March 27, 2018
That is in effect what Steven Hill argues in his NYT column today. While the column makes many useful points about Uber’s impact on the environment and its treatment of its drivers, the underlying issue is that Uber is hugely subsidizing its rides, causing it to lose $4.5 billion in 2017. Hill proposes that the government either require Uber to raise its fees or that it impose a tax to offset the loss.
While the idea of leveling the playing field is appealing, it is worth asking why a company has a business model that involves losing massive amounts of money. The logic is presumably that Uber expects to drive out competition so that at some point in the future it can jack up its prices and make large profits. Back in the old days, we had something called “anti-trust” policy which would prevent something like this.
If the government treated the anti-trust laws seriously (they are still there), instead of seeking campaign contributions from the biggest violators (e.g. Facebook and Google), Uber’s strategy would make zero sense. The company would be losing large amounts of money today, with the prospect of losing even more in the future as its money-losing business model continued to expand. As we know, investors aren’t always too sharp, but most aren’t willing to throw their money down the toilet forever. (There is a similar story with Amazon, which is barely profitable on the whole and loses money in most of its lines of business.)
The Uber huge loss model only makes sense in a context where people don’t think anti-trust law will be enforced. If we had an administration in Washington that made it very clear that it would not tolerate Uber taking advantage of its market position to jack up prices, the company would likely have to change its practices very quickly or end up in bankruptcy.
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