DD sends me the following article which suggests that Uber is losing quite a bit of money, is not going to turn profitable, and presumably is the worst thing to ever happen to America. Two quick points, should you care to read through the article.
- The author argues (and I am not sure I disagree at all) that Uber may never make that much money in profits in the future because as basically a human/labor centered business model it is going to be very hard to take advantage of economies of scale as it tries to grow. In other words, the average costs of delivering its product will not fall much or at all as the output level of Uber expands. Uber is no “natural monopoly” in the parlance of old school textbooks. But think about this for a moment given the general thrust of the article. One major thrust in the article is that Uber is a really bad thing because it is trying to drive all of its competitors out of business. But, if you are going to argue later in the piece that Uber can never be profitable because it can never recognize cost efficiencies, then it can never succeed in driving people out of the market. It can’t possibly do it. And even if it does, since the author himself is arguing that the business is not a natural monopoly, then consumers should not be worried given how easy it is to set up and operate a competing mode of transportation. So in this regard, the response to the entire article just has to be, “so what?”
- Ignore the first point. Another major thrust of the article is that the reason Uber has been able to sustain large and increasing operating losses for five years now, which is a longer period than other high valuation and successful startups like Amazon, is that they are being subsidized by rich Silicon-Valley venture capitalists. Well, I don’t think he uses the term subsidy the same way that I do. But so what? While I do worry about society “wasting” resources – the resources being wasted here are not ours, they are theirs. It’s not like government subsidies for biofuels which take from all of us, including the poor, to subsidize agribusiness interests and do no good for the environment. Not at all. But really, the point I’d like to make is the following. Aren’t we all so very enthralled with the idea that the rich should pay more? Aren’t we all enthralled with the idea of redistributing income from the rich to the rest of the 99%? Well, here you go. We seem to have a group of extremely rich people transferring billions upon billions of dollars of wealth from themselves to people who are clearly less wealthy than them – Uber drivers and customers. You’d think rather than be worried and scared about these big rich people subsidizing Uber, we would celebrate it. If the author wants to argue that this subsidy means that other really cool and value enhancing projects are not being funded because of these rich guys’ irrational support of Uber, then it would have been a nice point. But I see no such argument being made yet. And wholly aside from the fact that Uber seems to be very popular and the work I have seen suggests it has provided enormous benefits to the consumers who use it … my question here is simply … so what?
We have written a decent amount on predatory pricing here at TUW in the past. If you want to see a more rigorous treatment of the issue please read the following: