They said it couldn't happen. After decades of #antitrust enforcement against #PredatoryPricing - selling goods below cost to kill existing competitors and prevent new ones from arising - the #ChicagoSchool of neoliberal #economists "proved" that predatory pricing didn't exist and that the courts could stand down and stop busting companies for it.
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If you'd like an essay-formatted version of this thread to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:
https://pluralistic.net/2023/05/19/fake-it-till-you-make-it/#millennial-lifestyle-subsidy
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Predatory pricing - the economists explained - may be illegal, but it was also imaginary. A mirage. No one would do predatory pricing, because it was "irrational." And even if there was someone irrational enough to try it, they would fail. Stand down, judges of America - predatory pricing is solved.
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Chicago School economists - whose job (to quote #DavidRoth) is to find new ways to say "actually, your boss is right" - held enormous sway of the federal judiciary. The billionaire-backed #ManneSeminars offered free "continuing education" junkets to judges - all-expense-paid luxury vacations salted with lengthy your-boss-is-right econ seminars. 40% of the US federal judiciary got their heads filled up at a Manne Seminar.
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For monopolists and other predators, the Manne Seminar was an excellent return on investment. After attending a Manne Seminar, the average judge's legal decisions tipped decidedly in favor of #monopoly, operating on the Chicago bedrock assumption that monopolies are "efficient," and, where we see them in nature, we should celebrate them as the visible manifestation of the entrepreneurial genius of some Ayn Rand hero in a corporate boardroom:
https://pluralistic.net/2021/08/13/post-bork-era/#manne-down
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A little knowledge is a dangerous thing. Even as #PostChicago economists showed that predatory pricing was both possible and rampant, a "rational" and effective strategy for cornering markets, suppressing competition, crushing innovation and gouging on price, judges continued to craft tortuous, unpassable tests that any predatory pricing case would have to satisfy to proceed.
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Economics moved on, but predatory pricing cases continued to fail the trial-by-ordeal constructed by Chicago-pilled judges.
Which is a shame, because there are at least three ways that predatory pricing can be effective:
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I. #CostSignalingPredation: A predator tricks competitors into thinking they've found a new way to cut their costs, which allows them to drop prices. Competitors, fooled by the ruse, exit the market, not realizing that the predator is merely subsidizing their products' costs to trick them.
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II. #FinancialMarketPredation: A predator tricks the competitors' *creditors* into thinking the predator has a new way to cut costs. The creditors refuse to loan the prey companies the money needed to survive the #PriceWar, and the prey drops out of the war.
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III. #ReputationEffectPredation: A predator subsidizes prices in one region or one line of goods in order to trick prey into thinking that they'll do the same elsewhere: "Don't try to compete with us in Cleveland, or we'll drop prices like we did in Tampa."
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These models of successful predation are decades old, and have broad acceptance within economics - outside of Chicago-style ideologues - but they've yet to make much of a dent in minds of the judges who hear Predatory Pricing cases.
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While judges continue to hit the snooze-bar on any awakening to this phenomenon, a new kind of predator has emerged, using a new kind of predation: the #VenturePredator, a predatory company backed by #VentureCapital funds, who make lots of high-risk bets they must cash out in ten years or less, ideally for a 100x+ return.
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Writing in the *#JournalOfCorporationLaw* #MatthewWansley and #SamuelWeinstein - both of the #Cardozo School of Law at #YeshivaUniversity - lay out a theory of Venture Predation in clear, irrefutable language, using it to explain the recent bubble we sometimes call the #MillennialLifestyleSubsidy:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4437360
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What's a Venture Predator? It's "a startup that uses venture finance to price below costs, chase its rivals out of the market, and grab market share." The predator sets millions or billions of dollars on fire chasing "rapid, exponential growth" all in order to "create the impression that recoupment is possible" among future investors, such as blue-chip companies that might buy them out, or sucker retail investors who buy in at the IPO, anticipating years of monopoly pricing.
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In other words, the Venture Predator constructs a pile of shit so large and impressive that investors are convinced that there must be a pony under there somewhere.
There's another name for this kind of arrangement: a #Bezzle, which #Galbraith described as "the magic interval when a confidence trickster knows he has the money he has appropriated but the victim does not yet understand that he has lost it."
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Millennial Lifestyle Subsidy companies are bezzles. Uber, annihilated tens of billions of dollars on its bezzle, destroying the taxi industry and laying waste to public transit investment, demolishing labor protections and convincing people that impossible #SelfDriving #RoboTaxis were around the coner:
https://pluralistic.net/2021/02/16/ring-ring-lapd-calling/#uber-unter
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But while Uber the company lost billions of dollars, Uber's early investors and executives made out like bandits (or predators, I suppose). The founders were able to flog their shares on the secondary market long before the IPO. Same for the early investors, like Benchmark capital.
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Since the company's IPO, its finances have steadily worsened, and the company has resorted to increasingly sweaty balance-sheet manipulation tactics and PR offensives to make it seem like a viable business:
https://pluralistic.net/2022/08/05/a-lousy-taxi/#a-giant-asterisk
But Uber can't ever recoup the billions it spent convincing the market that there was a pony beneath its pile of shit.
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The app Uber uses to connect riders with the employees it misclassifies as contractors isn't hard to clone, and it's not hard for drivers or riders to switch from one app to another:
https://locusmag.com/2019/01/cory-doctorow-disruption-for-thee-but-not-for-me/
Nor can Uber prevent its rivals from taking advantage of the hundreds of millions of dollars it spent on "regulatory entrepreneurship" - changing the laws to make it easier to misclassify workers and operate unlicensed taxi services.
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It's not clear whether Uber ever believed in robo-taxis, or whether they were just part of the bezzle. In any event, Uber's no longer in the robotaxi races: after blowing $2.5B on self-driving cars, Uber produced a vehicle whose mean-distance-between-fatal-crashes was 0.5 miles. Uber had to pay another company $400M to take its self-driving unit off its hands:
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Uber's prices rose 92% between 2018-21, while its driver compensation has plunged. The company is finding it increasingly difficult to passengers into cars, and drivers onto the road. The have invented #AlgorithmicWageDisrimination, an exciting new field of labor-law violations, in order to trick drivers into thinking there's a pony under all that shit:
https://pluralistic.net/2023/04/12/algorithmic-wage-discrimination/#fishers-of-men
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To Uber's credit, they have been a wildly innovative company, inventing many new ways to make the pile of shit bigger and the pony more plausible. Back when Uber and Lyft were locked in head-to-head competition, Uber employees created huge pools of fake Lyft rider accounts, using them to set up and tear down rides in order to discover what Lyft was charging for rides in order to underprice them.
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Uber also covertly operated the microphones in its drivers' phones to listen for the chimes the Lyft app made: drivers who had both Lyft and Uber installed on their devices were targeted for (strictly temporary) bonuses.
Uber won't ever recoup, but that's OK. The investors and execs made vast fortunes.
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Now, normally, you'd expect company founders and other managers with large piles of stocks in a VC-backed company to be committed to the business's success, at least in the medium term, because their shares can't be liquidated until well after the company goes public.
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But the burgeoning "secondary market" for managers' shares has turned investors and managers into co-conspirators in the Venture Predation bezzle: "half of Series A and B deals now have some secondary component for founders." That means that founders can cash out before the bezzle ends.
The trick with any bezzle is to skip town while the mark is still energetically digging through the shit, *before* the pony is revealed for an illusion.
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That's where #crypto comes in: during the #cryptocurrency bubble, VCs cashed out of their investments early through #InitialCoinOfferings and other forms of #SecuritiesFraud. The massive returns this generated were well worth the millions they sprinkled on #SuperbowlAds and bribes for #MattDamon.
But woe betide the VC who mistimes their exit. As #Wework showed, it's entirely possible for VCs to be left holding the bag if they get the timing wrong.
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Cory Doctorow