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Comment by sliverstorm | Hacker News Reader

Yeah, AirBnB basically seems to be an exercise in converting externalities into profit.

Much of what we consider to be profitable, high-growth business is about taking advantage of market failures. E.g. the advertising industry that bankrolls the internet is basically about taking advantage of cognitive biases to get people to make irrational purchasing decisions. Part of the success of e-commerce is due to the heroic efforts of UPS, etc, in reducing the cost of shipping over the years to make e-tailing cheaper than brick and mortar retailing, but a big part is also arbitraging on state sales tax laws.

This is not a moral judgment (I'm too old to make moral judgments). Fact is that purely competitive markets suck because there is no money in them (there's no high growth startups in the dairy industry, even with extensive government subsidies to offset the effects of vicious competition). A good fraction of the opportunities to make money are based on things like arbitraging regulations or exploiting market failures. Much of the rest involves focusing on markets with little competition (either because it's new or because others don't have the skills to target them), but I think people underestimate how much activity is in the former bucket. E.g. with AirBnB: are they in business because nobody thought to do what they're doing before, or because people thought about it before but realized it was illegal?

http://www.businessinsider.com/the-success-story-of-chobani-...

But maybe that is the exception that proves the rule. Or maybe you didn't mean dairy products.

Chobani is unusual in that it brought a different product to the market that was objectively better. There are other new players in the dairy industry, but a lot of that action is applying lifestyle marketing to food products (e.g. getting people to pay more for trendy food when they could get the same food for much less without the lifestyle brand). Think about stuff like flavored water--a product that couldn't get more fungible that exists because marketing makes it seem non-fungible.

Looking at my comment, the last bit looks sarcastic. I actually meant that I thought you might be thinking more of milk production and less about processed diary.

Anyway, I'm not sure 5 of them would really weaken the point you were making.

Agree. it has been argued that the whole financial industry is indirectly subsidized by the government for being too big to fail.

Elon states that many forbes list billionaires receive huge amounts of profit from the subsidies (oil, agriculture)

Yes, finance is heavily subsidized, but so are many other major industries. The tech industry is also heavily subsidized, by design, and is indeed one of the original recipients of such subsidies. Many of the land-grant universities founded in the 1800's were specifically designed to train engineers to go into what was the high-tech industries of the time. Crossing the line from providing people a general education to specifically training people with the skills relevant to a particular industry and thereby reducing that industry's training costs is a form of subsidy, one that continues to this day.

Converting externalities into profit isn't necessarily taking advantage of market failures. It may just be _creating_ market failure and taking advantage of them.

Let's say all of the restaurants in your neighborhood have to charge extra because of the cost of commercial garbage service. And you start selling food cheaper, because you're putting your garbage into the household trash and passing on the savings. Yes, that's a business, but it's basically just breaking the rules and passing some of the savings on to customers.

"Taking advantage of the difficulty of contract and regulatory enforcement" finds an equilibrium at some really sour places.

That might be true if your worldview started and ended at the edge of NYC. For the rest of us, AirBnB is used across the country in suburbs and less populous cities.

If you have a two family house and "air out" the second apartment, how exactly is that converting externalities into profit?

I'm not sure a densely populated city should really make any objections to externalities.

There are still a lot of externalities that people are cutting corners on, even in the suburbs: proper insurance (by not declaring that you're acting as a hotel), tax (by not declaring airbnb income on your income tax), safety regulations (fire extinguishers, smoke alarms, floor plans etc).

Not that all these laws make sense for airbnb, but by not respecting them you're "unfairly" undercutting hotels.

That would only apply to specific airbnb stays which cause negative externalities like discomfort to other apartment residents. Do you really think that this is a measurable problem?

I don't. I think that hotels are just pissed because airbnb provides a fairly thin layer of technology that allows property owners and renters to use their property more efficiently (by having it occupied more often) and therefore threatens the very core of their business.

It's the same story with taxi drivers opposing ridesharing services. Does anyone really think that taxi drivers are mad because they're worried that these new services will provide a less safe or comfortable experience to passengers, which is supposedly the point of taxi regulations? Nope. I think they're mad because ridesharing services allow more efficient use of automobiles and therefore threaten the very core of the taxi industry. Any bets on what taxi drivers will think about Google's automated cars when they start offering shuttles for hire?

If we want to talk about externalities, we should at least recognize the possibility (and, I dare say, the near certainty) that many government regulations themselves have considerable negative externalities.

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