@GwartyGwart ↔ @yasu0x1 ↔ @galinhacio conversation

This is all true but I would just point out that in basically all of the examples below, the end state of these markets is not materially cheaper or more efficient for consumers, or at least it’s not obvious this is true.

A recent example is prediction markets. I actually thought that “peer to peer” betting would or could be much cheaper for participants. The prediction markets definitely shilled this narrative. Vegas sets lines to make ~10% in expectation. My (admittedly naive) thinking was, ok well if *anyone* can now make markets, someone will come in and do that for 5% or maybe even 1% or whatever. Surely they would be more liquid as well. In reality, the cost to trade sports (the biggest markets btw) now on PM and Kalshi is getting very close to this 10% rake we see on sportsbooks. It took roughly 2 years to be back at sportsbook prices

More examples:

-remember $10 Uber rides? Most Ubers now seem to cost about the same as a taxi. The cost did not *come down* to have someone drive you around, it became maybe marginally more convenient but certainly not an order of magnitude cheaper

-AirBnBs are now either as expensive as hotels or they are annoying enough to deal with that you realize why hotel rooms cost what they cost. you may be able to get an Airbnb in a city for $100 where a comparable hotel room is $150, but you will have to deep clean the shower, take the trash out, wash the sheets and then maybe leave out milk and cookies for the people who clean after you just cleaned.

The thing about regulatory arbitrage is that there’s very often no real gains or actual innovation occurring. And, because a lot of these companies are VC funded / have big marketing and ~incentive~ budgets, the market is distorted in the beginning: $10 subsidized Uber rides do not persist because that is not actually the market clearing price.

There is some lower bound on cost to
1. Have a vehicle that requires maintenance and insurance and ongoing opex (fuel / inspections / whatever)
2. The value of someone’s labor to drive you around

This applies in some capacity to almost all of these reg arbs. Maybe someone just will not quote both sides of a sports market for much less than 10% 🤷‍♀️. It’s probably just not worth it let someone stay in your vacant condo for the night for $25. Compare Uber to something like Waymo that is a *real* technological change, this is what is typically needed for orders of magnitude cheaper products or services. (Not saying this is a certainty, there are tons of bullshit regulations that will crop up with FSD that themselves will need to be arbed)

In almost all the examples we think of, incumbents are supplanted by new incumbents and the idea of “consumer surplus” does not really come into fruition. This requires real innovation and real progress because eventually with enough demand and public support, they just make all this stuff legal, there’s no regulation to arb. The only real takeaway from building a business on this premise is that you really want to be the winner because then you become the incumbent and you have pricing power (and new regs that provide a new moat) and can just go back to charging what the previous incumbent charged

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Kalshi has criminal fees though