
Uber Cuts Fares in 48 Cities, Raising Some Concern Among Drivers - pallian
http://bits.blogs.nytimes.com/2015/01/09/uber-cuts-fares-in-48-cities-raising-some-concern-among-drivers/?_r=1
======
golemotron
There is nothing that prevents Uber/Lyft from being a race to the bottom re
driver revenue. I think that should've been obvious to anyone looking at the
model from the beginning.

One of the first questions is to ask about a business is whether there are any
barriers to competition. In the case of Uber or Lyft, they have network
effects but the drivers themselves have no barrier.

Years ago some Subway franchisees sued Subway because they were selling
franchises right across the street from existing franchises. Same issue. There
will always be more drivers, Uber/Lyft control the rate, so no limit to how
far drivers can be squeezed.

~~~
freehunter
But one of the biggest complaints about taxis is the artificial scarcity of
medallions driving up prices. How would Uber creating an artificial scarcity
of drivers (to drive up prices) be any different?

~~~
unreal37
I once talked to a taxi driver (who didn't own the medallion), who said he
paid the owner $1,500 per month to drive for him. Plus the cost of his car,
gas, and high insurance. He had to earn $3,000 per month just to break even.

Taxi drivers never made a lot of money, even in the old system. But at least
the system protected them to a degree by limiting competition. Now there is no
protection. It's a free market. Anyone with a Toyota Yaris can fire up Uber-X
and compete during the busy couple of hours of the night. It will be a race to
the bottom for driver incomes, for sure.

~~~
greggyb
Except in the Uber/Lyft scenario, we see no $1500/month deadweight loss going
to an economic rent.

There's also no reason to presuppose that personal transportation _SHOULD_
provide a livelihood. The goal of companies like Uber/Lyft is to take
advantage of the currently wasted extra carrying capacity in personal
vehicles. There's no reason to expect a priori that the value of extra
capacity is enough to provide an income.

The goal of these companies is to provide cheaper transportation to those
without cars, not to provide a living for those with cars. If less money
overall is spent on transportation (which is >90% means to an end, excepting
joyriding and competition), which is the case when currently excess capacity
is utilized, and consumers also spend less (and consequently capital tied up
in personal vehicles), then more capital and income is available for other
goods and services.

Obviously, any major paradigm shift in the provision of a good or service will
cause some level of upset for those accustomed to the current paradigm, but
that does not make the shift a negative one. Further, attempts to ease the
transition only draw out the period where we operate in a lossy manner.

In another manner of speaking, when I heard of Uber and Lyft, I did not think
that I could quit my day job since I have a car, nor would I have decided to
go buy a car if I didn't have one for the purpose of earning income. I did
think that they could be a valuable way to defray a portion of my already sunk
cost of owning a vehicle. If I hadn't owned a vehicle, these services may have
lowered the marginal cost of acquiring a vehicle enough that I could now
reasonably afford one.

In both of the above lines of reasoning (currently owning or deciding to
purchase), they are not a means of supporting myself, but a means of sharing
some of my costs with others who are willing to pay. A car still costs money,
but by renting space in it, I can lower the cost.

Think of it more akin to AirBnB - if I own an apartment with an extra room, I
don't expect to pay my whole rent with AirBnB-ing out the extra room, but I
certainly expect to pay part of my rent out of it. The only difference is that
Uber/Lyft rent room in a car.

~~~
unreal37
I don't disagree with you. There's no inherent "right" to earn a living as a
taxi driver. A driver chooses to enter that "market" with their service,
knowing how it works in advance.

But the $1500 rent real taxis pay to medallion holders is now going to Uber.
This disruption really just replaced one middleman with another and switched
to a per-ride model instead of flat rate monthly.

The increased insurance cost (I heard it was double normal insurance rates)
will go away, since most people will not tell their insurance companies they
are using their car for business. That means insurance rates will go up for
all of us over time as accident and claim rates go up.

All I'm saying, I guess, is it will clearly lead to a reduction in driver
incomes overall. I can't see how this business model can lead to them making
more. The average wage will be below minimum wage, because how can it not be?

~~~
greggyb
First, I'm going to use the term "taxi service" below and I'd like to clarify
that I mean this in a very general sense - paid transportation in vehicle
classes that would normally be used for private transport, whether provided by
a firm or individual, and facilitated by any means. I don't think we disagree
based on the tone of your post, but this is for other potential readers.
Please let me know if you do disagree.

In this case taxi service need not be supplied by full-time taxi drivers,
which is a central point to most of my thinking on this matter. Taxi service
can be provided in any quantity (subject to the limits of time and space,
obviously) by any individual with a car. A person may provide taxi service
once in their life or dozens of times a day.

Second, I will refer to Uber below for simplicity, but I intend my argument to
apply to all similar services that exist (Lyft so far as I know) and may come
into existence as competitors.

In the status quo the number of medallions is a rough approximation of the
limit of taxi services. I think we can agree that the current number of
medallions currently limits the supply of taxi services (the supply curve is
shifting toward the origin because cost of entry is higher than in the
complete absence of medallions or equivalents), and therefore raises the
equilibrium price of taxi services. Currently the medallion represents an
economic rent (regardless of who owns the medallion a rent is being
collected).

In the future state (this is a very general future state - anything where the
current limit imposed by medallions is weakened or removed entirely and at
least some of the rent that exists in the status quo is transformed into
revenue for Uber) the situation is improved. The revenue collected by Uber is
not an economic rent, but rather a transactional cost.

First, the cost structure is different - a transactional cost is marginal,
whereas the medallion rent (this is specific to a medallion, not all economic
rents in general) is either not marginal or marginal at a much coarser
granularity. If I rent a medallion on a monthly basis, then I am deciding
whether it is worth it to me to drive a taxi for another month. With a
transactional cost, I decide whether it is worth it to me to provide one more
trip of taxi service. This allows someone who might just pick up people on
their normal commute (this is just an example that I find easy to discuss, not
the entire basis of my argument) to provide taxi service. Right here we see an
increase in supply of taxi services. Our first order analysis should lead us
to expect that this increased supply should lead to downward pressure on the
cost of taxi service.

Second, the transactional cost is incurred by a competitive firm (currently
one competitor in Lyft (that I know of), but even nonexistent competitors can
provide pressure[0]). If a competitor can provide a similar service to Uber
(matching willing drivers to willing passengers) at a lower cost, then the
transactional cost will be driven downward and since there is clear
competition in this case among drivers, the cost to end users will ultimately
be driven down[1]. In this case, even if we accept your equivalence of Uber's
profits and the current economic rent of medallions (note: I do not accept
this equivalence, which I think the rest of my post makes clear) the $/ride of
this money will decrease, resulting in a net gain.

I have not yet addressed your points about insurance, but first I would like
to conclude my current line of reasoning by addressing your fourth paragraph.

You discuss driver incomes and wages, with a comparison to minimum wage. I do
not believe the connotation of these terms is in alignment with what is made
possible by the service Uber offers in matching casual drivers with occupants.
I believe the innovation of Uber is just a re-realization (with some obvious
improvements) of the jitney service of the early 1900s. I discuss this concept
in more detail in another post[2] with a link to a very interesting history of
the trend[3]. In brief summary, ride-sharing is a distributed casual endeavor.
A useful metaphor may be Folding@Home - a service that utilizes excess
capacity of capital with a significant sunk cost component. I do not think it
is accurate to talk about someone's income or wage for something that is not
their job. It is not strictly false to do so, since the terms are technically
general, but they carry the connotation of employment and I do not think we
face a model of employment. We don't talk about someone's wage when they host
AirBnB guests. We do not talk about the average person's Craigslist furniture
income. My position is that we should view ride-share as analogous to these
two examples, rather than as analogous to the current status quo of taxi
driver as occupation.

Finally, with regards to insurance, Uber provides insurance to its drivers
which is primary to their personal auto insurance[4]. I do not believe your
statements regarding insurance are factual or I am misunderstanding your
reasoning. I would also like to understand why you expect accident rates and
insurance claims to increase. I can think of numerous lines of reasoning, but
I'd like to understand yours.

[0] Pressure from potential entrants can force a firm to act as if it had
competitors. This idea is not strictly necessary for my argument, so I have
removed its exposition. Even if you do not accept this line of reasoning my
argument stands since there is no clear monopoly in providing services similar
to Uber. So long as a competitor may enter a market, an incumbent firm faces
competitive pressure. To wit, if Uber were the only firm in the market, there
is currently no large barrier preventing a competitor from creating a similar
service and offering a lower price. (There are costs to entry which provide
some barrier, but cost of entry does not prevent all competition - there is a
nuance that I'll not delve into here about capturing monopoly rents in
proportion to the natural cost of entry to the market - it alters but does not
destroy the line of reasoning presented.) If Uber wishes to maintain its
singular position in market, it cannot sustain monopoly pricing. To do so, it
would have to restrict its own supply to raise prices. Since prices would be
above equilibrium, competitors would have incentive to enter the market an
collect a portion of that monopoly rent. Upon entry of a competitor, we
naturally see competitive behavior. If Uber wishes to maintain its singular
market position, it must act as if it has competitors, else it will gain
competitors. This process would keep prices in line. Monopoly rents are only
regularly collected by regulated industries. We could argue causality there,
but that is a different conversation and this post is plenty long.

[1] I suggest that competition among drivers would lower the price to
consumers. This is not exactly true, since as we both know Uber sets the
price, collects the payment, and pays the driver. What I actually mean is that
since in the future state there is no artificial limit on the number of
drivers, the natural consequence is for price to consumers to fall. Uber wants
more customers, so they will lower the cost to their customers. There is an
equilibrium to be found among driver remuneration and customer cost. I think
we both agree that the trend would be downward for driver pay.

[2]
[https://news.ycombinator.com/item?id=8875663](https://news.ycombinator.com/item?id=8875663)

[3]
[http://www.jstor.org/discover/724795?sid=21105612783593&uid=...](http://www.jstor.org/discover/724795?sid=21105612783593&uid=3739256&uid=2488599363&uid=3&uid=70&uid=60&uid=2134&uid=3739664&uid=2&uid=2488599353)

[4]
[http://blog.uber.com/ridesharinginsurance](http://blog.uber.com/ridesharinginsurance)

------
smackfu
In a 30 MPG car, the drop in gas from $3 to $2 is a 3 cent difference per
mile. UberX charges from $1.50 to $2 or so per mile.

So gas price seems like a red herring to me.

------
danso
The price cutting makes me _more_ reluctant to use car services...and I
realize I'm speaking from a position of privilege here in which I can say that
I have enough expendable income to not be against paying a little more for the
drivers. I feel that the wage is already so low that it's impossible not to
feel guilty using them, what with all the other costs they have to deal with.
I try to be as conscientious of a user as I can be: I'll watch the app and
only request a ride if a driver is fewer than 3 minutes away from me. And if I
have a driver take me from somewhere busy on a busy night to a more secluded
area (thus denying him/her the easier fares in the busy area), I'll usually
tip.

The car services are already such an improvement (in terms of technology) over
taxi services that I'm happy to pay for the convenience. And I'm getting less
and less enthusiastic about funding a race to the bottom, nevermind the impact
it has on customer service.

~~~
tzakrajs
Last year, I had several Uber Black drivers in a row complaining about how
unfair the rating system was or how their employer was unfairly requiring them
to accept UberX requests even though they had a livery. Uber threw a decent
black car service under the bus to save a shitty ride-sharing business that it
is almost certain to get undercut out of. And now they are treating their Uber
Black drivers like UberX drivers and it ruins the experience consistently.

~~~
tzakrajs
So you can guess my reaction when their recruiters come knocking...

------
abakker
Lower gas prices in most UberX cars is barely going to matter.

They really do need to replace casual car use/ownership, but I think rather
than continually drop effective wages for their drivers, they need to focus on
how good a deal it already is. (compare to mileage on your car, fuel, parking
time, parking cost, Parking location)

~~~
vinceguidry
Except it's really not that good of a deal in most places Uber is active.
There's no amount of spin that will make spending $40+ on transportation to
and from the bar be less than parking fees, gas, and mileage. All that totals
up to $20 max. If I'm bar-hopping, forget it.

You're cutting out certain sources of overhead but introducing others,
specifically a driver and the organization managing that driver. Uber has to
find a way to cut costs to the bone because humans are more expensive than
machines and resources and that's not going to change anytime soon.

It's even worse for commuting, because you'd have to be working for a real
a-hole if you're paying parking fees at work. Uber estimates that it costs
$16-22 one way for my commute. $32-40 is pretty steep to get to and from work.

They have a long way to go before I'd be able to replace my car with Uber.

~~~
ghaff
>because you'd have to be working for a real a-hole if you're paying parking
fees at work

It depends. It's pretty common in a large city not to have parking included.
(And, in fact, I know of at least one city that doesn't allow employers to
provide free parking.)

But your basic point is entirely correct. Driving or taking commuter rail into
a large city may cost $20 per day or so but then Uber/taxi is going to cost
more as well. For the vast majority of people, you can't replace a personal
car with a taxi for anything like the same price. It's only practical at the
margins; i.e. you only marginally need a car anyway.

------
mlieberman85
The quality of Uber/Lyft drivers and the service in general has plummeted so
much lately that I've just switched back to local car services. I just had a
nice conversation with a car service driver, who also does Uber, and he said
he prefers the car service over Uber because they pay better and only uses
Uber when he isn't getting anything else but the pay has dropped over the past
year pretty significantly for him whereas when he had started it was pretty
good. That's an anecdote so take it for what you will but I just don't see how
lowering prices further helps anyone out long term.

~~~
georgespencer
Because there is an entire generation of driver now weaned on Uber. They're
all over London: guys who got a foot onto the driving ladder and know no other
way. They take what they're given.

The disaffected professionals are probably the ones who bitch and gripe about
money compared to the old days. Uber is now trying to swallow up huge amounts
of market share by creating mammoth demand which will presumably lead to more
drivers (who haven't been weaned on better-paying services).

------
jellicle
If Uber drivers haven't figured out yet that the company's goals are to create
a huge workforce of barely-employed "contractors" who each earn just barely
enough to survive (probably have negative earnings in the long run, when car
depreciation is factored in - Uber knows that humans undervalue the car
depreciation and don't take it into account when figuring their profits and
losses), then I don't know what to tell them. They should figure that out.

~~~
username223
Yep. Uber apparently pays $1.50 per mile before its various surcharges [1],
while the standard reimbursement rate for depreciation is $0.575 [2]. So
employees, er, I mean "contractors" make less than $1/mi. Include the mileage
driving between fares and the time waiting for a new fare, and I'll bet many
drivers are below minimum wage. But that's what "disruption" looks like.

[1]
[http://drivingforuber.com/?page_id=20](http://drivingforuber.com/?page_id=20)

[2]
[http://www.gsa.gov/portal/content/100715](http://www.gsa.gov/portal/content/100715)

~~~
res0nat0r
Most commenting here didn't read or take into account this part:

> To reassure drivers worried about lower fares, Uber said it would guarantee
> a minimum fare per hour for drivers in these cities.

~~~
username223
> of $12 to $24 per hour

$12/hr is okay pay for sitting in a parked car, but it's below minimum wage if
you drive more than about 8 miles per hour, and below _no_ wage if you drive
more than about 21.

------
davewritescode
I would be happy to pay more, Uber is already very cheap but I've noticed the
quality of drivers and cars has gone down lately.

That, or create another service tier like Uber XL but for better cars instead
of bigger cars.

~~~
paraserv
The types of Uber cars available varies depending on the city. If available,
choose BLACK CAR if you want a better car. In NYC we have uberT, uberX and
BLACK CAR (and sometimes RUSH, for deliveries). Inside those major categories
are subs; uberX has uberX, uberXL, CAR SEAT. BLACK CAR has BLACK CAR and SUV.

~~~
smackfu
I think people just want a decent car, not a luxury car. A $20k car from the
last five years is perfectly sufficient. Uber Black is overkill for them, and
the price is around 2.5x of UberX.

~~~
theorique
Also, in a lot of cases, I find that the customer gets upgraded anyway (at
least in off-peak times).

Many, many times I have ordered a regular "black car", and been picked up by a
big SUV (Escalade or Suburban). Likewise, a lot of times I have ordered Uber X
and been picked up by a luxury car and sometimes an SUV (Audi Q5, etc).

~~~
smackfu
Yeah, we did UberX in Seattle and got picked up by a BMW 5-series. I don't
think it was Black, but certainly better than expected.

~~~
paraserv
True--while most Uber vehicles are black, it's not a requirement according to
a few drivers I've queried. The BLACK category indicates a luxury vehicle for
which a BMW 5 would certainly qualify.

------
wil421
In my experience local car services (taxis) or a combo of public transport and
taxi have always been cheaper.

Uber rides to downtown back to my house ~$100-150, Taxi ~$75-125, MARTA/Taxi
combo ~$40-75. I hope to see the prices decrease for Uber.

The things that Uber really has going for it that I absolutely hate about
Taxis are getting the price up front and knowing when the driver is going to
be there. Taxi's will never update you to say if they are coming or not and
many times I have been left out in the cold waiting for taxis that never
comes.

~~~
raldi
Do your taxi prices include the tip? And did you price out the MARTA/Uber
combo?

~~~
wil421
No tips are included. The only reason I didn't price out the Uber/Marta is
because I personally haven't tried it yet.

The station I go to usually has 1 or 2 taxis waiting so I haven't needed an
Uber.

Good Suggestion!

------
magoon
When gasoline is down 30% or more, those savings should go towards growth and
competitive pricing. Uber seems to understand this, but the drivers complain.
My how things always seem to come full circle -- before we know it, Ubers will
be rude, yapping on their phone in unknown languages, and the cars will have
torn upholstery and reek of incense.

~~~
chimeracoder
> before we know it, Ubers will be rude, yapping on their phone in unknown
> languages, and the cars will have torn upholstery and reek of incense

I understand that you mean to say that you expect the quality of Uber rides to
drop, but can you do so in a way that doesn't draw upon negative stereotypes
of other ethnicities?

~~~
wmeredith
Eh, ethnicity wasn't mentioned. You took that leap yourself ;)

~~~
mtalantikite
If "unknown languages" and imagery of incense isn't racially coded I'm not
sure what is. The statement was plainly racist, whether it was intentional or
not.

------
tlrobinson
Instead of lowering the base fare why don't they introduce the opposite of
"surge pricing" and sometimes delight riders to offset the times they upset
them with surge pricing?

------
hack_edu
Something tells me there's a lot more Surge Pricing in our futures. And just
when you thought the modifiers were high enough, or that surge hours already
have become any-waking-hours...

Rather than the bait and switch, why not just raise the price rather than
feign at lowering it? Kill the lie that the Surge Pricing brand has become.
Just be honest.

~~~
travisp
This must depend on the city or your typical usage. I'm not a daily Uber user
here in NYC (I commute by subway as most sane people do), but I'm not an
infrequent user either (particularly on weekends or evenings with my family).
I haven't paid surge since February 2014 (apparently on Valentine's Day), and
I can't remember the last time I saw surge pricing, although it looks like
twice I paid more and used regular Uber instead of UberX because there weren't
enough UberXs available and I was in a hurry for appointments.

I don't see any reason to see surge pricing as "bait and switch," although I'd
be open to seeing some actual data that backs this up.

~~~
bradleyankrom
I don't see it as bait-and-switch, either. Uber makes it clear when the ride
you're considering will be subject to surge pricing, and it's very easy to
abandon the reservation at that stage. I can't think of a time (in NYC) that
I've seen surge pricing and been surprised, it's always been during inclement
weather or peak times (e.g., Valentine's Day, New Year's Eve).

~~~
smackfu
Yeah, I've seen what happens to taxis when there is no surge pricing. The
dispatchers don't even pick up the phone if you call for a pickup, because
there's enough business that they don't want to waste a taxi's time driving to
pick you up. Not exactly an improvement.

------
bjoveski
Does anyone know what's the percentage cut? The article (and all of the
comments) don't seem to say anything about that.

~~~
BrianEatWorld
I received an email notification from Uber that the fare for my most used
route is dropping 46%. My normally route is only about $8, so it might be a
best case scenario.

~~~
unreal37
Ouch. Well, I hope your rides per hour increase 4X to make up for it.

------
HenryLim
Uber and other similar type of taxi dispatching apps are facing new government
regulations in countries like Singapore and India after the rape case
involving an Uber driver in India last year.

It will be interesting to see what happens next.

