They buy out all these established places and jack up the prices
Is the theory here that the previous owners were altruistically pricing below what the market would bear?
They buy out all these established places and jack up the prices
Is the theory here that the previous owners were altruistically pricing below what the market would bear?
I think the theory is that they buy up a significant portion of the market, i.e. consolidate lots of independents. Then they raise prices in concert, and take advantage of reduced competition.
Wouldn't that create a good opportunity for people to start new pet cares, and undercut the presumably overprized PE-consolidated chains? Pet care doesn't seem to be highly regulated or have other high barriers to entry AFAIK.
Barrier to entry is high, is pretty capital intensive to setup a large enough childcare facility that takes appropriate advantage of child staffing minimums.
PE seems to do well in industries where consumer choice has a good amount of inertia, where it's a pain in the ass to change providers - anything that's at least partially trust and reputation based and where people order to lock in a choice and sit on it.
Basically, they're liquidating built up customer goodwill.
> Is the theory here that the previous owners were altruistically pricing below what the market would bear?
As someone who has done research on pricing in a range of sectors, it’s usually some form of ignorance rather than altruism.
In case you think I’m just picking on child care providers, I will provide an additional example — non-VC SaaS services were often wildly mispriced/underpriced until the “charge more” mantra became more widespread (thank you, patio11).
Concerns about reputation, too, as well as general friction. I used to do the menus for my dad's restaurant, which was always a big hassle first of all with the typesetting and going to the printers and everything, and then also it was such a struggle to get him to go up on prices. He'd just rather undercharge a little bit and make less money than be known as the guy in town who sold the "expensive" burgers.
PE buys all these businesses out (there's demand, and its rising), and they close most of them to consolidate into cold, brutal buildings.
PE did this with medical providers. When I was a child family doctors were a thing (btw, 2000s). I saw in my area that a lot of the small practices were bought out, and now there are medical "campuses" which have like dozens of different providers. I was talking to my dentist about this and she explained it to me that way so unless she's lying idk what to say.
I'm starting to think "altruistic pricing" is a skewed framing to begin with. The implication that not maxing out every trick in the book to find the highest price the market will "bear" is a loss.
That "slack", where people provide better goods and services, for a lower price than the market could theoretically bear, is the very definition of Having Nice Things.
The implied "optimal" price discovery is a highly adversarial process - derived from an every-growing playbook of price discrimination tactics, deceptive marketing, high-pressure sales tactics, exploitation of intertia and other external overheads, covert cuts to the quality being provided, etc, etc.
Such pricing is both a symptom and cause for "low trust society" behaviors. The increasing ubiquity of those "efficient" pricing strategies may very well have amounted to a covert pillaging of the commons.
"altrustic pricing" is also skewed because monopolies and competitive markets have different economically correct prices.
When you have a monopoly you want to supply less at a higher price because it's more profit overall. See chart under "Monopoly Price and Profit" [1]. Layman way to think about this is doubling your price more than doubles your profit (per unit sold) and when you have no competition might not even drop your sales in half.
[1]: https://socialsci.libretexts.org/Bookshelves/Economics/Econo...