Using Big Data to Estimate Consumer Surplus: The Case of Uber | Hacker News Reader

Using Big Data to Estimate Consumer Surplus: The Case of Uber

drive.google.com

71 pointsDowwie4 comments

If you would like to listen to an entertaining version of the paper, here it is: http://freakonomics.com/podcast/uber-economists-dream/

Interesting that this is from the author of Freakonomics. This contains a very popular pro-Uber conclusion:

Inelastic demand translates into large consumer surplus estimates: roughly $2.88 billion dollars in 2015 for the four cities in our sample, or $6.76 billion if extrapolated to all UberX trips in the U.S. for that year. This estimate of consumer surplus is two times larger than the revenues received by driver-partners and six times greater than the revenue captured by Uber after the driver-partner’s share is removed.

This certainly puts a different spin on accusations of price gouging with surge fees.

(Note: I have no affiliation to Uber, though I am a big fan of the service)

It's a different spin, but 'price gouging" is by definition extracting consumer surplus from those willing to pay more if necessary. The other way of spinning those figures is that if consumers spend $1 for every $2.60 they're willing to spend on Uber then Uber rides is doing an unusually efficient job of revenue maximization compared with most other businesses, particularly considering a large part of their brand value is being perceived as relatively cheap.

That's particularly the case when you consider that consumer surplus is also Uber's competitive moat against potential new entrants to the market that couldn't compete with Uber on price; as the paper's author's point out it's a short run consumer surplus and the long run demand elasticity is likely to be much lower.

The most popular consumer services usually transfer the most value from producers to consumers.

YouTube is a great example. YouTube hosts copyrighted videos and music. For most of its history, producers weren't remunerated. Even today, a great deal of user-generated content is reenacting or remixing conventional Hollywood IP.

Apple built a lot of iPhones with inexpensive overseas labor—HTC, Nokia and Motorola earlier on for that matter.

Facebook gets the vast majority of the content it shows people for free, from its own users. Crazy!

Google puts ads in front of other people's stuff. Regular search and direct navigation ads certainly don't pay producers. I assume most content on the internet took time, and therefore money, to make.

The producer-to-consumer value transfer doesn't always favor the mediator. Comcast's broadband internet was a great deal at $60/mo, considering piracy. Though in the late 90s/early 2000s people were paying for both broadband and TV—not so much the case today.

You might say, but that's all legal! Remixing copyrighted content! My tone might suggest that these business models depend on violating the law somehow. I'm just describing the facts. Facts have a well-known... bias.

Factually, a lot of popular services transfer as much as 100% of the value from producers to consumers.

Whether or not something should be illegal in there is a different question.

Reply on news.ycombinator.com