Grab n' Go
Predatory Pricing
Back in the early 20th century, the US Justice Department utilized predatory pricing controls to break up monopolies like Standard Oil. The basic idea was if a large company used its size to push competitors out of a market by undercutting prices and hiked rates to recoup losses after gaining an unfair foothold, that was illegal. Losing money to crush competition was predatory. Simple as.
This illegal business model may sound familiar because literally every ‘growth’ tech company has employed or tried to employ it over the last couple decades. Amazon sold books at a loss and undercut retail stores for years to gain market dominance. Uber has lost over $28 billion dollars in its pursuit of rideshare dominance. WeWork set up shop next to competitor spaces and offered free rent to steal customers while losing billions. How did we go from ‘this is illegal’ to ‘this is in every pitch deck’ in a hundred years?
The VCs who made billions off these investments have the University of Chicago’s school of economics to thank. The notoriously conservative pro-capitalist institution spent the last fifty years arguing that predatory pricing was, in fact, not a thing:
Their head-spinning argument goes like this: Predators have a larger market share to begin with, so if they cut prices, they stand to lose much more money than their competitors. Meanwhile their prey can simply flee the market and return later, like protomammals sneaking back to the jungle after the velociraptors leave. Predatory companies could never recoup their losses, which meant predatory behaviors are irrational.
If you’ve studied economics at all, you may be familiar with the idea of rational and irrational actors in markets. The concept has been soundly debunked, but in the interim Chicago School adherents have infiltrated the halls of political and financial power in the country, and as long as they’re in charge, their rules apply. The judicial branch, all the way up to the Supreme Court, has bought what they’re selling:
And in 1993, in Brooke Group v. Brown & Williamson Tobacco Corp., the court said that to convict a company of predatory pricing, prosecutors had to show not only that the accused predators had cut prices below market rates but also that they had a "dangerous probability" of recouping their losses. That effectively shut down the government's ability to prosecute companies for predatory pricing.
The problem now is not how to win academic arguments about predatory pricing, it’s how to win court cases against the companies doing it, to shift the legal narrative. Two legal scholars present a new argument along those lines - predatory pricing should not be judged by whether the company engaging in it loses money, but by the investment returns of the VCs who funded said company.
The existing standard for whether a company is engaging in predatory pricing is whether it can expect to recoup its losses once it reaches market dominance. Basically, if the FTC or whoever could show that Uber would make $40 billion dollars once it eliminated taxis, that would be predatory. But no one is realistically claiming that, which makes you wonder why Uber’s stock is up 54% over the last six months, or why it continues to trade at all. Anyhow.
The paper our two intrepid lawyers drafted touches on the early investors in Uber, who put up millions to fund an innately unprofitable business model. Like these guys:
"The single most important fact in this paper is that Benchmark put $12 million into Uber and got $5.8 billion back," [Matt] Wansley says. "That's one of the best investments in history, and it was a predatory pricing."
Right, yes. Travis Kalanick made more than $2.5 billion dollars selling shares in a company that will never, ever recoup the tens of billions it’s lost. Ironically, the victims of Uber’s predatory pricing are not its customers, who’ve been the beneficiaries of money-losing, subsidized rides for the company’s entire existence. The people who invested in later rounds of Uber, or bought its stock after it went public are the ones left holding the bag. Early investors and founders used predatory pricing to make themselves billions of dollars, selling their shares before everything crumbles.
Whether or not the argument can convince a judicial system subservient to capital - when they aren’t being openly bribed by it - is an open question. But the framework Wansley and Weinstein put forward is helpful for understanding the source of insane wealth sloshing around the industries infected by the predatory VC growth business model. The next time some unfathomably rich talking head points to their credentials as an early investor in Uber, or Amazon, or WeWork, you can rightly dismiss them not as some business genius, but as an opportunistic grifter who took advantage of a lax legal system to flaunt the law and land an entirely unearned financial windfall. It won’t make you feel any better, but at least it’s the truth.
Hollywood
On the topic of predatory, unsustainable business practices, Hollywood moguls are facing down a two-pronged strike, as SAG-AFTRA has now joined the writers’ guild. Reaction from the upper echelons was swift:
Bob Iger, Disney’s CEO, called these expectations “just not realistic.” He accused the strikers of “adding to a set of challenges that this business is already facing that is quite frankly very disruptive and dangerous.”
This was a bit rich, coming days after a studio executive told Deadline that their strategy was “to allow things to drag on until union members start losing their apartments and losing their houses.”
Sure, these comments are ghastly and cruel, but have you spared a thought for the difficulties of being a media CEO these days? David Zaslav earned $247 million dollars in 2021, but he also got booed by some college students. Bob Iger had to fire a bunch of his beloved employees and withstand Fran Drescher’s criticism all while making $27 million a year.
The reality is - as we’ve discussed before! - media companies are not under threat from their workers, who are laughably underpaid in the streaming era, but from Wall Street analysts making their precious stock prices go down. Zaslav can’t net a quarter billy in a year without his generous stock grants, and each dollar off Warner Discovery’s share price endangers his profligate lifestyle as well as his tenure. CEOs don’t get fired because they treat their workers like shit - they get fired if investors lose enough money.
One major problem with the studio model - exacerbated by streaming - is that it’s essentially a short-term lending apparatus for creative endeavors:
Javier Grillo-Marxuach, executive producer of Netflix’s The Witcher, agrees. “Ultimately, a studio is little more than a bank. The writer goes in with a loan application (i.e., a script), and they decide if they want to spend $10 million making a pilot and $100 million making a show.”
In the olden days, the math was more simple. A studio might spend $100 million making a show, but it would run that show on network or cable television, selling ads against it, and recoup its money that way. It knew whether it had a hit, because a lot of people watched it, which meant it could sell more ads and make more money, et cetera. Somewhere in there, the directors and actors and writers got paid more too, which was nice for them.
Then Netflix realized it could leverage the predatory pricing tactics of its tech brethren and buy up a bunch of streaming rights for pennies on the dollar, load its service up with a bunch of older content, and pay to produce originals without handing over any pesky royalties. It worked, for awhile, and the company achieved market dominance. Then, because media executives are bankers first and foremost, everyone else tried to hop aboard the exploitation gravy train. Now, here we are, watching as some of the country’s most unpleasant rich people lecture us about the value of art, and pretend they can’t afford to pay writers and actors a few more percentage points out of their bloated profits.
The most annoying fact at the center of this argument was that for years Hollywood has been very profitable, mostly for the executives but also for writers and actors and showrunners and the actual artists who make the art we enjoy on our screens. We had a multi-decade run where being a TV writer or actor could be a career, albeit a grueling and often capricious one. Then, because the people in charge decided to emulate the model of a company that only achieved success because it ripped off all its competitors, everything got confusing and complicated and now we have twenty streaming services which all manage to suck in different ways and the very wealthy people in charge insist the best path forward is to force the artists to pay for their bad bets.
Section 340B
We spend a lot of time around here talking about the many ways opportunists find to exploit our country’s labyrinthine system of laws and regulations. Some are legal, some are not, but they often involve very large sums of money ending up in the accounts of companies who don’t really need them.
Let’s talk about 340B, a section of a 1992 law that granted hospitals and ‘grantees’ (other medical facilities) the ability to purchase prescription drugs at a large discount and be reimbursed by insurers, including Medicare and Medicaid, for the full price of the drugs.
If you’re scratching your head as to why hospitals and clinics would be allowed to buy prescription drugs at a discount and then be paid back in full for doing so, you’re not alone. The intent of the law was for hospitals to pass on those savings to patients - 340B was created with facilities serving the poor in mind. Obviously, because we live in America, that was not the case:
“The financial benefits of the 340B discounts are accruing almost entirely to hospitals, clinics, and physicians; and patients’ out-of-pocket costs and total cost of care are being increased,” concluded a 2013 article in JAMA by Rena Conti of Boston University and Peter Bach of Sloan Kettering.
So, sure, hospitals were making money on 340B, but it took independent clinics awhile to catch up. While hospitals have major overhead and often work on thin margins - another injustice we often discuss - smaller clinics, medical practices, and pharmacies saw an opportunity to price gouge:
But 10 years ago, clinic participation was just in its infancy. Recently, a study by Eleanor Blalock for the Berkeley Research Group found that grantees now account for $21 billion in reimbursements and the grantees’ profit margin is much higher than that of hospitals — an incredible 73 percent, compared with 25 percent to 50 percent for hospitals.
Around 70 percent of the funds being paid to these grantees comes from the government, because of course it does. Clinics who accept Medicare and Medicaid patients can prescribe them drugs, contract with out-of-town pharmacies to give them good deals, then get reimbursed by the government for the difference. What the program was meant to do - saving patients money - rarely happens because most patients aren’t aware it exists:
An IQVIA study last year found that using a “340B discount card” reduced patient out-of-pocket costs by 93 percent, but such cards were only used in just 1.4 percent of 340B claims.
This is a rare issue where pharma companies and patient advocacy groups are aligned - pharmaceutical manufacturers don’t like clinics and hospitals exploiting laws for steep discounts, and patient groups want the savings to end up where they were supposed to go, in the pockets of low income patients.
Just when you think you’ve uncovered all the ways our bloated health care system bleeds money from government programs intended to help the poor, you stumble across a new $65 billion dollar corporate welfare scheme.
Trump
One of Donald Trump’s favorite things to do is steal stuff. He’s currently under indictment for stealing a bunch of stuff from the White House, including top secret documents he showed to anyone who’d look at them. I am someone who believes the classification system in the government is both overly broad and used far too punitively, but regardless, it is funny to read transcripts of Trump boasting about all the items he took, or claiming he’s keeping them to write a memoir, or whatever. He just likes to steal stuff, and the more off-limits the better. It’s incredibly on brand for the guy who’s got many such uncontrollable tics, like giving out fake cufflinks.
A more interesting story than the documents probe is all the shit Trump stole from the White House that was given to him by foreign governments, because it is very dumb and funny in ways only Trump can manage:
The missing gifts include a "larger-than-life-sized" painting gifted to Trump by the president of El Salvador, and golf clubs from the prime minister of Japan valued at more than $7,200, the 15-page report said. A decorated box valued at $450 that was gifted to Jared Kushner, Trump's son-in-law and White House adviser, is also unaccounted for, the report said.
Back in March, a report estimated Trump had stolen one hundred and seventeen gifts he’d received over four years. He and his family were allowed to keep them, provided they pay fair market value, which obviously Trump was not going to do. Apparently, a thing that happens is when a president leaves office and doesn’t pay for the gifts, they get auctioned off to the public?
Many of the foreign gifts given to Trump or his family members are still in the possession of the GSA, National Archives and other federal agencies, according to the committee's report. Some were auctioned off to the public, and others were subsequently purchased by members of the Trump family, including a $24,000 Saudi dagger and a $13,500 vase that Kushner purchased.
Trump must have realized after the first couple years in office that reporting gifts meant he couldn’t just keep them, so the White House stopped reporting gifts entirely:
The White House reported some foreign gifts given to Trump, Kushner, first lady Melania Trump and Trump's daughter and White House adviser Ivanka Trump to the State Department from 2017 to 2019, but it did not report all of them, the report said. It disclosed only one gift to Kushner in 2020 and none for the rest of the Trump family.
Anyhow this is all very stupid but it lands us here, with this incredible story:
According to the Israeli newspaper Haaretz, “senior Israeli figures” have spent the past three years attempting to arrange for the return of a set of priceless antiquities that were lent to the White House for a 2019 Hannukah celebration.
The ancient articles at issue include a set of ceramic oil lamps, which Haaretz described as part of the Jewish state’s collection of national treasures.
He kept the ancient Hannukah lamps!! I love it. If Trump even realizes he still has said lamps, you can bet he is showing them to every low level grifter and jet ski dealer who frequents Mar-a-Lago. ‘These were a personal gift from Bibi,’ Trump would say. ‘People say these are the most ancient lamps, really special. They wanted me to have them, personally, for all the work I did on Middle East peace,’ he’d intone, as his Orthodox Jewish daughter and her husband nod like marionettes.
The good news is that if Trump is ever held accountable for his crimes and ordered to pay restitution, the government can seize all sorts of priceless treasures from his gold-plated Holiday Inn-ass mansion.
Short Cons
CNN - “Some of America’s largest tax-prep companies have spent years sharing Americans’ sensitive financial data with tech titans including Meta and Google in a potential violation of federal law — data that in some cases was misused for targeted advertising, according to a seven-month congressional investigation.”
ARS Technica - “Elon Musk, Larry Ellison, and other current and former Tesla board members agreed to return over $735 million to settle a shareholder lawsuit that alleged Tesla directors "grossly" overpaid themselves.”
The City NYC - “This crew of speculators nab properties in gentrifying Black and Latino neighborhoods, where many homes are ripe for the taking because their original owners died without wills, leaving a network of dispersed inheritors who may not know the value of their partial shares.”
Click Orlando - “Farmers said that only Farmers-branded insurance products are being ended in Florida, which account for roughly 100,000 auto, home and umbrella policies.”
Bloomberg - “The Israel Defense Forces have started using artificial intelligence to select targets for air strikes and organize wartime logistics as tensions escalate in the occupied territories and with arch-rival Iran.”
Guardian - “Workers in the US have an estimated $50bn-plus stolen from them every year, according to the Economic Policy Institute, surpassing all robberies, burglaries and motor vehicle thefts combined. The majority of these stolen wages are never recovered by workers.”
ProPublica - “The ad featuring the Winfrey image and quote ran on the conservative website DC Swamp Tales. It directed readers to a webpage that resembled a news article. The text spun a narrative about a television interviewer who unfairly berated Winfrey for promoting a revolutionary product that could “reverse Dementia instantly & for good.””
Stanford Daily - “Stanford President Marc Tessier-Lavigne will resign effective Aug. 31 according to communications released by the University Wednesday morning. He will also retract or issue lengthy corrections to five widely cited papers for which he was principal author after a Stanford-sponsored investigation found “manipulation of research data.””
WaPo - “So far, many of the influencers who have publicly revealed that they’re part of the program are prominent figures on the right. Andrew Tate, for example, who was recently released from jail on rape and human trafficking charges, posted that he’d been paid over $20,000 by Twitter.”
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