A while ago, I watched a documentary explaining how companies like Uber and AirBnB operate at the edges of what is acceptable in capitalism. In order to destroy the competition, they would undercharge (aka sell at a lower price than the producing price) for products and create a very loyal customer base. if they can do this for a six month period, their competition would then loose so many customers that they would be forced to quit.
As soon as the Uber and AirBnB companies own the market, they could then restore prices to a profitable level and in a few years time, return to profit. Ingenious of course, but not too good if you are part of the competition.
Drown out the competition
An New York pizza chef has now discovered how far this can go when he was notified that the Doordash app had added him, without his knowledge, as a possible restaurant for delivery. The sting is that Doordash sells his product for $16$ while he gets paid $24. In other words, for every pizza that he sells, Doordash actually loses $8.
The man decided to test how far the system could stretch and ordered 10 pizzas from his own restaurant via the app, having them delivered to a friend. He paid $160 for the products on the Doordash app, and the technology company paid him $240 in return.
It turned out to e be part of a ‘demand test’ by the Doordash app, where they try to find out if adding a certain restaurant to their app would be a good idea.
In any case, the economic model of food delivery platforms is still in the ‘drown out the competition’ phase as it appears that Doordash lost some $450 million out off $900 million in revenue in 2019.