The majority of people have used an app called Uber, whether it is to get a ride home after being out with friends, a ride from the airport, or even to bring food to their business or home. Uber has grown tremendously since the inception of the company in 2009. The goal of this company is to be worldwide. The idea was created by founders and former CEOs Travis Kalanick and Garrett Camp when traveling in Paris.
Travis and Garrett probably did not realize what they were creating or how much this business would grow while sitting in the Paris hotel room when they could not get a cab (The History Of Uber, n.d.). The company’s mission is to bring transportation to everyone, everywhere. Uber, shortened from UberCab shortly after the company started, would be considered an oligopoly. There is competition with cab companies and another similar company called Lyft, but Uber is more than just a cab company.
Uber has multiple created multiple different businesses within this startup, including Uber Eats, Uber Rush, and Uber for Business. With the recent change of CEO’s in the company, the move to expand the company into additional cities internationally will give Uber an additional advantage to other US only companies, as well as provide another option for customers in other countries.
Uber is a transportation network company that is a part of the market where there are only a few participants, and so it has an oligarchical market structure. The main competitors consist of taxi services, and ride shares like Lyft, Curb, Didi Chuxing, Grab, and Ola. Curb and Lyft are U.S based companies. Didi Chuxing is a ride share service out of China. Grab is operated in South East Asia and Ola hales from India.
The barriers to entry include government regulations that govern the transportation industry. Uber has tried to get around many regulations for instance by not employing their drivers but considering them “their own boss”. Many, like those at the National Employment Law Project (NELP), see the strategies that Uber is using to “buy, bully, and bamboozle” to deregulate the industry. The NELP states in a report on Uber that in Oregon and Ohio Uber either wrote or co-wrote the legislation that is now being used in several other states (Smith, Borkholder, Montgomery, & Chen, 2018, p. 6).
Comparative Advantages and International Trade Opportunities
Did Chuxing, Ola, Grab, and Lyft have joined forces to be an “international effort” against Uber (Johnson, 2017)? Uber can reduce the market power of competing services like taxis. They do not employ drivers and therefore have considerable cost benefits associated with not paying for things like employment taxes, and workers compensation.
Their drivers pay a fee to use the platform that they have created. Uber had long argued that it is simply a tech company. Although, Federal Judge Edward Chen said, ‘Uber is no more a ‘technology company’ than Yellow Cab is a ‘technology company’ because it uses CB radios to dispatch taxi cabs” (Smith, Borkholder, Montgomery, & Chen, 2018, p. 30). Also, the drivers do not need taxi medallions and there are no commercial costs for cars. This gives Uber a price advantage.
Uber has had a comparative advantage and been able to do well in the regulation department. While other transportation entities have guidelines to follow Uber has been able to break into the industry with little interference. This may not last for long though. Nonprofit organizations like NELP have their sights set on Uber and the employment practices they do not agree with. Uber has run into trouble with Morocco, Denmark, London, Jordan and Hong Kong (Chism, 2018, para. 7) regarding new regulations requirements. With stiff fines, their profits may be eaten up if they are found guilty of breaking transportation regulations.
While Uber is known to have a large backing of lobbyists to fight its cause, with so many competitors in the market, they may not have a comparative advantage. Uber’s ride shares services do tend to focus in on the less densely populated areas, and according to Tanay Warerkar, in an article about Uber, they are giving those in “transit-starved neighborhoods” a chance to reap the benefits (Warerkar, 2017). This is where they may gain an upper hand if they are able to keep their customers and drivers happy while offering services where there generally are none.
Supply and Demand Analysis
Supply and Demand for Uber will mostly depend on things like the weather or price surges. Depending on how in-depth an Uber driver wants to get with his services, there can be a lot more supply than demand. For instance, some drivers like to provide drinks, snacks and sometimes even get out to open doors for their riders.
So, if these weekly expenses add up and there is a shift in demand then chances are the driver will have more supply than demand. Uber’s intent is to maximize the number of rides and drivers it can provide regardless of any manufactured or natural event that might hinder traditional forms of transportation from satisfying customers. (G2 Crowd, 2018) Uber has a supply and demand strategy that is not really advertised as much, but it is known if you research it.
Uber does what they call “Surge Pricing”, this pricing is a way to increase pricing in areas that are in a higher demand. Now this strategy can seem unfair, or that Uber is trying to take advantage of popular areas, but Uber does disclose this information beforehand, and the riders do have a chance to decline using Uber during these timeframes.
Surge prices are calculated very often so that way they are fair. With the surge pricing comes more drivers because it’s obvious they want to make money during these peak times. The empire that Uber has created is growing fast, and the supply and demand will always be back and forth. However, one thing is certain and that is the convenience that Uber provides and that the days of hailing cabs on the side of the road is ending.
Price Elasticity of Demand
As we spoke about before, Uber uses a price surge, and even though most customers are quite sensitive to this technique it seems most still use it. “Just like traditional economics would predict, as you raise the price, surge-pricing starts to reduce demand. When you go from 1x, meaning no surge, to 1.2x, you see a very large drop in demand. When Uber first started using surge pricing, going from 1x to 1.2x would result in 27 percentage points drop in people who would request Uber services” (Dutton, 2016)
Essentially, Uber is offering their prices in real time data which is not something most businesses can offer in this day and time. With that customers can also involve their mobile devices to use another service like Lyft, but it ultimately comes down to who can get there the quickest. Just think about it, if it’s the end of the night and you are ready to go home and it’s raining, and your battery is low on your phone. You’re most likely going to take the first ride that can get to you no matter the cost.
Another great factor to consider is the demand curve with Uber’s app, not only can they find where the hot spots are, they can also factor where the most declined rides are and maybe use that data to create more demand in those areas. Bottom line here, the law of demand is always evident, the demand for a service is always going to drive any price changes. The best thing Uber has going for them is they know what that demand is instantly and that is a huge advantage to any business.
Technology, Productivity and Cost Structure
Nearly everyone has a smartphone today. Technology such as smartphone applications has increased the company’s ability to increase their business. According to David Kish, the technology used by Uber could be easily duplicated by a current driver, but the adoption of a new brand is what has kept Uber on top with the company valued at over $62 Billion (Kish, 2016, pp. par 4-6). Uber’s productivity truly depends on where the drivers and customers are located. There seems to be greater productivity in areas that are less populated and are less likely to have a major public transit system or taxi service.
With that being said, it is much easier to utilize an app to find a ride than calling a taxi company. Uber has eliminated the need for additional employees by not requiring human dispatchers that are currently required for taxi companies, meaning there are fewer employees for Uber, which enables the cost of business to be lower. As stated before, Uber uses price surges and although since this has been enforced, there is a decrease in riders during this time, it has not hurt the business enough to change the cost structure.
According to Uber’s website, there are reportedly 3 million drivers with over 75 million riders worldwide and 15 million trips on a daily basis. In 2017, Uber reported 4 billion trips were made. Uber has reported 16,000 employees to work for the company at the end of 2017.
They have offices both domestically and internationally with their headquarters located in San Francisco and major offices in New York City, Chicago, Washington D.C., Seattle, and Los Angeles in the United States and London, Sao Paulo, Mexico City, and Amsterdam, internationally. Uber is operating in 65 countries and over 600 cities worldwide (The History Of Uber, n.d.).
Uber has become a household name known by nearly everyone in the world. Uber is currently operating in over 600 cities worldwide and although they have to operate according to each country’s government regulations, their ability to add drivers in new countries and cities as possible. With the announcement of new leadership and a new CEO, there are even more possibilities for Uber to add additional business worldwide.
Uber is currently operating as a taxi service for personal, business and medical transportation. Uber Eats has also made it possible for customers to get the delivery of meals from their favorite restaurants. Uber Freight that allows trucking companies and drivers to shippers (The History Of Uber, n.d.). This allows companies to choose loads and they are able to see pricing before accepting the job.
Uber has essentially changed the way that we live our lives. From an economic standpoint, there is room for improvement, but the structure of the company has been proven, and the demand for Uber is continuing to grow.
- Chism, Z. (2018, March 19). Uber Parks its Service in Morocco. (U.S. News & World Report) Retrieved from Civic: https://www.usnews.com/news/best-countries/articles/2018-03-19/uber-faces-new-challenges-across-global-markets
- Dutton, S. (2016, June 2016). The Uber Effect: What Happens When Big Data Makes Price Elasticity Transparent. Retrieved from Digitalist Mag: https://www.digitalistmag.com/customer-experience/2016/06/07/uber-effect-big-data-makes-price-elasticity-transparent-04255486
- G2 Crowd. (2018). Uber’s Supply and Demand Pricing Model. Retrieved from G2 Crowd: https://learn.g2crowd.com/uber-supply-demand
- Johnson, M. (2017, October 17). Who Are Uber’s Biggest Competitors? Nasdaq. Retrieved August 28, 2018, from https://www.nasdaq.com/article/who-are-ubers-biggest-competitors-cm860923
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- Smith, R., Borkholder, J., Montgomery, M., & Chen, M. (2018). Uber State Interference: How TNC’s Buy, Bully, and Bamboozle Their Way To Deregulation. National Employment Law Project & Partnership for Working Families. Retrieved from https://s27147.pcdn.co/wp-content/uploads/Uber-State-Interference-How-Transportation-Network-Companies-Buy-Bully-Bamboozle-Their-Way-to-Deregulation.pdf
- The History Of Uber. (n.d.). Retrieved from Uber.com: https://www.uber.com/newsroom/history/
- Warerkar, T. (2017, 10 13). Uber surpasses yellow cabs in average daily ridership in NYC: For the first time ever, Uber has topped the city’s yellow cabs in daily ridership figures. Curbed. Retrieved from https://ny-curbed-com.cdn.ampproject.org/v/s/ny.curbed.com/platform/amp/2017/10/13/16468716/uber-yellow-cab-nyc-surpass-ridership?amp_js_v=0.1&usqp=mq331AQGCAEoATgA#origin=https%3A%2F%2Fwww.google.com&prerenderSize=1&visibilityState=visible&paddingTop=54&