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Uber, a popular and innovative car service




Economic Issues Brief;Uber;Uber, a popular and innovative car service, uses technology to place itself as a new and;ferocious competitor in the transportation market. Their inventive company is based in San Francisco;California with Travis Kalanick as CEO. Uber is a mobile application. This is where the key inventive;factor lies. A quick download from the ITunes app store enables users to organize arranged pickups;through GPS location technology. This allows both driver and customer to track one another in order to;access information for the highest efficiency service, easily at ones fingertips. Customers must first input;their credit card information before use of the app. Once that process is completed, customers are;informed that each ride, provided by Uber, will be all inclusive-no tip necessary affair. Uber stands as a;technology firm, specializing in private-car service by working with existing car providers instead of;buying the cars themselves. The company provides a car service through use of an advanced technological;mobile application, providing a platform for users to easily get from place to place. To most this may;come across to most, as an innovative company, only making the lives of those who use it easier. On the;other hand, many regulators, and local taxi commissioners in D.C., as well as in many other locations;have been fighting Uber to leave its city, and if not, put a number of restrictions and rules, D.C. legislators;believe the company must abide by.;Uber has been under the D.C. Councils scrutiny for quite some time. The issues presented during;economic debates between the limo company and the Districts council have been going on strong since;Ubers arrival in December of 2011. Throughout these debates, with Uber and the city council, one must;ask: is it right for the government to put restrictions and regulations on an innovative company that creates;more alternatives and causes competition for long time D.C. taxicab companies even though it completely;fulfills its customers demands? In order to answer this, arguments from both the D.C. Council and;taxicab commissioner vs. Uber must be presented.;Feeling threatened, the D.C. cab commission claimed that Uber was illegal. As a result, they actually;had one of their limos impounded. Considering all of the heat from the taxicab commission, the city;government felt it was time to take action and write up a draft of regulations, they felt, Uber should;follow. They intend to enact a price floor to set Ubers minimum fare at todays rates. The price floor is;when the price is set at a minimum above the equilibrium price. The council also expects Ubers minimum;to be five times that of the minimum of other cab companies. The council also would require the company;to have no less than twenty cars. In addition they also plan to prevent sedans from operating in;jurisdictions they arent registered in. Therefore, if the car is with Uber and registered in D.C. it cannot go;outside city limits. Along with that they plan to ban the companys surge pricing or demand pricing;system, which is when the price is heightened during high traffic times, when the demand is higher than;average and doesnt meet the supply needed. Council members, such as Mary Cheh, claim this is price;gouging, which is considered to be unfair pricing. They also intend to take control of the cars color, and;make along with the kind of receipts the company has. i;In response to the proposal, people who love Uber were outraged and took to their social media;accounts to express their anger toward the councils intentions. Uber and the Districts council both had a;lot to say after the proposal was written up. Council member Linton in an interview, backs the councils;idea to control the kind of receipts, number of cars, and boundaries Uber has. In response Ubers CEO;Travis Kalanick was determined to let the world know what he thought by taking it to a blog he made;available on the Uber website. First to respond to the D.C. taxicab commissions claims of Ubers service;being illegal, Uber examined the laws that governed taxicabs and sedans in D.C. and determined that;connecting a consumer in demand of such a service to licensed sedans by a licensed sedan driver through;a mobile phone application was actually legal! Uber also responded to council member Jim Grahams;concern of the deleterious effect Uber has on taxi drivers. The company claims they are a new business;venture that is satisfying a need and bringing in competition. Uber and its loving customers feel that the;regulations put in front of them discourage competition to level the playing field. Kalanick is persistent on;making it clear that Uber is an easy, useful, affordable and reliable transportation system. He feels the;proposal is a crusade to shut down Uber in that the set of regulations are just anti-competitive. He also;argues that these rules are against the interests of city residents who need quality transportation;alternatives. Finally in response to the proposition to eliminate surge pricing, Kalanick claims that;without it there is no way to clear their market. Uber plans their supply to meet their demand. Clearly the;debates made between the two sides are intense. Both make points that are complete polar opposites and;need to be economically analyzed to see which side holds more power.;In order to effectively dissect the situation, each written component of the proposal must be explained;in economic terms. Through this we will be able to determine whether or not putting such restrictions on;the market is right. The first proposed regulation discussed in the above argument was price floor. A price;floor means that there is a set price that cannot go any lower. In September, the proposed floor would be;fifteen dollars, which is very high for a company in the transportation market to operate in. This additional;cost makes it difficult for a workforce to keep their jobs. This causes a surplus and is above equilibrium;price. By definition this means, they could have been spending the extra money in some other way to keep;the business more efficient, if there was no floor. The D.C. council thinks that it is just to charge a;minimum, five times the minimum fare of other cab companies. Economics tells us that price controls;prevent the price system from rationing the available supply. Any attempt to control prices prevents;competition. This minimum means a decrease in demand and an increase in supply, which results in;excess surplus and is seen as inefficient. An efficient business model cannot operate under these;conditions. We can see this as a transaction cost because the set price would prevent any beneficial;transactions from taking place for Uber. Therefore this would prevent transactions from occurring that;could be productive. This disrupts the freedom of people to make choices. These proposed regulations;would cause the company to operate inefficiently and rob the people of receiving the services in the way;in which the company actually intended to provide in an unregulated market. Their performance in the;market place would not actually reflect the way in which it would normally conduct business. It would;reflect how the regulations negatively impacted their ability to operate efficiently. This lack of freedom to;make choices also pertains to the proposal of the council trying to control the make and color of a car;along with the kind of receipts Uber provides.;The proposal of regulations wanted to restrict the fleet of Uber to have no less than twenty cars. This;means that independent contractors would be less likely to rely on dispatch service because Uber doesnt;own the cars. Here, there is no incentive on the car services side because these partners may not have;the supply that is needed to legally run the company. Therefore to protect themselves, they would have to;cease partnership with Uber. This interferes with competition because if the potentially efficient;innovative company has no cars, it then ceases to exist. The most controversial topic of them all is Surge;pricing, which is a pricing structure designed to improve Ubers reliability during high-traffic times. This;only goes into effect when Uber has a higher than average demand for customers without the supply of;cars to facilitate that demand. Equilibrium is out of sync so they must increase the price since there is;more Demand than supply. The supply and demand graph would show the quantity demanded to be;greater than quantity supplied, shifting the graph out. Surge pricing can be 2x as high as the regular price;for a certain distance. On New Years Eve or Halloween, the demand for Ubers service is way higher than;the supply at a particular price. The price is increased because Uber depends on the drivers willingness to;work with them. The price is also increased so the people that need the Uber ride most, will get it and is;reassured by the incentivized driver who is being paid more to meet their needs. It is up to the person to;see whether the benefits outweigh the cost, which is a very high money price in this situation. If one;chooses to book it for the hell of it, he or she is taking on an opportunity cost. From paying that extra fare;for the Uber right he or she could be missing out on something else that could have utilized that extra;money. ii;Some rules can be good but over regulation never is. Putting constraints on the market stifles;economic growth and discourages new competition. Regulations are bad for a free market economy. It;disrupts the freedom of people to make choices. I strongly believe in this and that all the proposals on the;draft of regulations were a way to level the playing field and halt competition for existing cab companies;in the district. Over regulation of the free market interferes with growth and prosperity. The D.C. council;is trying to disrupt that by putting unnecessary constraints on the market that is stifling innovation. People;love Uber and have fought successfully for its stay in D.C. because as of December 4th, 2012 Uber is legal;and none of its pricing is regulated.


Paper#15675 | Written in 18-Jul-2015

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