Tanya Dua, technology editor at LinkedIn, posted the following regarding a recently published paper on venture capital and predatory pricing:
“Are venture capitalists the enablers of predatory pricing in tech at the hands of companies like Amazon and Uber? That’s the question raised in a new paper by law professors Matthew Wansley and Sam Weinstein, covered by Adam Rogers in this Insider story.
Progressive economists have long made the case for predatory pricing — but that hasn’t won them antitrust cases. That’s because their focus has been on the wrong culprits, Wansley and Weinstein argue.
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According to prior Supreme Court rulings, predatory pricing can be proved if the accused predators had not only cut prices below market rates but also had a “dangerous probability” of recouping their losses. When you look at companies like Uber who’ve lost billions by subsidizing riders and drivers, the standard for recoupment isn’t met.
But if you look at VCs that enabled them with seed funding — the case has merit. VCs profit from predatory pricing by getting in early and getting out at the right time with a hefty return on their investment when investors end up buying their shares at a high price, they write.
Is the classic model of venture capital merely predatory pricing in a new wrapper? According to Wansley and Weinstein, it is.”
I found the post interesting and posted this comment in response:
“Uber, Amazon, and other enterprises are merely the flavor of the day modes for deploying capital until another bowl of ice cream replaces them. When they contracted for capital infusion from VCs, there was an exchange of expectations: x amount of returns in exchange for y amount of funding.
Uber, Amazon, and other enterprises may engage in predatory pricing to meet VC expectations. From a liability standpoint, if this is the model, where regulators go no further than the consumer-facing enterprises when determining antitrust violations, then it is a great model for the VC where the consumer-facing enterprises are left holding the bag.”
For the past few weeks, I have been contemplating the future of the current economic structure, particularly the corporate form and its structure as the economy moves through time. I suspect that more businesses will decentralize where a group of entrepreneurs will contract out every facet of operations leaving only their financial spreadsheets to look over.
Every entrepreneur should consider themselves no more than a venture capitalist, managing how their capital is allocated and spent in the latest profit seeking enterprise. The entrepreneur-venture capitalist should have only one thing on her mind: capital preservation and returns. This means that one important tactic should be the avoidance of legal actions that work to reduce the returns on capital.
No entrepreneur should pursue an ego-laden plan to build a business, which includes the renting of physical and labor resources. Any renting should be limited to renting additional funds from a bank or other investors. Also, in the case of predatory pricing, the entrepreneur-venture capitalist should audit her external and internal communications to ensure that they are not connected to inquiries about predatory pricing.
Alton Drew
23 July 2023
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