What if taxis charged based on what you could afford?
If you live in a New York city, most likely you've got a taxi app on your phone. My mother who can't use a computer, uses uber car on a daily basis. Currently you have many ride hailing options: Lyft car,Sidecar, Uber car , Juno. And gett to name some of them. But imagine a future where there is only one option — and all the traditional taxis have been driven out of business. A time when if you need a cab it's Uber or bust. Imagine further that sophisticated pricing algorithms have enabled the company to know exactly how much you'd be able to pay for a ride and bases your prices accordingly.
This might all sound implausible, when Uber car and Lyft car are locked in ferocious rate-cutting wars and trying to poach each other's drivers and with new companies on the horizon trying to take a cut out of both their pockets. But there could easily come a time when one finally defeats all its competitors. It could be any of them, but I'm a betting man and the favorite would be to take action on Uber car, uber car a notoriously aggressive company, scornful of existing legal regimes or industry norms that has already captured much of the taxi business placing millions of dollars on new technology and advertising campaigns,
With traditional cab companies collapsing Uber car would have a chance to dominate the American taxi market to an unprecedented degree. And because any such nationwide taxi monopoly would also have powerful high-tech tools at its disposal, it could be the first company in history to be able to attempt price discrimination — adjusting its users prices so that every taxi customer pays as much as he or she can afford.
A worst-case scenario would mean a technological arms race between Uber and consumers, abuse of lower-class people, and an erosion of the financial base of public transportation. Every time you take a ride across the city, Uber car would be leveraging surveillance data to soak up every penny it possibly could — and either you'd eat the cost or engage in a lot of expensive and complicated counter-espionage.
Now, price discrimination itself is restricted at the federal level under the Robinson-Pateman Act of 1936, but the law's conditions only govern commodities, putting any taxi company outside its jurisdiction And while Uber has never indicated it wants to adopt such a pricing strategy, plenty of online companies have we've seen it unfortunately too many times — and they were never presented with as great a temptation. (Uber did not respond to our request for comment.)
The looming taxi monopoly
Corporate consolidation is a background condition of the modern economy. Since the Reagan years, endless waves of mergers have swept across American business. From agriculture to banking, a few behemoth companies now control up to 80 percent of all sales (or even 90 percent, in the case of computer chips and Intel). As a result, corporate competition often takes the form of excluding rival products from marketplaces, rather than beating them on quality or price.
Some of America's monopolies, like Monsanto, might sound like throwbacks to the days of U.S. Steel. But others — like Facebook and Google — have a more modern sheen. And investors are betting that Uber will be one of the next digital behemoths to join their ranks.
Uber car is notoriously secretive when it comes to its information, so it's hard to know exactly how big it is. Bloomberg got access to internal data in December (the most recent leak) showing revenues of $5.5 billion in 2016 even though they claim to have lost 660 million in 2016. Uber car operates at in every state except Alaska and in over 70 other countries and those numbers keep rising. It officially employs over 6,700 people, although that figure does not include drivers (not classified as employees, in a bid to avoid labor regulations) of which there are many hundreds of thousands.
Uber's business strategy might best be described as "rulebreaking." In city after city, they have crashed in and undermined the existing taxi market with cheap fares and violation of existing regulations. Two years ago it fended off an attempt at regulation from New York City with a massive PR blitz, and it has threatened to leave Maryland if that state insists on toughening up its driver background checks. And that's not all — one Uber executive openly speculated about using their ride data to blackmail journalists (after a firestorm of criticism, he apologized).
It's pretty clear Uber Car is banking on total domination they currently sit at 65% of New York TLC drivers. The company has raked in at least $15 billion in outside investment — including a massive $3.5 billion in a single shot from Saudi Arabia. Some quick arithmetic done by an analyst at Naked Capitalism demonstrates that Uber's fares only cover about 40 percent of its costs — the rest being subsidized out of investor cash. That, plus the fact that the entire American taxi market has yearly revenues of only $11 billion, suggests one of two things. Either investors are fooling themselves, or they "are assuming this will be a monopoly service," says Frank Pasquale, law professor at the University of Maryland. The strategy would be to undercut competition with investor-subsidized fares, and then when everyone else is driven out of business, jack prices through the roof and collect monopoly profits. Indeed, the firm claims it already controls over 80 percent of the taxi app market.
Here's where it gets interesting and a little overwhelming. A monopoly in the age of the internet raises questions, most importantly price discrimination.
There are several ways to execute price discrimination. Let's go through their options
Perfectly individualized pricing
Each uber car consumer is charged their absolute maximum willingness to pay. (In economics lingo, this is called an exact reservation price.)
In history this was the most difficult aspect, you have to determine how much money he or she makes, what sort of things she wants or needs, how badly she craves it, and so forth. Thus, it not only involves a great deal of intrusive surveillance across the entire market, but also to manage all the data.
But collecting the data these days are a lot easier, web browsing and shopping now means history, purchases, relationships, and more are comprehensively tracked,
Apps themselves also assist in personal surveillance. Installing a taxi app necessarily requires access to much of one's personal information, and map location even aside from when and where you are going.
However, it's still risky. "Even if you can do it, it's unwise due to backlash," says Carl Shapiro, professor of economics at UC Berkeley. Some businesses have experimented with quasi-perfect discrimination and gotten caught at it,
In September 2000, for instance, Amazon was discovered offering higher DVD prices to customers whose browsers identified them as regular Amazon shoppers. CEO Jeff Bezos apologized, swore his company wouldn't do it again, and offered refunds to people who had gotten the higher price.
But Uber might be different.
First, the company is already well-known for constantly fiddling with prices with its "surge pricing" function, which supposedly adjusts prices to fit demand — part of Uber's self-presentation as a mere marketplace. However, unlike a usual market, it controls pricing across its entire fleet, and its pricing mechanism is opaque. When you receive a surge price alert on the Uber app, you take the company at their word that everyone in the area is also getting it.
The opportunity for camouflaging price discrimination is obvious. Uber "could usher in price discrimination under the banner of dynamic pricing," says Lina Khan, a fellow at the New America Foundation's Open Markets Program.
Let's use a real world example to explain this strategy, you're a doctor on the way back from a conference. You don't mind taking public transportation when you've got the time but seldom do it But on returning from this trip, you learn your wife has gone into premature labor. And Uber car armed with a granular analysis of your personal dossier you've been calling and texting, what things you've been buying, and so on — figures this out. You've simply got to take a taxi to the hospital from The airport except this time, it's going to cost you $750. There is no other option, so you grit your teeth and pay up. Meanwhile, a college student leaving the airport five minutes later is charged only $15 to a similar distance destination
Would price discrimination really be so bad?
If Uber were to go this route, it would have its defenders.
Some researchers argue that price discrimination could actually benefit the poor. "Given reasonable assumptions, there will be a redistributive effect," says Glen Weyl, a senior researcher for Microsoft Northeast. This is because while a single price will be higher than many poorer people would be willing to pay, it might still be profitable to sell to them at a lower price. For example, price discrimination allows poor nations access to prescription drugs that would be otherwise unaffordable. It's also the same reason that the richer people in America are paying a higher tax percentage then the poorer of the country.
This was the finding of a 2012 Wall Street Journal report on Staples.com pricing. They discovered that the website varied its prices based on the zip code of the search, giving somewhat higher prices to shoppers who were far from any competitor. Because poorer zip codes generally have fewer retail options, giving Staples greater market power, "areas that tended to see the discounted prices had a higher average income than areas that tended to see higher prices."
Such a market strategy could also be combined with use of Uber's tiered service levels. Surveillance could predict people who are on the verge of upgrading to a more expensive level (moving from UberX to Uber Black, for example). They could then be nudged into it with strategic price changes — surging on the cheaper service but not the more expensive one. This wouldn't be price discrimination, strictly speaking, but the overall effect would be largely similar.
If uber car did go this route, the out lash might not be worth it, people would act angrily to discove that they pay higher prices simply based on identity alone. Just as with the Amazon experiment, and the Staples discrimination experiment caused a storm of controversy and a quick reversal and apology. A dominant Uber would be different due to its monopoly and greater ability to camouflage, but anyone who is charged $1,500 for a trip from Manhattan to Brooklyn is going to be pissed even if they're extraordinarily wealthy. Instances in which discrimination is accepted, such as need-based college tuition pricing or the progressive income tax, are explicitly framed as a morally praiseworthy subsidy of those with lesser means. Calmly accepting a price tens or hundreds of times greater than the next person, simply to juice the profits of a large corporation, is far less likely.
Wealthy people are far more likely to have the education and technological sophistication necessary to challenge corporate surveillance, or able to hire someone to do it for them (Lawyer)
This would have the likely side effect of sparking an escalating battle between the monopolist attempting to discriminate, and those wealthy or savvy enough to foil the surveillance technology.
Uber's setup, perfect price discrimination becomes more feasible the further one goes down the income ladder. Wealthy people are likely to have the means and social influence to make perfect price discrimination more trouble than it's worth, while the poor will probably just accept it as just one more thing for which they have to pay an extraordinary premium. All the while, a good deal of economic product will be squandered in a zero-sum technological fight between the monopolist and their customers.
Businesses are built within legal structures created by the state. Uber, like every company, could not possibly exist without property law, securities law, and corporate law. There is every reason to use state power to prevent the U.S. taxi market from becoming a wasteful, nightmarish monopoly.
But scary the power Uber car does have on its monopoly and if they can deploy a new strategy.
The good news is to get uber car leases or uber car financing, TLC financing is always here to help.