But what if your competitor is willing to lose lots of money on large amounts of invested capital until you are out of business?
Uber and Lyft have it tough in that regard. At the end of the day they've got product market fit in a profitable industry. I mean the very worst case is they become more efficient cab companies, and cab companies have been making money for a very long time.
Their prices are artificially low due to competition, and they are in sort of a prisoner's dilemma. eventually one of them will go broke and the other will raise prices, or something will change about the market (such as driverless cars coming). But if one of them passes up raising and losing money they lose.
Then you have a lousy business model, and you aren't going to make lots of money, and you aren't going to create lots of value, and, as a result, probably won't get a massive payout.
I don't think that's true. Uber's business model is the same as every cab company, but better. It's just a temporary problem (competition forcing them to sell below market value) that they need to overcome.
Their financial struggles are due to them pricing well below what taxi cabs do. But if Uber priced the same as cabs they'd still be an infinitely better service and make lots of money, once Lyft isn't there undercutting.
It reminds me a lot of airlines. They were all hemorrhaging money similarly, even for a decade or two after deregulation, until they consolidated down into a few and raised prices.
Are you arguing that the US airline industry spins profits? I mean, sure, you have some carriers like Southwest which do, but as a friend of mine once put it, the US airline industry exists mainly as an outlet for Boeing to sell airplanes...
That was true for a long time but hasn't been for awhile. They now are mostly profitable. Delta makes almost as much as Southwest and the other majors are still in the billions.
Uber and Lyft have it tough in that regard. At the end of the day they've got product market fit in a profitable industry. I mean the very worst case is they become more efficient cab companies, and cab companies have been making money for a very long time.
Their prices are artificially low due to competition, and they are in sort of a prisoner's dilemma. eventually one of them will go broke and the other will raise prices, or something will change about the market (such as driverless cars coming). But if one of them passes up raising and losing money they lose.