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Comment by harryh | Hacker News Reader

I can imagine that running a taxi company might be a lot like running an airline (a notoriously money losing business). Four out of five of Porter's five forces are working against you:

  - relatively easy for new entrants to enter the market
  - lots of consumer substitutes
  - lots of customer buying power
  - lots of competition

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Historically, the market was regulated to prevent new entrants from entering the market and preventing competition. In NYC, this was a hard limit on the number of taxis with every taxi requiring a medallion. In suburban towns, taxi companies typically need to be licensed by the town and some towns have limited the number of companies or total taxis.

Uber really disrupted that as it rolled out across the US and other countries by basically rolling out illegally and then getting customer support to change laws.

This is the conundrum of creating a better marketplace. An optimal market has 0 profit opportunities. In order to make money the market must be flawed in some way. Luckily in the real world perfect markets don't exist, but in certain sectors technology has made life difficult for people who had previously had a solid reliable income with the old inefficient system.

"An optimal market has 0 profit opportunities"

That doesn't quite right to me. A market with the smallest profit opportunity of a selection (say worse that government bonds) wouldn't see investment to correct that inefficiency. Zero may be 'best' case, practically speaking though no one's going to arbitrage an opportunity, that's less than the opportunity cost.

So it seems to me the optimal market would a profit opportunity somewhere between being the 2nd best profit opportunity and zero profit opportunity, depending what you set the opportunity cost at.

In a perfect market the profit opportunity asymptotically approaches 0.

But a perfect market is a mathematical model, not something that you would see in real life. As you note some entrant is not going to jump into a market and undercut the competition by 1 cent (from 2 cents) and immediately capture all of the market share.

But this does illustrate the dangers of making a more efficient marketplace if your goal is to make profit.

That's rediculous. If a market with 0 profit opportunities exists them time is frozen and all future innovation is impossible. It means that every possible inefficiency of every single person working has been removed. Humans are never perfect beings, and usually far from it, so there is always opportunity for more efficiency. Also the goalpoint is constantly moving as more technology is created to replace older ideas.

If we ever reach a so called "optimal market" as you describe it then GDP growth will also stop, as will personal income growth and all manner of things..

Historically things like medallions were pretty strong barriers to new entrants in some markets. But, yeah, today not nearly the same degree.

I imagine cab companies are in roughly the same position as people who own a bunch of fast food franchises. The owners can earn a reasonable living but it's mostly not the sort of income stream that people in Silicon Valley dream about.

Is it easy for new entrants though? And is there competition?

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