history).
The 'true cost' ends up being a pretty slippery notion, as the OP later approaches a bit in suggesting the price system is not in fact a "naturally-occurring phenomenon".
> In turn, the major reason for that situation is for years there has been far more investor capital than there have been high-quality investments for that capital. "We find ourselves in a liquidity surplus,"
Also interesting. Marxist economists have been talking about this since Marx.
"A crisis of overaccumulation of capital occurs when the rate of profit is greater than the rate of new profitable investment outlets in the economy"
Even for those things where you cannot arbitrage (like Uber rides), the money-losing can't go on forever and prices will rise again, unless Uber figures out a way to cross-subsidize like Amazon.
We can talk about market failure again if that actually happens. For now, I don't see it.
Capital being too abundant leading to capital being too expensive compared to labor, leading to impoverished workers... just doesn't make sense.
The fact that there isn't a level playing field is becoming more obvious and I think the backlash against "big tech" is an inevitable result. This will result in either a reform of antitrust laws or a code of ethics being subscribed to by all the big players.
I think Tethics is the answer and I'm really looking forward to finding out who will be the real-life Gavin Belson Professor of Ethics in Technology at Stanford.
 Silicon Valley: Ten Years Later - https://www.youtube.com/watch?v=ab1H602yc_Y
The fact that it's failing doesn't change that purpose.
Is a mousetrap's business the giving of cheese?
What choice has Uber removed from the market so far?
What choice do you expect Uber to remove from the market even if they are maximally successful in their overall plan?
According to the article below, in 2013 a medallion in NYC reached a cost of $1.3 million, but has crashed as low as $240k since Uber and Lyft started operating. The drivers that bought it when they were expensive are probably really struggling right now.
Uber and Lyft have since made it clear that the medallion is an unnecessary expense, so in a way it's a good thing, but meanwhile the drivers that bought into it are screwed.
Last question is more relevant: there are vague suspicions of them planning to monopolize the market, but the bigger question is: whoever gave them $25 billion to piss away is expecting some solid returns on that investment, so they will need to find a way to extract that much, and more, from their users (on top of their current revenue stream). The concern is that it's hard to imagine a positive scenario of extracting that much money from a market that is getting pretty well established by now.
> What choice has Uber removed from the market so far?
> What choice do you expect Uber to remove from the market even if they are maximally successful in their overall plan?
I'm thinking of Meditations on Moloch from SSC (0). What Uber removed was 2 fold.
First, was that a gig worker could no longer be legal or not culpable (civil) regarding driving without appropriate licensure or insurance. The rates paid do not allow for the costs of a chauffers license, nor do they cover commercial insurance rates.
Secondly, Uber removed protections on riders with the first point, and by using the carrot of "we're cheaper than taxis". We saw this play out before, when there were no licenses for taxis. A whole lot of bad things happened, and the public demanded the licenses and checks to be instituted. Some places went way overboard ($1m medallions in NYC).
Uber and others are all the same - they wish to remove the checks and balances, cut a meager amount off the bill to customers, and extract money by running around the law until they can either change it or get shut down.
Vehicle depreciation doesn’t meaningfully occur with every passenger mile, it piles up until you have a large repair bill.
Same economics as an unsafe, unregulated building site. Get paid cash under the table, pay no taxes, get no healthcare, make enough to get by, until you get sick or injured on the job, then you’re out and the next desperate person takes your place.
The invisible hand.
Do the rental companies also not understand depreciation?
By having an on demand workforce, they can fire (aka not schedule) much more easily. Consequently, they can also hire easily.
There's a non-negligible pool of people who hate job applications and interviews, but want a paycheck.
It's like running a shell game on the street, you let the first person win $20 so other people think it's possible then you scam all them. Except in this shell game we are also crushing small companies whenever possible.
If you go work for them, you are paid less than you were as a taxi driver.
Also- taxis provided a god-awful service who's pricing was only sustainable because of government regulation
Take toronto, ontario for instance. I've spoken to hundreds, and recruited hundreds of drivers, and ~85% of them speak very little english, have extremely few skills, and are in a position where they have to pay bills NOW, and can't afford to invest in themselves. Its sad, but they're trapped in a vicious cycle.
For an analogy, neoclassical-adjacent economics' take on international trade practices like dumping or export subsidies is pretty much what you said. EG, if China subsidizes toothbrush exports, the rest of the world gets subsidized toothbrushes at chinese taxpayers' expense. A similar point to the one you are making.
This argument is typically to counter the claim that export subsidies unfairly kill local production, and/or forces a subsidy war.
Riffing on David Graeber (the polar extreme, and not exactly an economist) somewhat... I'd interpret Uber's investor-subsidized losses differently. Investors haven't really lost much money so far, the stock price is fairly flat. They buy shares, and then they have those shares.
The shares themselves are a type of money which companies print. It is new money. Investor buys one share for $1. His net worth has not changed. Uber's bank balance has changed, and they can now fund another $1 of losses. As long as the share price holds, losses are offset by the new money (share) creation. It's that new money subsidizing rides.
On a less abstract note... I think it's important to remember that subsidies don't just transfer. They also create waste... which no one benefits from. For every $1 lost, consumers only gain a few pennies of value (utility in old timey economist speak) goes to consumers and/or drivers.
The whole reason that uber needs to subsidize rides is that consumers aren't consuming enough of them at "full price." That means they don't value rides at full price.
Interestingly, economists (also sociologists, historians, etc.) disagree agree on what money is.
For the purposes of this topic though... I think it's sufficient that marketable securities sit under "current assets" on a balance sheet, alongside "cash & equivalents."
Say an investor buys a new share in uber for $35. Her balance sheet isn't meaningfully changed. Uber's bank account has grown by $35. I'm not saying that the accounting doesn't work out. The $35 isn't counted as revenue, and doesn't impact earnings.
Still... $35 has now appeared in one account without disappearing from another.
Again, I'm not saying the accounting is dodgy. Theoretically, when you buy a $2 ice cream then you have a $2 ice cream and 2 fewer dollars. Your "balance sheet" nets the same amount. Same thing when a woodshop buys timber. But for most practical purposes in the modern economy, a company's "total assets" don't matter much. "Current assets" do.
Whether or not you want that money (or even currency) creation is interesting, but it works the same as money in practice. Gold, sovereign notes, bank bonds... Same result as shares.
Shares can be overpriced, but so can currency. It's besides the point, imo.
If you go out and buy a car solely to drive Uber, I still think you're in the black, as evidenced by the non-trivial amount of Uber drivers who are driving rented cars where the rental company is bearing any long-term costs and bundling them up for the drivers in weekly rentals.
Those drivers are then able to make an easy calculation of "what did I take in this week vs what did I pay out this week?" and I doubt they'd be doing it if that sum was negative or too small week after week, suggesting that when the car rental company's profits are taken out and held by the long-term car-owning drivers, that they should also be profitable.
The few startups I’ve interviewed at were full of very smart people who were very bored and spent their days finding the most complex way to implement web forms. I remember one explaining how they had implemented this insane distributed database that synchronized over the network so the text fields would be the same if you switched browsers half way through filling a form out.
I also don’t use travel agents anymore. Automating things isn’t bad, society not providing safety nets is the problem.
It's the most literal form of "a race to the bottom".
The point is blaming a business for trying to lower costs and stay competitive is asinine. If the problem is people aren’t qualified to do work or are unable to feed/house themselves, that is for the government to address since they have the power to tax. No individual business can solve this problem.
Go ahead and let the businesses profit. And if you need to tax 90% of the profit to provide a minimum standard of living for your citizens then so be it.
There is no reason a business has any responsibility to its employees outside of paying them for services performed in accordance with labor laws.
Yes there is. Work is not just writing a paycheck and be done with it. It's more than that: it's working together towards a future that is better for all parties, in a sustainable way.
"yes sir, he says he really does"
Misquoted, but accurate in spirit. I must have fruit.
“What awful people.”
2. Venture capitalists
And who "the people" are here:
Right off the bat, the entire business model is moving money from riders to drivers, while siphoning off a percentage for the rich. So at a fundamental level, the purpose of the company is to use moving money around between the people as a reason to move money from the people to the rich--the exact opposite direction of what you're proposing.
But that's the gross effects, and one could argue that what matters is the net effects. It's possible that while the rich are taking from the people here, these particular rich are taking less than other rich would be. I would argue that "taking less" and "giving" are not the same thing, but I'll at least entertain the point that the net effect might be positive for the people.
To analyze that we have to look at our two "the people" groups separately:
1. Uber's fares are significantly lower in most places than taxis were previously. But we have to realize that this is a temporary anomaly caused by competition with Lyft et al--Uber is using their massive funding to undercut competitors and drive them out of business. If that happens (which is probably will) Uber will have no competitive pressure to keep their prices low. In fact, following incentives, Uber should probably start buying up taxi medallions and then reverse their stance on how those rules should be enforced, so they can pull the ladder up behind them. But even without that, Uber has significant first-to-market advantages that will make it hard for a competitor to arise. Any competitor would have to be global, otherwise Uber will just use their global profits to undercut them on price locally. And a starting a global business has significant technical challenges, which Uber didn't have to deal with because they started locally. There are also legal challenges, which Uber didn't have to deal with up front, since Uber invented loopholes, many of which are now closed. And as a last line of defense, Uber can just keep enough cash on hand to buy out any competitors that arise (similar to Facebook's purchases of Instagram, Giphy, etc.). Whatever benefits Uber provides to riders, are short game: their long game isn't running a rider-focused charity.
2. The data regarding drivers is rife with issues. First off, the results are uneven: some sources say that Uber drivers in New York and San Francisco are making more net profit than they were as taxi drivers, but that effect drops off as you move toward smaller cities and moves well into the negative in more rural areas. And there are good reasons to believe that the benefits of a taxi company are being undervalued in these comparisons: health insurance and mechanic services are priced lower for a taxi service because they have collective leverage: an individual seeking health insurance or a mechanic pays a higher price. And hourly wages don't include the extra time a gig driver has to spend finding parking, getting repairs done, etc., due to not having a taxi garage. These are hours that they work but don't bill for, which aren't included in stats. It would be hard to argue that drivers are better off with the current system. The simplest truth is if you just talk to drivers: the positive thing I hear from drivers is that they don't have cash in their cars so they aren't as likely to get robbed, but most who I've talked to say they have to work more to make the same money. And finally, this is again a temporary concession: Uber is doing their best to replace human drivers with self-driving cars. Even if you disagree with me that net results are worse for drivers, any net benefit you can claim is temporary.
And there are even more fundamental questions: What are the network effects on local economies of taking a percentage of all driver transactions in the world and sending it to San Francisco? Should we be weaving cars into the transportation infrastructure of our cities when bikes and public transit have such clear benefits? Is it worth it to give up your location privacy for a cheap ride?
I certainly don't think Hayek is above criticism, but this author definitely is not making the point he thinks he is.
This isn't some kind of "no true Scotsman" thing either. The current market is exactly what someone like Hayek would expect given the monetary manipulations of the past 10+ years.
I'm pretty sure Hayek would identify the issue as government intervention. It's not only central banks with their massive buy-ups of high quality corp/gov debt that's the matter here (forcing investors into ever riskier asset classes like VC funds). Given current world events I'm pretty sure a part of it is academia is broken too.
One thing that puzzled me for a long time is why there aren't more biotech startups, or why there aren't any (it seems) unicorn biotech firms. The potential of biotech seems unlimited. One day I found out a possible reason - VCs are afraid of biotech firms because they virtually all start by taking some academic paper that sounds promising, and building a lab to try and replicate it. But the papers don't replicate, so the company tanks and the VC loses everything. The figure I heard is around 50% of the papers don't replicate, which seemed shockingly high at the time.
Well, later I encountered an even worse figure: AmGen Oncology claimed only 11% of cancer papers replicated.
The cost of trying to find the next big idea in biotech seems astronomical with those kinds of odds. In effect the biotech world is flooded with ideas that sound good but fall at the first hurdle. No wonder investors prefer the software world, it's way less dependent on universities. Not many startups get started by saying, "we're going to commercialise this amazing sounding paper put out by the U of X". Even AI startups which I suppose come the closest are mostly being driven by corporate research labs, and even then, a16z dunked cold water on AI as a startup category.
I understand spending money on customer acquisition, but why can't they just take 5-10% on top of whatever a driver wants to charge, and be done with it?
There’s zero switching cost for either rider or driver.
It’s hilarious that Silicon Valley ever thought Uber was a worthwhile business, and frightening that SV thought it was an exemplar.
In fact, when they reached out to me in 2017 with a really cool opportunity I declined as I couldn't understand how they were ever gonna make enough money to make the deal worthwhile.
I dropped Uber for a month in the Toronto Area as Lyft gave me a pile of coupons. Then I dropped Lyft when those coupons ran out and Uber was giving me discounts to come back.
Whenever I visit a major US city like New York, I check if there is an alternative provider like Via. They also have coupons. I went from NYU to Laguardia for $15 + tip last time I was there. The Uber trip without coupons would have been 60.
The lack of customer loyalty means that you have to win the customer every ride or they go somewhere else.
I remember when I was in college doing an enterpreneurship class we were constantly added what was the value to our products - what does your product do so well that people would flock to you instead of the competition? Being cheaper was not an answer my professors allowed.
Platforms win out because of user familiarity, not because they're necessarily the cheapest option.
Uber had and still has a large lead on Lyft. They get free advertising all of the time through the media. How difficult is it to accept that you're not going to be number one in every market (but you'll likely remain number one in most markets), spend money wisely to shore up your position when necessary, and do everything you can to stay profitable?
My observation is that, yes for the general public there may be only "Uber" or traditional taxis, but those are the people that never use it in the first place.
> Platforms win out because of user familiarity, not because they're necessarily the cheapest option.
Uber is not a platform for the user. It is a service for basic transportation that costs money, and all car hailing apps offer similar enough experiences with different price tags depending on how fast the company is throwing money away.
Unless if I'm looking at the wrong numbers, they're literally killing themselves on sales, marketing, and driver incentives.
It's "stupid" that's killing them, not the dynamics of the ride share market.
They are locked into a classic problem for 2 sided markets with low barriers to entry.
The barrier to entry in ride sharing business is so low it's almost non-existent, which makes the whole strategy pointless, unless they can lobby in Congress for some regulatory framework that would make starting a new ride-sharing business harder.
Which would presumably mean they've spent billions to go round and end up exactly where we started? Which is presumably what will happen with a lot of the 'disruptive' companies once public opinion and regulation catches up with them.
I don't know if it's worth as many billions as it's cost so far, but it's not nothing. This is being done because a monopoly of this type is NOT so easily busted by some bright spark 'disruptor'. If nothing else, you can spend a few more billions buying whispering campaigns suggesting that the new 'disruptor' is unsafe or tainted, or simply attack them more directly, terrorize their drivers, whatever.
Even without such black tactics the notion of frictionless liquidity in market dynamics is foolish. It doesn't work that way.
There are user costs to switching platforms, even if the platform is a ride sharing app. I get that the friction is less than something like Facebook, but an amount much, much smaller than 23 billion would have been enough to 1.) have the best app on the market and 2.) advertise/discount where necessary to maintain some market share.
If your customers have an unsustainable business model and you have favorable unit economics and a market leading position, you can quite literally sit on your cash flow (good unit economics and low overhead lets you survive market share losses) and wait until everyone else goes out of business.
Also: you don't need to have "the best app in the market", just a reasonably good one. Advertising cost is more of the issue, but you can do that by starting in one local market, get some market share and use it to attract more VC capital.
This reads like investors want to have their cake and eat it too. Burn cash for market share, then regulate the competiton for market share closed when they have taken the lead.
If they dont want to burn money, then don't. There's plenty of other hard problems that take big money to solve that payoff decades later. What happened to fiscal responsibility on the investor side?
This is the market working very efficiently, the resource (money) is in the wrong hands and must be allocated to literally anyone else.