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[thetiffanyle-blog]

What’s Behind Uber?

Tiffany Le #35508094 Jenny Li #19966150

Background

Uber is a service that competes with taxi cabs that can conveniently be ordered through a smartphone app. It is a huge part of the population's daily lives. The supply and demand for the service have gone up tremendously. My partner Jenny used Uber going the same distance, but at different times, so the price fluctuates.

Jenny uses Uber to go home every weekend, and depending on what time of day it is, the prices change. The day after President’s day, she left during rush hour, so the price was a lot higher than usual. Surge pricing took hold since there were so many clients. When Jenny left on a regular Monday morning at an earlier time, there was less of a demand for users, and thus the price was much cheaper than when pricing was surged.

High Price vs Long waiting time

When taking an Uber, consumers face trade-offs. Depending on the need for Uber, people either wait until prices drop or pay the high fare. On 2/20/18, Jenny faced a trade off of being late to class by waiting out until price decreased or being charged the higher fare but getting to school on time.

Incentives 

Drivers respond to incentives as more drivers are willing to offer the service when they get paid a higher amount. In free market, suppliers are willing to produce more when the price increases. This references the The Law of Supply, the fundamental principle of economic theory.

 Markets

Markets are usually a good way to organize economic activities. Uber is a free market since it is a technology company that is not subjected to any price control regulation. Price is part of a communication between producers and consumers; it is determined by both of them in a free market.

Supply Shortage/Over Demand

When demand is high, the price goes up, which leads to increase in supplies. Meanwhile, the increased price leads to falling demand. However, when the demand goes down, the price drops.

Competition

At the moment, Uber, Lyft, and Taxis are in an oligopolistic market, a limited number of firms that take control of the whole market. As a result, Taxies and Lyft are competing against Uber for consumers. During prime time, Uber and Lyft compete for consumers and the price change of one company will affect the whole market.  

Conclusion

The reason why Uber wait times are short is because surge pricing matches supply and demand at different circumstances, thus resulting in the increases of economic efficiency in two ways: providing an incentive for drivers to start driving and when there is a driver storage, the raising price decreases demand, eliminating the customers who rather wait until the price falls than customers who are in urgent need of one Uber.

Extension

1. Hotels, airlines, and car rental services also fluctuate prices at different times, especially during holidays.

2. A quote from the book states, “If Adam Smith was alive today, he would surely have the Uber app on his phone.”