was thinking about how some companies manage to charge prices that mathematically dont make sense. like, how could a delivery or an app ride cost cents a few years ago?
in "economese" a lot of people call this dumping, but in the startup and big tech world the technical name is cash burn. the logic is the same. operate with negative margin on purpose to gain market share.
the state-owned case
when we look at public companies, like the post office, the dynamic is fiscal. bc they have tax immunity (fiscal remission) and state backing, they can maintain operations in places where no private company could turn a profit.
in remote interiors with low volume, logistics cost is too high. the private company needs to pass this to the price (or it breaks). the state-owned company can "dilute" this or absorb the deficit bc the final goal isnt just profit, but universal service access.
the competition problem arises when that fiscal advantage makes it impossible for any other player to enter the market. its a hard cycle to break. the competitor cant handle the taxes, and the state-owned doesnt need to worry about them.
the "winner takes all" big tech model
but its not just state-owned companies doing this. the private sector, especially tech, elevated this to another level with Venture Capital.
the market saw this happen several times with the "growth at any cost" model:
- iFood and Uber: for years these companies operated with billion-dollar losses. investor money subsidized the discount coupon on your lunch or the cheap ride. the goal was to asphyxiate competition (who didnt have infinite capital) until only they remained.
- Amazon: theres the classic case (and studied in colleges) of diapers.com, where amazon lowered diaper prices below production cost until the competitor gave up and agreed to be bought.
- OpenAI: nowadays we see this with AI. the computational cost to run chatgpt is astronomical, way higher than the subscription value covers. they burn cash to guarantee that, when the technology stabilizes, they will be the market standard.
in the end, whoever can bleed money the longest, takes the market. and we enjoy the low prices now, bc the bill (price hikes post-monopoly) always comes later.