There is a cartoon version of certain gig-economy startup industries that goes like this. Several companies get into the market for, say, car services or food delivery or whatever. They compete for market share by, basically, losing a lot of money: You pay drivers $20 per trip, which is more than they could get elsewhere; you charge riders $5 per trip, which is less than they’d pay elsewhere; you make up the difference by raising money from venture capitalists or SoftBank. Your competitors do the same thing, and you collectively spend billions of dollars of venture money delivering people cheap burritos. You promise your investors “don’t worry, after a few more cheap burritos we will have driven our competitors out of business and we’ll be able to jack up the burrito prices to cover our expenses,” but your competitors are promising their investors the same thing—sometimes it’s the same investors!—so they all keep hanging around.
Eventually everyone does get tired of this, but rather than going out of business with nothing to show for it, the less viable competitors get acquired by the more viable ones. If you are a leading player in this sort of viciously competitive business, it can be worth a few billion dollars to you to get rid of a competitor: With less competition, maybe you can charge a bit more to deliver burritos and get closer to breaking even. You can reduce the pain a little bit.
If you believe this model … if you believe this model then capitalism is broken, 1 + 1 = 3, water flows uphill, aliens are real, you can be your own grandfather, anything is possible.
Matt Levine on.
“Nice market share you’ve got there. Shame if someone destroyed it with the literally illegal business practice of under-charging for services…”