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Comment by beaglesss | Hacker News Reader

This makes no sense,why wouldn't Uber just increase rates and take a cut rather than let the drivers eat their lunch? What incentive do they have to charge less than the market will bear?

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Uber's approach to business is to crush any competition with bottom of the barrel rates, funded by investor money or foreign profits. If they can't kill all of the competition, their approach puts them at a loss without a chance to make their money back later.

Higher rates make it easier for competition to set up alternatives and let the free market do its job.

Giving in to collective action by the drivers, of which they are diametrically opposed. If they raise the rates, taking the cut or not, they are allowing the drivers to 'win' in their mind.

So, in this case, Uber receives little blowback and passes it directly on to the riders who are either unaware, uncaring and/or willing to deal w/the drivers negotiating on top of the advertised rates.

e: corrected spelling of blowback; whoops

Uber still benefits via a bigger cut from higher rates, so long as that's the market rate that people are willing to pay (if they start getting undercut by a competitor that's a different story). In my view, the fact that taxi drivers can charge extra and people are paying it shows that Uber was priced too low.

Whatever rate they ask the driver can undercut them. Driver gets a fraction of the ride. Even if they undercut uber the driver gets more take negotiating directly with the customer. I will do this sometimes when uber is surging if the driver is willing to take cash.

The world doesn’t function the same as it does in an economics textbook.

Markets aren’t perfectly competitive, participants don’t have perfect information, etc.

While I think undercutting competition is true, I think there's another aspect - common with food delivery apps.

If Uber (or others) actually charged what it would really cost to perform the service, pay a fair wage, etc - the resulting price would be so high that the average user wouldn't accept it.

The only way they've been able to get any interest at all is by finding every possible way of keeping the price way lower than it should be. Mostly be underpaying drivers.

For this particular market, they are not charging less than the market will bear, they are charging all they can.

They have to keep taking an 'L' specifically because there is extreme efficiency in price information discoverability in a commodity market.

Explaining:

Some background info: - almost all drivers are signed up with all services [ ie i) Lyft, Uber - which are global & ii) Faras, Bolt which are international but Africa only I think ]

- riders have all apps and will price shop on every single app before booking a trip because it will be the same freaking vehicle and driver (ie literally the same service because of item above)

- ride prices are pretty expensive relative to local earnings: take for example, that first item (Minimum to and from JKIA, which is the main airport in Nairobi). It is 1000kshs which is about $8 - not a big amount in the west but is a bit of coin in Kenya - a day;. If I can get the same ride for $6, it is kind of a big deal because it means I can maybe also get a meal from the ride savings - estimates say apps takes 30% (20% commission and 10% booking fee) and this is off the top of the payment

So, the rides are a fungible commodity. It is the same ride, all you are choosing is whom to buy it from

Consider Bob looking for a ride to the airport: he looks at all 4 apps ( Uber, Lyft, Faras and Bolt), finds the cheapest one (Alice, on say the app HNewsRides) at Kshs 800 (~$6) and books that (since it is the same freaking car and driver as all drivers all use all the apps! Note that they can also sorta see - based on proximity and time to arrival for pickup - that the same ride with Alice would cost Kshs 900 on AppA, Kshs 1000 on AppB, Kshs 950 on AppD etc )

Even worse, after Bob has taken a couple of rides with Alice, and they know each other a little better, they will establish a relationship and exchange phone numbers so that Bob will just reach out to Alice directly and cut out the middle man ( apps ) because Alice will charge them the app amount less say 25% (because there is no cut for the app now). Bob gets a 10%-20% discount on the ride and Alice (the driver ) gets 20% more for the ride. This means that apps have to cut prices again to compete ad infinatum till every ride is free (or the apps are paying riders to get market share and then jack prices, which they have done )

So, the real problem is extreme information availability and a multitude of players. If there were just one or two apps, price management is easier but with 4+ players, price competition is the name of the game.

About the "it will be the same driver and vehicle" thing: this is a quirk of the Kenyan market. If an ride is showing as less than 5 mins away from you on all apps, it is likely to be a situation where it is just one specific car and driver across all apps. Nairobi has horrendous all day traffic. Really bad. Think your worst nightmare traffic and multiply by two. Two cars separated by as little as 1 mile could have as much as a 10 min difference in estimated arrival times because of traffic. So, if a vehicle says "5 mins away" in 4 different apps, you can relatively safely assume it is the same vehicle listed on across all apps.

The eventual outcome of such race down is the apps realize they are merely matchmakers and they charge a 100% commission, since the price quoted can only be trusted as accurate with regards to the cost of using the 'rideshare' app.

That is essentially what has already effectively happened.

Passengers are paying the drivers directly ( and the drivers then passing on the apps share on to them - the 30% in commission and booking fee ) because when the passengers pay outside the rideshare app, the app portion becomes payable to the app.

Passengers pay outside the app because mobile money is ubiquitous in Kenya (mobile phone to mobile phone micropayments called MPESA): it is used even more frequently than cash

Adding to this, it then makes sense why this isn't a thing in most developed countries as the burden of checking 4 apps seems to not be worth saving a few dollars for most people. In the US, for example, it seem like the two main competitors are Uber and Lyft, with Uber having 3x the sales as Lyft.[0] So it seems like most people will just check Uber and buy that no matter what.

[0] (Bloomberg) https://secondmeasure.com/datapoints/rideshare-industry-over...

Eh not sure I agree. Lyft has no presence in Kenya and don't think anyone uses Faras. Bolt has had its fair share of issues that have made it a slinkily option as well. Uber's pretty much the only reasonable option which is why the drivers are revolting.

In most international markets Uber is already the "premium" option. Local taxi apps easily beat them on price, and so they cannot afford to go higher.

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