#predatory pricing

Here's where an economist will tell you that actually, your boss is right. Many groceries are perishable, after all, and e-ink shelf tags allow grocers to reprice their goods every minute or two, so yesterday's lettuce can be discounted every fifteen minutes through the day. Some customers will happily accept a lettuce that's a little gross and liztruss if it means a discount. Those customers get a discount, the lettuce isn't thrown out at the end of the day, and everyone wins, right?

Well, sure, if. If the grocer isn't part of a heavily consolidated industry where competition is a distant memory and where grocers routinely collude to fix prices. If the grocer doesn't have to worry about competitors, why would they use e-ink tags to lower prices, rather than to gouge on prices when demand surges, or based on time of day (e.g. making frozen pizzas 10% more expensive from 6-8PM)?

And unfortunately, groceries are one of the most consolidated sectors in the modern world. What's more, grocers keep getting busted for colluding to fix prices and rip off shoppers:

https://www.cbc.ca/news/business/loblaw-bread-price-settlement-1.7274820

Surveillance pricing is especially pernicious when it comes to apps, which allow vendors to reprice goods based not just on commercially available data, but also on data collected by your pocket distraction rectangle, which you carry everywhere, do everything with, and make privy to all your secrets. Worse, since apps are a closed platform, app makers can invoke IP law to criminalize anyone who reverse-engineers them to figure out how they're ripping you off. Removing the encryption from an app is a potential felony punishable by a five-year prison sentence and a $500k fine (an app is just a web-page skinned in enough IP to make it a crime to install a privacy blocker on it):

https://pluralistic.net/2024/08/15/private-law/#thirty-percent-vig

Large vendors love to sell you shit via their apps. With an app, a merchant can undetectably change its prices every few seconds, based on its estimation of your desperation. Uber pioneered this when they tweaked the app to raise the price of a taxi journey for customers whose batteries were almost dead. Today, everyone's getting in on the act. McDonald's has invested in a company called Plexure that pitches merchants on the use case of raising the cost of your normal breakfast burrito by a dollar on the day you get paid:

https://pluralistic.net/2024/06/05/your-price-named/#privacy-first-again

Surveillance pricing isn't just a matter of ripping off customers, it's also a way to rip off workers. Gig work platforms use surveillance pricing to titrate their wage offers based on data they buy from data brokers and scoop up with their apps. Veena Dubal calls this "algorithmic wage discrimination":

https://pluralistic.net/2023/04/12/algorithmic-wage-discrimination/#fishers-of-men

Take nurses: increasingly, American hospitals are firing their waged nurses and replacing them with gig nurses who are booked in via an app. There's plenty of ways that these apps abuse nurses, but the most ghastly is in how they price nurses' wages. These apps buy nurses' financial data from data-brokers so they can offer lower wages to nurses with lots of credit card debt, on the grounds that crushing debt makes nurses desperate enough to accept a lower wage:

https://pluralistic.net/2024/12/18/loose-flapping-ends/#luigi-has-a-point

This week, the excellent Lately podcast has an episode on price discrimination, in which cohost Vass Bednar valiantly tries to give economists their due by presenting the strongest possible case for charging different prices to different customers:

https://www.theglobeandmail.com/podcasts/lately/article-the-end-of-the-fixed-price/

Bednar really tries, but – as she later agrees – this just isn't a very good argument. In fact, the only way charging different prices to different customers – or offering different wages to different workers – makes sense is if you're living in a socialist utopia.

After all, a core tenet of Marxism is "from each according to his ability, to each according to his needs." In a just society, people who need more get more, and people who have less, pay less:

https://en.wikipedia.org/wiki/From_each_according_to_his_ability,_to_each_according_to_his_needs

Price discrimination, then, is a Bizarro-world flavor of cod-Marxism. Rather than having a democratically accountable state that sets wages and prices based on need and ability, price discrimination gives this authority to large firms with pricing power, no regulatory constraints, and unlimited access to surveillance data. You couldn't ask for a neater example of the maxim that "What matters isn't what technology does. What matters is who it does it for; and who it does it to."

Neoclassical economists say that all of this can be taken care of by the self-correcting nature of markets. Just give consumers and workers "perfect information" about all the offers being made for their labor or their business, and things will sort themselves out. In the idealized models of perfectly spherical cows of uniform density moving about on a frictionless surface, this does work out very well:

https://pluralistic.net/2023/04/03/all-models-are-wrong/#some-are-useful

But while large companies can buy the most intimate information imaginable about your life and finances, IP law lets them capture the state and use it to shut down any attempts you make to discover how they operate. When an app called Para offered Doordash workers the ability to preview the total wage offered for a job before they accepted it, Doordash threatened them with eye-watering legal penalties, then threw dozens of full-time engineers at them, changing the app several times per day to shut out Para:

https://pluralistic.net/2021/08/07/hr-4193/#boss-app

And when an Austrian hacker called Mario Zechner built a tool to scrape online grocery store prices – discovering clear evidence of price-fixing conspiracies in the process – he was attacked by the grocery cartel for violating their "IP rights":

https://pluralistic.net/2023/09/17/how-to-think-about-scraping/

This is Wilhoit's Law in action:

Conservatism consists of exactly one proposition, to wit: There must be in-groups whom the law protects but does not bind, alongside out-groups whom the law binds but does not protect.

https://en.wikipedia.org/wiki/Francis_M._Wilhoit#Wilhoit's_law

Of course, there wouldn't be any surveillance pricing without surveillance. When it comes to consumer privacy, America is a no-man's land. The last time Congress passed a new consumer privacy law was in 1988, when they enacted the Video Privacy Protection Act, which bans video-store clerks from revealing which VHS cassettes you take home. Congress has not addressed a single consumer privacy threat since Die Hard was still playing in theaters.

Corporate bullies adore a regulatory vacuum. The sleazy data-broker industry that has festered and thrived in the absence of a modern federal consumer privacy law is absolutely shameless. For example, every time an app shows you an ad, your location is revealed to dozens of data-brokers who pretend to be bidding for the right to show you an ad. They store these location data-points and combine them with other data about you, which they sell to anyone with a credit card, including stalkers, corporate spies, foreign governments, and anyone hoping to reprice their offerings on the basis of your desperation:

https://www.404media.co/candy-crush-tinder-myfitnesspal-see-the-thousands-of-apps-hijacked-to-spy-on-your-location/

Under Biden, the outgoing FTC did incredible work to fill this gap, using its authority under Section 5 of the Federal Trade Commission Act (which outlaws "unfair and deceptive" practices) to plug some of the worst gaps in consumer privacy law:

https://pluralistic.net/2024/07/24/gouging-the-all-seeing-eye/#i-spy

And Biden's CFPB promulgated a rule that basically bans data brokers:

https://pluralistic.net/2024/06/10/getting-things-done/#deliverism

But now the burden of enforcing these rules falls to Trump's FTC, whose new chairman has vowed to end the former FTC's "war on business." What America desperately needs is a new privacy law, one that has a private right of action (so that individuals and activist groups can sue without waiting for a public enforcer to take up their causes) and no "pre-emption" (so that states can pass even stronger privacy laws):

https://www.eff.org/deeplinks/2022/07/federal-preemption-state-privacy-law-hurts-everyone

How will we get that law? Through a coalition. After all, surveillance pricing is just one of the many horrors that Americans have to put up with thanks to America's privacy law gap. The "privacy first" theory goes like this: if you're worried about social media's impact on teens, or women, or old people, you should start by demanding a privacy law. If you're worried about deepfake porn, you should start by demanding a privacy law. If you're worried about algorithmic discrimination in hiring, lending, or housing, you should start by demanding a privacy law. If you're worried about surveillance pricing, you should start by demanding a privacy law. Privacy law won't entirely solve all these problems, but none of them would be nearly as bad if Congress would just get off its ass and catch up with the privacy threats of the 21st century. What's more, the coalition of everyone who's worried about all the harms that arise from commercial surveillance is so large and powerful that we can get Congress to act:

https://pluralistic.net/2023/12/06/privacy-first/#but-not-just-privacy

Economists, meanwhile, will line up to say that this is all unnecessary. After all, you "sold" your privacy when you clicked "I agree" or walked under a sign warning you that facial recognition was in use in this store. The market has figured out what you value privacy at, and it turns out, that value is nothing. Any kind of privacy law is just a paternalistic incursion on your "freedom to contract" and decide to sell your personal information. It is "market distorting."

In other words, your boss is right.

Check out my Kickstarter to pre-order copies of my next novel, Picks and Shovels!

If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2025/01/11/socialism-for-the-wealthy/#rugged-individualism-for-the-poor

Image: Cryteria (modified) https://commons.wikimedia.org/wiki/File:HAL9000.svg

CC BY 3.0 https://creativecommons.org/licenses/by/3.0/deed.en

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Ser Amantio di Nicolao (modified) https://commons.wikimedia.org/wiki/File:Safeway_supermarket_interior,_Fairfax_County,_Virginia.jpg

"The Dollar Store Invasion," is a new Institute For Local Self Reliance (ILSR) report by Stacy Mitchell, Kennedy Smith and Susan Holmberg. It paints a detailed, infuriating portrait of the dollar store playback, and sets out a roadmap of tactics that work and have been proven in dozens of places, rural and urban:

https://cdn.ilsr.org/wp-content/uploads/2023/01/ILSR-Report-The-Dollar-Store-Invasion-2023.pdf

The impact of dollar stores is plainly stated in the introduction: "dollar stores drive grocery stores and other retailers out of business, leave more people without access to fresh food, extract wealth from local economies, sow crime and violence, and further erode the prospects of the communities they target."

This new report builds on ILSR's longstanding and excellent case-studies, augmenting them with the work of academic geographers who are just starting to literally map out the dollar store playbook, identifying the way that a dollar stores will target, say, the last grocery store in a Black neighborhood and literally surround it, like hyenas cornering weakened prey. This tactic is repeated whenever a new grocer opens in the neighborhood: dollar stores "carpet bomb" the surrounding blocks, ensuring that the new store closes as quickly as it opens.

One important observation is the relationship between these precarious neighborhood grocers and Walmart and its other big-box competitors. Deregulation allowed Walmart to ring cities with giant stores that relied on "predatory buying" (wholesale terms that allowed Walmart to sell goods more cheaply than its competitors bought them, and also rendered its suppliers brittle and sickly, and forced down the wages of those suppliers' workers). This was the high cost of low prices: neighborhoods lost their local grocers, and community dollars ceased to circulate in the community, flowing to Walmart and its billionaire owners, who spent it on union busting and political campaigns for far-right causes, including the defunding of public schools.

This is the landscape where the dollar stores took root: a nation already sickened by an apex predator, which left a productive niche for jackals to pick off the weakened survivors. Wall Street loved the look of this: the Private equity giant KKR took over Dollar General in 2007 and went on a acquisition and expansion bonanza. Even after KKR formally divested itself of Dollar General, the company's hit-man Michael M Calbert stayed on the board, rising to chairman.

The dollar store market is a duopoly. Dollar General's rival is Dollar Tree, another gelatinous cube of a company that grew by absorbing many of its competitors, using Wall Street's money. These acquisitions are now notorious for the weaknesses they exposed in antitrust practice. For example, when Dollar Tree bought Family Dollar, growing to 14,000 stores, the FTC waved the merger through on condition that the new business sell off 330 of them. These ineffectual and pointless merger conditions are emblematic of the inadequacy of antitrust as it was practiced from the Reagan administration until the sea-change under Biden, and Dollar Tree/Family Dollar is the poster child for more muscular enforcement.

The duopoly has only grown since then. Today, Dollar General and Dollar Tree have more than 34,000 US outlets - more than Starbucks, #Walmart, McDonalds and Target - combined.

Destroying a community's grocery store rips out its heart. Neighborhoods without decent access to groceries impose a tax on their already-struggling residents, forcing them to spend hours traveling to more affluent places, or living off the highly processed, deceptively priced (more on this later) goods for sale on the dollar store shelves.

Take Cleveland, once served by a small family chain called Dave's Market that had served its communities since the 1920s. Dave's store in the Collinwood neighborhood was targeted by Family Dollar and Dollar General, which opened seven stores within two miles of the Dave's outlet. The dollar stores targeted the only profitable part of Dave's business - the packaged goods (fresh produce is a money-loser, subsidized by packaged good).

The dollar stores used a mix of predatory buying and "cheater sizes" (packaged goods that are 10-20% smaller than those sold in regular outlets, which are not available to other retailers) to sell goods at prices that Dave's couldn't match, driving Dave's out of business.

Typical dollar stores stock no fresh produce or meat. If your only grocer is a dollar store, your only groceries are highly processed, packaged foods, often sold in deceptive single-serving sizes that actually cost more per ounce than the products that the defunct neighborhood grocer once sold.

Dollar stores don't just target existing food deserts - they create them. Dollar stores preferentially target Black and brown neighborhoods with just a single grocer and then they use predatory pricing (subsidizing the cost of goods and selling them at a loss) and predatory buying to force that grocery store under and tip the neighborhood into food desert status.

Dollar stores don't just target Black and brown urban centers; they also go after rural communities. The commonality here is that both places are likely to be served by independent grocers, not chains, and these indies can't afford a pricing war with the Wall Street-backed dollar store duopoly.

As mentioned, the "predatory buying" of dollar stores is illegal - it was outlawed in 1936 under the Robinson-Patman Act, which required wholesalers to offer goods to all merchants on the same terms. 40 years ago, we stopped enforcing those laws, leading the rise and rise of big box stores and the destruction of the American Main Street.

The lawmakers who passed Robinson-Patman knew what they were doing. They were aware of what contemporary economists call "the waterbed effect," where wholesalers cover the losses from their massive discounts to major retailers by hiking prices on smaller stores, making them even less competitive and driving more market consolidation.

When dollar stores invade your town or neighborhood, they don't just destroy the food choices, they also come for neighborhood jobs. Where a community grocer typically employs 12 or more people, Dollar General employs about 8 per store. Those workers are paid less, too: 92% of Dollar General's workers earn less than $15/h, making Dollar General the worst employer of the 66 large service-sector firms.

Dollar stores also lean heavily into the tactic of turning nearly every role at its store into a "management" job, because managers aren't entitled to overtime pay. That's how you can be the "manger" of a dollar store and take home $40,000 a year while working more than 40 hours every single week.

Understaffing stores turns them into crime magnets. Shootings at dollar stores are routine. Between 2014-21, 485 people were shot at dollar stores - 156 of them died. Understaffed warehouses are vermin magnets. In the Eastern District of Arkansas, Family Dollar was subpoenaed after a rat infestation at its distribution centers that contaminated the food, medicines and cosmetics at 400 stores.

The ILSR doesn't just document the collapse of American communities - it fights back, so this report ends with a lengthy section on proven tactics and future directions for repelling the dollar store invasion. Since 2019, 75 communities have blocked proposals for new dollar stores - more than 50 of those cases happened in 2021/22.

54 towns, from Birmingham, AB to Fort Worth, TX to  Kansas City, KS, have passed laws to "sharply restrict new dollar stores, typically by barring them from opening within one to two miles of an existing dollar store."

To build on this momentum, the authors call for a "reinvigoration of antitrust laws," especially the Robinson-Patman Act. Banning predatory buying would go far to creating a level playing field for independent grocers hoping to fight off a dollar store infestation.

Further, we need the FTC and Department of Justice Antitrust Divition to block mergers between dollar-store chains and unwind the anticompetitve mergers that were negligently waved through under previous administrations (thankfully, top enforcers like Jonathan Kantor and Lina Khan are on top of this!).

We need to free up capital for community banks that will back community grocers. That means rolling back the bank deregulation of the 1980s/90s that allowed for bank consolidation and preferential treatment for large corporations, while reducing lending to small businesses and destroying regional banks. Congress should cap the market share any bank can hold, break up the biggest banks, and require banks to preference loans for community businesses. We also need to end private equity and Wall Street's rollup bonanza.

All of that sounds like a tall order - and it is! But the good news is that it's not just groceries at stake here. Every kind of community business, from pet groomers to hairdressers to funeral homes, falls into the antitrust "Twilight Zone," of acquisitions under $101m. With 60% of Boomer-owned businesses expected to sell in the coming decade, 2.9m businesses employing 32m American workers are slated to be gobbled up by private equity:

https://pluralistic.net/2022/12/16/schumpeterian-terrorism/#deliberately-broken

Whether you're burying a loved one, getting dialysis, getting your cat fixed or having your dog's nails trimmed, you are already likely to be patronizing a business that has been captured by private equity, where the service is worse, the prices are higher and the workers earn less for harder jobs. Everyone has a stake in financial regulation. We are all in this fight, except for the eminently guillotineable PE barons, and you know, fuck those guys

At the state level, the authors propose new muscular enforcement regimes and new laws to protect small businesses from unfair competition. They also call on states to increase the power of local governments to reject new dollar store applications, amending land use guidelines to require "cultivating net economic growth, ensuring that everyone has access to healthy food, and protecting environmental resources.

If all of this has you as fired up as it got me this morning, check out ILSR's "How to Stop Dollar Stores in Your Community" resources:

http://ilsr.org/dollar-stores

I’m kickstarting the audiobook for my next novel, a post-cyberpunk anti-finance finance thriller about Silicon Valley scams called Red Team Blues. Amazon’s Audible refuses to carry my audiobooks because they’re DRM free, but crowdfunding makes them possible.

Image: Mike McBey (modified) https://www.flickr.com/photos/158652122@N02/38893547595/

CC BY 2.0 https://creativecommons.org/licenses/by/2.0/

For monopolists and other predators, the Manne Seminar was an excellent return on investment. After attending a Manne Seminar, the average judge’s legal decisions tipped decidedly in favor of monopoly, operating on the Chicago bedrock assumption that monopolies are “efficient,” and, where we see them in nature, we should celebrate them as the visible manifestation of the entrepreneurial genius of some Ayn Rand hero in a corporate boardroom:

https://pluralistic.net/2021/08/13/post-bork-era/#manne-down

A little knowledge is a dangerous thing. Even as post-Chicago economists showed that predatory pricing was both possible and rampant, a “rational” and effective strategy for cornering markets, suppressing competition, crushing innovation and gouging on price, judges continued to craft tortuous, unpassable tests that any predatory pricing case would have to satisfy to proceed. Economics moved on, but predatory pricing cases continued to fail the trial-by-ordeal constructed by Chicago-pilled judges.

Which is a shame, because there are at least three ways that predatory pricing can be effective:

Cost Signaling Predation: A predator tricks competitors into thinking they’ve found a new way to cut their costs, which allows them to drop prices. Competitors, fooled by the ruse, exit the market, not realizing that the predator is merely subsidizing their products’ costs to trick them.

Financial Market Predation: A predator tricks the competitors’ creditors into thinking the predator has a new way to cut costs. The creditors refuse to loan the prey companies the money needed to survive the price war, and the prey drops out of the war.

Reputation Effect Predation: A predator subsidizes prices in one region or one line of goods in order to trick prey into thinking that they’ll do the same elsewhere: “Don’t try to compete with us in Cleveland, or we’ll drop prices like we did in Tampa.”

These models of successful predation are decades old, and have broad acceptance within economics — outside of Chicago-style ideologues — but they’ve yet to make much of a dent in minds of the judges who hear Predatory Pricing cases.

While judges continue to hit the snooze-bar on any awakening to this phenomenon, a new kind of predator has emerged, using a new kind of predation: the Venture Predator, a predatory company backed by venture capital funds, who make lots of high-risk bets they must cash out in ten years or less, ideally for a 100x+ return.

Writing in the Journal of Corporation Law Matthew Wansley and Samuel Weinstein — both of the Cardozo School of Law at Yeshiva University — lay out a theory of Venture Predation in clear, irrefutable language, using it to explain the recent bubble we sometimes call the Millennial Lifestyle Subsidy:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4437360

What’s a Venture Predator? It’s “a startup that uses venture finance to price below its costs, chase its rivals out of the market, and grab market share.” The predator sets millions or billions of dollars on fire chasing “rapid, exponential growth” all in order to “create the impression that recoupment is possible” among future investors, such as blue-chip companies that might buy them out, or sucker retail investors who buy in at the IPO, anticipating years of monopoly pricing.

In other words, the Venture Predator constructs a pile of shit so large and impressive that investors are convinced that there must be a pony under there somewhere.

There’s another name for this kind of arrangement: a bezzle, which Galbraith described as “the magic interval when a confidence trickster knows he has the money he has appropriated but the victim does not yet understand that he has lost it.”

Millennial Lifestyle Subsidy companies are bezzles. Uber, annihilated tens of billions of dollars on its bezzle, destroying the taxi industry and laying waste to public transit investment, demolishing labor protections and convincing people that impossible self-driving robo-taxis were around the coner:

https://pluralistic.net/2021/02/16/ring-ring-lapd-calling/#uber-unter

But while Uber the company lost billions of dollars, Uber’s early investors and executives made out like bandits (or predators, I suppose). The founders were able to flog their shares on the secondary market long before the IPO. Same for the early investors, like Benchmark capital.

Since the company’s IPO, its finances have steadily worsened, and the company has resorted to increasingly sweaty balance-sheet manipulation tactics and PR offensives to make it seem like a viable business:

https://pluralistic.net/2022/08/05/a-lousy-taxi/#a-giant-asterisk

But Uber can’t ever recoup the billions it spent convincing the market that there was a pony beneath its pile of shit. The app Uber uses to connect riders with the employees it misclassifies as contractors isn’t hard to clone, and it’s not hard for drivers or riders to switch from one app to another:

https://locusmag.com/2019/01/cory-doctorow-disruption-for-thee-but-not-for-me/

Nor can Uber prevent its rivals from taking advantage of the hundreds of millions of dollars it spent on “regulatory entrepreneurship” — changing the laws to make it easier to misclassify workers and operate unlicensed taxi services.

It’s not clear whether Uber ever believed in robo-taxis, or whether they were just part of the bezzle. In any event, Uber’s no longer in the robotaxi races: after blowing $2.5B on self-driving cars, Uber produced a vehicle whose mean-distance-between-fatal-crashes was 0.5 miles. Uber had to pay another company $400M to take its self-driving unit off its hands:

https://pluralistic.net/2022/10/09/herbies-revenge/#100-billion-here-100-billion-there-pretty-soon-youre-talking-real-money

Uber’s prices rose 92% between 2018–21, while its driver compensation has plunged. The company is finding it increasingly difficult to passengers into cars, and drivers onto the road. They have invented algorithmic wage disrimination, an exciting new field of labor-law violations, in order to trick drivers into thinking there’s a pony under all that shit:

https://pluralistic.net/2023/04/12/algorithmic-wage-discrimination/#fishers-of-men

To Uber’s credit, they have been a wildly innovative company, inventing many new ways to make the pile of shit bigger and the pony more plausible. Back when Uber and Lyft were locked in head-to-head competition, Uber employees created huge pools of fake Lyft rider accounts, using them to set up and tear down rides in order to discover what Lyft was charging for rides in order to underprice them. Uber also covertly operated the microphones in its drivers’ phones to listen for the chimes the Lyft app made: drivers who had both Lyft and Uber installed on their devices were targeted for (strictly temporary) bonuses.

Uber won’t ever recoup, but that’s OK. The investors and execs made vast fortunes. Now, normally, you’d expect company founders and other managers with large piles of stocks in a VC-backed company to be committed to the business’s success, at least in the medium term, because their shares can’t be liquidated until well after the company goes public.

But the burgeoning “secondary market” for managers’ shares has turned investors and managers into co-conspirators in the Venture Predation bezzle: “half of Series A and B deals now have some secondary component for founders.” That means that founders can cash out before the bezzle ends.

The trick with any bezzle is to skip town while the mark is still energetically digging through the shit, before the pony is revealed for an illusion. That’s where crypto comes in: during the cryptocurrency bubble, VCs cashed out of their investments early through Initial Coin Offerings and other forms of securities fraud. The massive returns this generated were well worth the millions they sprinkled on Superbowl ads and bribes for Matt Damon.

But woe betide the VC who mistimes their exit. As Wework showed, it’s entirely possible for VCs to be left holding the bag if they get the timing wrong. Wework blew $12b on predatory pricing — promising tenants at rivals’ businesses moving bonuses or even a year’s free rent, all to make the pile of shit look larger and thus more apt to contain a pony. The company opened its co-working spaces as close as possible to existing shops, oversaturating hot markets and showing “growth” by poaching customers through deep subsidies, then pretending that those customers would stay when the subsidies evaporated. But Wework’s “product” was temporary hot-desks, occupied by people who could (and did) move at the drop of a hat.

To its competitors, its competitors’ creditors, and credulous investors, it appeared that Wework had developed some kind of “efficiency advantage” — a secret sauce that let it sell a product at a price that was far below its rivals’ costs. But once Wework filed for its IPO, its S-1 — the form that discloses the company’s finances — revealed the truth. Wework’s only “advantage” was the bafflegab of its cult-like leader and the torrent of cash supplied by its VCs.

Wework’s IPO was a disaster. After canceling a real IPO, the company eventually went public through a scammy SPAC, saw its shares immediately tank, and continue to fall, as its balance-sheet is still blood-red with losses.

Another Venture Predator is Bird, the company that flooded American cities with cheap, flimsy Chinese scooters, choking curbs and sidewalks. 25% of the gross revenues from each scooter ride had to be written off as depreciation on the scooter. As a Bird spokesperson told the LA Times: “There are very few unique companies for which you can build global scale really quickly and build a dominant market position before other people do, and for those rarefied companies scaling quickly matters more than short-term profits.”

Bird was another company that could never recoup, whose executives and investors could only cash out if they could maintain the faint hope of the pony underneath its pile of shitty scooters. It drove the company to some genuinely surreal lengths. For example, in 2018, I reported on the existence of a kit that let you buy an impounded Bird scooter for pennies and retrofit it to run without an app, so you could take it anywhere:

https://boingboing.net/2018/12/08/flipping-a-bird.html

Shortly thereafter, I got a legal threat from Linda Kwak, Bird’s Senior Corporate Counsel, claiming that publishing a link to a website that sells you a product you install by unscrewing one board and inserting another was a violation of Section 1201 of the DMCA, which was an astonishingly stupid claim:

https://www.eff.org/document/bird-rides-takedown-boing-boing-dec-20-2018

It was also an astonishingly stupid claim to make to me, a career activist with 20 years experience fighting DMCA1201, a decades-old professional affiliation with EFF, and a giant megaphone:

https://boingboing.net/2019/01/11/flipping-the-bird.html

But Bird was palpably desperate to keep its bezzle going, and Kwak — an employment lawyer with undeniable deficits in her understanding of copyright and cyber-law — was their champion

Fascinatingly, one thing Bird didn’t worry about was competition from Uber and Lyft, who piled into the e-scooter market. Bird circulated a (leaked) pitch-deck reassuring investors that Uber/Lyft weren’t gunning for them, because they ““won’t subsidize prices” as they prepared for their IPOs, which involved disclosing their finances to their investors.

Bird’s investors either lost money or made small-dollar returns, but they were outfoxed by Bird founder Travis VanderZanden, a superpredator who cashed out $44m in shares just as the VCs were piling in.

Venture Predation is another stinging rebuttal to the Chicago School’s blithe dismissal of Predatory Pricing as an illusion. Private firms — of the sort that VCs back — whose boards are made up of founders and VCs who stand to benefit from the pile-of-shit gambit are perfectly capable of spending huge fortunes to make Predatory Pricing work. VCs make a practice of repeatedly co-investing in businesses together, which fosters the kind of trust that allows for these gambits to be played again and again.

For later stage, pony-thirsty investors who get stuck holding the bag, the lure of monopoly profits is both powerful and plausible — after 40 years of antitrust neglect, monopolies are the kinds of things one can both attain and defend (think of Peter Thiel’s maxim, “competition is for losers,” or Warren Buffett’s terrifying priapisms induced by the mere thought of businesses with “wide, sustainable moats”).

In a world of Facebook and Google, dreaming of monopolies isn’t irrational — it’s aspirational.

VCs are ideally poised to play the Venture Predation gambit. They are risk-tolerant and need to cash out over short timescales. What’s more, VCs’ longstanding boasts of their ability to identify companies who have invented new, super-efficient ways to do boring things like “rent out office space” or “provide taxis” gives the pile-of-shit pony-pitch a plausible ring.

The Venture Predator gambit isn’t just a form of plute-on-plute violence in which billionaires fleece millionaires. Like any anticompetitive scam, Venture Predators are able to pick winners in the marketplace — rather than getting the taxi or the office rental service or the scooter that serves you best, you get the scammiest version.

Workers who are roped in by the scam also suffer — the authors raise the example of a cab driver who leases a car to drive for Uber, based on the early subsidies the company offered, only to find themselves unable to make payments once the bezzle ends and Uber starts clawing back the driver’s wages.

Then there’s the cost to society: during the decade-plus in which Uber was pissing away the Saudi royal family’s billions subsidizing rides, cities dismantled their public transit, even as residents made decisions about where to live and work based on the presumption that Uber was charging a fair, sustainable price for rides.

The authors propose a bunch of legislative fixes for this, but warn that none of them are likely to get through Congress or the Manne-pilled judiciary. But they do hold out hope for a proposed SEC rule “requiring large, private companies to make basic financial disclosures.” These disclosures would make it impossible for companies to pretend that they had built a better mousetrap when all they had was a bigger pile of shit.

Catch me on tour with Red Team Blues in Toronto, DC, Gaithersburg, Oxford, Hay, Manchester, Nottingham, London, and Berlin!

If you’d like an essay-formatted version of this post to read or share, here’s a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2023/05/19/fake-it-till-you-make-it/#millennial-lifestyle-subsidy

[Image ID: A giant pile of manure with a pony sticking out of it.]

Image: Eli Duke (modified) https://www.flickr.com/photos/elisfanclub/6834356283