The “Ubernomics” of ridesourcing: the myths and the reality

ABSTRACT

This paper looks at the economics of ridesourcing (or app-based ride-hailing) with a particular focus on the US. It brings together the rather dispersed literature on the subject focusing on the economic characteristics of the underlying industry and sets this within the broader context of transportation economics. In particular, it sorts out the realities of ridesourcing from some of myths that were perpetrated in its early days and, in many cases, still persist. It considers some of the empirical evidence that has emerged regarding the key parameters that determine the way Uber and the like operate, and the welfare implications of this, together with comments on some of the regulatory reactions to the new transportation platform. It concludes by suggesting some ways in which recent developments in economic could move forward our understanding of the industry as technologies and markets change.

KEYWORDS:

• Uber
• app-based ride-hailing
• two-sided markets
• disruptive innovations
• taxi services
• ridesourcing

Acknowledgements

I would thank to thank Hussam Bukhari, Kirby Garrett, Leslie McBride, Megan Nelson, William Rowland, and Connor Stemple, for their help in preparing this paper, and two referees for their extremely useful comments.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 “Uberization” is an oft-used neo-euphemism for the phenomenon.

2 Following Coase’s (1937) explanation of why firms trade with each other rather than manage all stages of production, this suggest that Uber consider the transactions costs of owning and managing their own fleets as exceeding those of buying in the services of others.

3 In this sense, the platform reduces the asymmetric information problem often found in markets (Akerlof, 1970). This occurs is when sellers have more information regarding a product than buyers leading to caution on the latter’s part to offer a high price. Market prices are this sub-optimally low. In the Uber case, both sides of the market are confronted with an externally set price.

4 A caveat is that during the period examined, the US economy was operating at less than full employment and younger workers may have had fewer alternatives available than is normal.

5 TNCs usually require their drivers to have car insurance, and some, such as Uber, provide supplemental coverage while the app is on. When the Uber app is off, a driver is covered by their own car insurance.

6 There are arguments that it is in Uber’s interests to do this and provide such things as details of drivers’ quality to gain potential rider’s confidence in the quality of service they will engage (Luca, 2017).

7 Komanduri1, Wafa, Proussaloglou, and Jacobs (2018) consider the implications of the absence of the large providers.

8 Jitneys, while once widely used in the US were effectively legislated out of the market (Eckert & Hilton, 1972).

9 This can also be looked in terms of coalition theory. The views of the dominant coalition of players with an interest in the cab-hailing market shifted.

10 The problem is not one confronting western TNC markets. Didi Chuxing, the Beijing-based TNC, reportedly lost $1.6 billion in 2018, according to the Chinese news site 36Kr obtained.