Predatory pricing claims are largely ignored by courts, but a version of it continues to happen with venture backed startups. A recent paper that is making waves in tech circles called Venture Predation shows how businesses like Uber, Bird, Moviepass, and more use large venture capital investments to undercut competition, build monopolies, and harm consumers.
The interesting part about this flavor of predation is that the business does not need to actually work to be successful for investors and management—merely the promise that it could someday work is enough. For example, “We’ll subsidize ride-sharing to capture market share quickly and then build self-driving cars later to recoup the losses and raise prices later.”
Even more interesting is what the paper says about the key innovations of venture predation to get away with predatory pricing:
Venture predation adds three innovations to traditional predatory pricing: (1) motivated financiers motivated to fund predation, (2) the secrecy of private companies, and (3) the opportunity to cash out before recoupment.
I tend to agree with the authors that the confluence of factors around little/no enforcement against predatory pricing and generally how startups work gives rise to this playbook. However, there are plenty of other examples from large established businesses (probably monopolies in their own right) like Amazon and Walmart that can use their pricing power and economies of scale to simultaneously crush competition and fund growth with short-ish-term losses.
- Isn’t this also speed-running 7 Powers before you run out of money?
- This phenomenon only seems to happen for areas of intense competition
- In the post zero-interest-rate environment, investors are valuing revenue over growth