Uber

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Columbia Southern University *

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6053

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Business

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Jan 9, 2024

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docx

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1 UBER Uber Sean O’Brien Columbia Southern University MBA 6053 Economics for Managers Dr. Gregory Evans December 22, 2022

UBER 2 Introduction Uber is a global ride-hailing company that has disrupted the traditional taxi industry since its founding in 2009. Prior to Uber's entry, the market for taxi services was characterized by inefficiencies, including high prices, limited availability, and subpar service. Uber exploited these inefficiencies by offering a more convenient and affordable alternative to traditional taxis, using a smartphone app to connect riders with drivers. One key aspect of Uber's business model is its use of surge pricing, which adjusts prices based on shifts in supply and demand (Cramer & Krueger, 2016) . This pricing strategy has been controversial, with some critics arguing that it takes advantage of riders during times of high demand. However, Uber has defended surge pricing to incentivize more drivers to come onto the platform, improving the overall supply of rides. In this case analysis, we will evaluate Uber's surge pricing in the context of price discrimination and examine how it fits into the larger context of the ride-hailing industry. We will also apply the concepts of economies of scale and economies of scope to Uber's business model and analyze how game theory can help us understand the competitive dynamics of the market. Additionally, we will assess Uber's potential for international expansion and the potential trade policy issues it may face. We will also discuss the incentive pay model that Uber uses and how it affects the principal-agent problem, as well as any asymmetric information issues that may arise in the context of Uber's business model. Market Before Uber and Exploited Inefficiency Before Uber's entry into the market, the taxi industry was often characterized by inefficiencies and dissatisfaction among both riders and drivers. Some of the key issues included:

UBER 3 1. Limited availability: In many cities, it could be difficult to hail a taxi on the street, especially during peak demand times. This was especially frustrating for riders who needed to get somewhere in a hurry. 2. High prices: Taxi fares were often perceived as being too expensive, particularly for short trips. 3. Poor quality of service: Many riders complained about rude or unprofessional drivers, dirty or poorly maintained vehicles, and other issues with the quality of service provided by traditional taxi companies. 4. Lack of transparency: It was often difficult for riders to know how much a trip would cost in advance, or to compare prices between different taxi companies. Uber exploited these inefficiencies by offering a more convenient, transparent, and affordable alternative to traditional taxis. With its smartphone app, riders could easily request a ride, track the progress of their driver, and pay for the trip all in one place. Uber also used surge pricing to encourage more drivers to hit the road during peak demand times, helping to improve availability. By addressing these longstanding pain points in the taxi industry, Uber was able to quickly gain a foothold in the market and disrupt the traditional taxi industry. Explain Surge Pricing Uber's surge pricing is a pricing model that adjusts the cost of a ride based on the current level of demand for rides in a particular area. The idea behind surge pricing is to incentivize more drivers to hit the road during times of high demand, which helps to meet the increased demand for rides and improve availability for riders. Surge pricing works by multiplying the base fare for a ride by a surge factor, which is determined by the current level of demand. For example, if the base fare for a ride is $5 and the

UBER 4 surge factor is 2x, the cost of the ride would be $10. The surge factor can vary depending on the level of demand, so it could be 2x, 3x, 4x, or higher in times of very high demand. Surge pricing is intended to help balance supply and demand in the Uber platform by increasing the price of rides during times of high demand, which encourages more drivers to hit the road and helps to meet the increased demand for rides. This can help to reduce wait times and improve the overall experience for riders. However, surge pricing can also be controversial, as it can lead to significantly higher prices for rides during peak demand times, which can be frustrating for riders. Evaluate Surge Pricing Uber's surge pricing can be seen as a form of price discrimination, which is a pricing strategy in which a seller charges different prices to different groups of consumers for the same product or service. In the case of Uber's surge pricing, the company charges higher prices to riders during times of high demand, while offering lower prices during times of lower demand. There are several benefits to price discrimination for sellers, including the ability to capture more of the consumer surplus (the difference between what a consumer is willing to pay and the price they actually pay) and the ability to increase profits by charging higher prices to consumers who are willing and able to pay more. However, price discrimination can also be controversial, as it can lead to accusations of price gouging or exploitation, especially if the higher prices are perceived as being excessively high or unfairly discriminatory. In the context of Uber's surge pricing, some people may argue that the company is exploiting the high demand for rides during peak times by charging significantly higher prices, while others may view the pricing strategy as a necessary means of balancing supply and

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