Uber’s Algorithmic Monopoly | Hacker News Reader

Uber’s Algorithmic Monopoly

mattstoller.tumblr.com

69 pointschrisgd75 comments

This article is written under the assumption both that Uber's only competition is cabs, and that once cabs are gone (and I agree that this seems inevitable), it will operate as a monopoly. At least in my market (Washington, DC), the former is not the case, and I see no reason to believe the latter will be the case anywhere.

Given that, it's appropriate to evaluate Uber's market-forces claims with a view towards a larger market that includes more players than just Uber. Anecdotally, I've found that their claims about surge pricing mostly hold true: their service, while being priced higher at times of peak demand, seems to generally stay available in a way that cabs or other services don't, and at least sometimes, that has been worth it to me, and I've been willing to pay 2x the price to have a ride in ten minutes. That said, if it weren't, there's always Lyft or Sidecar (or, for the moment, traditional cabs), which would inevitably offer different tradeoffs of price and dispatch time, and I'm free to use any of them instead. If lots of consumers do the same, eventually Uber will lose, or market forces will force it to adjust how it balances availability with price.

In other words, exactly the way a market is supposed to work.

This is a relatively ahistorical, naive view of the operation of markets. Even with competition, assuming fixed price cabs eventually get driven to extinction, then what? There would be nothing to stop the collusion of existing market competitors (Uber, Sidecar, and Lyft) in order to drive up pricing or perform market division (customer allocation) - that is assuming that monopolies don't begin to form in the market as they are liable to do. There is tremendous incentive and pressure from investors for them to both divide markets and fix prices (eg, maximize profit). New firms may enter the market in an attempt to undercut these forces, but they will likely be unable to compete with monopolized pricing by the large companies and thus be driven out of business before reaching any sort of reasonable scale. These kinds of phenomena, far from being anomalies, are the traditional way in which really existing markets work [1][2][3][4][5]. Ultimately, the resolution of such problems occurs not through the markets - which instead create such problems - but instead through the mobilization of state forces (eg. lawsuits and monopoly busting).

This article just highlights the strong potential for these problems and more to form in the developing taxi service market some time in the near future and the algorithmic obfuscation used to give these forces the appearance of neutrality and legitimacy.

[1]: http://www.fbi.gov/news/stories/2013/september/guilty-pleas-...

[2]: http://en.wikipedia.org/wiki/Sherman_Antitrust_Act

[3]: http://www.theverge.com/2014/2/1/5368098/apple-hit-with-840-...

[4]: http://www.tomshardware.com/news/microsoft-office-price-fixi...

[5]: http://en.wikipedia.org/wiki/Price_fixing_cases

Right, I wasn't proposing a completely-unregulated market. Presumably collusion and other anti-competitive behavior would remain illegal. In any event, different behaviors towards fluctuating prices are already observable as differentiators amongst different competitors in this space (Lyft has surge pricing, but it's less aggressive, and Sidecar lets drivers set their own prices rather than controlling it centrally). What evidence is there to suggest that that would stop once cabs disappear?

  A lot of people are focused on the company’s use of surge 
  pricing, [...] Kalanick notes “we are not setting the price, the 
  market is setting the price.” But then, non-ironically, 
  immediately adds “we have algorithms to determine what that
  market is.” In other words, the prices his company sets in the 
  markets that his company controls are somehow, well, natural.

I assume what he really means is "we set prices to make us as much money as possible but it's not fashionable for CEOs to admit that, so here's some stuff about algorithms and markets in the hopes you will not attribute our actions to us."

Being surprised when a company tries to increase revenues and reduce costs while avoiding PR blowback is like being surprised when a dog humps your leg. That's just naturally what they do. If they could charge a million dollars for a ride, not pay their drivers, and get all their competitors banned they would do that too.

While maximizing their profits, they are also matching the highest number of consumers to the highest number of producers (service providers), thus making the process more efficient.

And there are plenty of substitute goods (services) for the service they are providing, so I'm really not sure about their ability to set prices as you suggest.

Is that actually how it works? Not having used Uber, my understanding based on articles is that it does not work like an order book at an exchange, where the price is determined by where buy and sell offers cross. Instead, Uber basically dictates the price, and then whoever is happy with that price will be matched. Correct me if this understanding is wrong.

What this means is that, as a first approximation, it is Uber that sets the price, not "the market" (whatever that is). Obviously, Uber still needs to take into account how both drivers and passengers react to the prices, but those are second order effects, and the resulting price is quite likely to be different from what you would get with a neutral platform that simply matches order books.

In the end, I guess this all boils down to the truism that "the market" does not exist. There are many, many different markets, all somehow defined by the rules society sets up for them, and the resulting prices and relative benefits to participants necessarily depends on those rules.

>What this means is that, as a first approximation, it is Uber that sets the price, not "the market" (whatever that is).

The market is the aggregate of all other people providing a similar service. Taxi companies, other Uber-like services, are all competing for the same consumers.

If Uber is setting its prices too high, they'll lose customers to the aforementioned competitors and they'll potentially earn less money if the higher price doesn't offset the drop in customers. That's what people mean when they say "the market sets the price".

I'm sorry, it just sounds like you're giving a very cliched "the market doesn't exist" response in a situation where it just doesn't apply at all. This is a market with competing firms, not a monopoly.

That's what people mean when they say "the market sets the price".

I know that that's what people mean. What I'm saying is that people are making a mistake by not looking at the mechanism of how "the market" works.

Let us compare two worlds. World A is our world, where Uber sets the price for its drivers and passengers. World B is a world in which drivers and passengers place bids directly. Let's say that drivers' bids contain a basis price + per-km price as well as the range within which they are willing to travel, while passengers' bids contain start and end point and maximum price (perhaps with the possibility of saying "market price"). Uber then matches those bids when they cross in a manner similar to an exchange order book.

What I understand from your comment is that you believe that the price for a ride in world A will be equal to the price for a ride in world B. That seems like a rather bold claim that requires an extraordinary argument to back it up.

And no, the "if Uber sets prices too high/low in world A, passengers/drivers would move to competitors" argument is not sufficient, because nobody really knows what the "correct" price is exactly (what does it even mean for a price to be objectively correct? [0]). So there is a range of prices in which the loss of passengers or drivers would happen rather slowly or not at all.

Where does the choice of the exact price within that range come from, and why should it be the same in both worlds? Why shouldn't Uber be able to exploit this uncertainty to increase their revenue by a few percent? Mind you, I don't know whether this would benefit drivers or passengers relative to a different world. The key point is the question of whether the worlds are the same or not - and if they're not, then it's problematic to claim that "the market" sets the price.

[0] Yes, yes, it's the price where supply and demand are balanced. But how are supply and demand formed in the first place? Conceptually, people ought to have beliefs such as "a ride from A to B is worth X to me". But even if people have such beliefs, those beliefs are necessarily based on what the previously observed prices are. So at best, you get a feedback loop that goes like: observed prices -> people's beliefs about what prices should be -> supply and demand -> observed prices. They who control the mechanism that outputs the observed price are in a rather special situation to (attempt to) manipulate this feedback loop in their own interest.

It works exactly like an order book at an exchange except there are only market orders (no limit orders).

But - at least to my understanding - this means that it doesn't work at all like an exchange, because at an exchange, the price at which market orders execute ultimately comes from the limit orders in the same market. If there are no limit orders, then where does the price come from?

I want to dislike Uber and hate surge pricing on stubborn principle, but there are times when there are no substitute goods in NYC. The only reason Uber cars are available is because they've implemented surge pricing.

When it gets busy, cabs dry up and you can easily spend half an hour trying to hail one in Manhattan.

Outer boroughs have less hailable cab activity overall, and using a credit card with car services is often unpredictable and tedious.

Hailo won't help you if all the cabs have a fare or if there are no cabs around at all.

For me, it's not about standard busy times, but when the weather is really bad. In serious rain, sleet, snow, etc. it is really difficult to hail cars. The surge pricing for immediate service is a good trade-off if you're stuck somewhere and really need a ride.

FYI for outer boroughs: see that parked black car outside the subway stop? Give him the head nod. If he motions, get in. Negotiate price BEFORE the car starts moving. You're right that a card makes this harder.

  I'm really not sure about their ability to set prices 
  as you suggest.

Perhaps I should clarify.

When I say "make as much money as possible" and "increase revenues" I mean in total across their business, taking into account the loss of customers to other services and damage to their reputation from price-gouging.

Uber does surge pricing because they think the extra profit from customers paying more will exceed the lost profit from customers who go elsewhere or go without.

The CEO only talks about markets and algorithms because it's bad form to say "we put up the price because we know you'll pay it, suckers"

As long as there is no deadweight loss, and I can't see how that could happen, all I see is a transfer from consumer's surplus to producer's surplus. But to this, you should add the fact that surge pricing puts more cab drivers on the streets than usual, thus increasing supply, which will in turn become a net benefit for society (although probably not paretian).

In many places, the supply for cabs is artificially limited by the fact that there are only a limited number of licenses, which you then have to "rent out" from a licensee if you want to drive a cab.

The article raises a valid point (Uber sets itself up as a monopoly), but is very thin on criticizing the existing system.

In fact, nothing prevents existing cab dispatch companies from offering an app-based service like Uber does. That they don't is either due to the fact that the current regulations mean they don't have to adapt, or that it's Uber's business model rather than the app that makes the difference, in which case the app would just serve to sidestep regulations that only benefit well-connected incumbents.

The question here is how much you can separate the roles of

a) drivers b) the dispatch service (telephone or app) c) the entity policing both drivers and customers d) the entity setting the prices

In a healthy ecosystem, Uber should have its share of competitors as well. Drivers can switch to services that pay them a bigger share, riders can switch to services that are cheaper. Rather than monopoly, this should be a commodity.

If competition utterly fails then there could be a problem. We can see this in search, where Google had a vastly better service for a really long time. Now they primarily sell advertisements. The end result is a marketplace where the most visible companies are the ones that most effectively extract value from the user (since its bid based, the more you bid the higher your visibility.) Since transportation is a lot more clear cut than hotels or insurance, I would lean more toward the commodity side.

The bigger wildcard is who will have control and access to automated driving? I am hedging on a future where cars drive themselves and companies license technology and lease cars rather then sell them outright. If this is the case, Uber has to pivot or be acquired to survive.

The problem is that the limited licenses exist for a good reason: roads are a limited resource 100% subsidized by the tax payer. Unless a city implements global pay-per-mile and pay-per-second fees for parking, idling, and driving, the city is subsidizing all businesses that operate on its roads.

Normally this doesnt' cause a problem because most folks using the roads are using them in roughly even proportion. Cabbies throw that out the window - they idle and meander around the densest and highest-value parts of town, which are of course places where roads are the scarcest resource. They exploit that subsidized, scarce resource far beyond any other user, creating congestion.

So, to control this tragedy-of-the-commons scenario, cities limit and tax cabbies heavily.

Uber dodges that completely by claiming they're a car service, when in reality they straddle the terrain between car-service and taxis. Uber drivers absolutely do meander congested areas hunting for fares.

>Uber drivers absolutely do meander congested areas hunting for fares.

When they do that it's usually because they're former cabbies with old habits that are hard to break. Doing a meander makes absolutely no sense. I work for an uber competitor, and typically I will go to hotspot, find parking, stop there, and wait for a ride.

Also, roads are usually subsidized by gas taxes.

Gasoline Taxes and Tolls Pay for Only a Third of State & Local Road Spending

http://taxfoundation.org/article/gasoline-taxes-and-tolls-pa...

Don't forget, cabs (and Uber drivers) also pollute and reduce the air quality of those dense, high-value places while meandering.

So do regular people driving. I don't see why these regulations should only apply to taxis and not all traffic. Why is it ok to own a car and drive in exactly the same places, and use up limited parking spaces? But as soon as you pay someone to do it it's bad?

Regular people go somewhere then park. Cabs drive around in the same areas over and over, contributing to localized smog.

This article only makes sense if Uber has monopoly power in the markets where it operates. If it is successful in its lobbying efforts, won't it be easier for Uber-like competitors to spring up?

I realise there are network effects in a two-sided marketplace, but how strong is the lock-in on the drivers' or passengers' side? Wouldn't either use multiple services and go with the one which offers the best price at the time?

This is in line with what I've seen in London - suffice to say it's easier and cheaper to get a car around London than it's ever been, the only people losing out are the black cab drivers who used to profit from what amounted to a monopoly on certain journey types.

Specifically:

1. Black cabs hailed on the street have a set (very high) price, only pre-booked cars can be cheaper. Uber and others are "just in time, pre-booked" services and so cheaper. Here, Uber and others are creating competition and improving the functioning of the market.

2. Uber have at least 4 (popular, at least with people I know) competitor apps in London - Hailo, GetTaxi, Kabbee and Addison Lee. All do similar things with their own take (Hailo finds black cabs with their extortionate prices and supposedly better service, Kabbee is an aggregator for many local and often very cheap minicab companies - but with highly variable service levels, GetTaxi I think is similar to Hailo and Addison Lee is a private car firm who employ a lot of drivers and have been around since long before Uber). All are vying for customers and responding to the competition with deals and pricing improvements - another sign of a healthy market.

3. The algorithms appear designed to find the most profitable sweet spot at any given time to keep prices as high as possible while minimising spare capacity - that's sensible and how any company should (and do) act. Even if it's irritating when surge pricing is in play, it's completely reasonable.

I have 4 of the above taxi apps installed and pick the best one for each job - which often turns out to be Uber, so good for them.

Bottom line - you can never rely on one company to create a competitive market but if anything, the attention and lobbying Uber has brought to the sector seems to have created a fairer market and benefited consumers.

Exactly.

I love Uber. Whenever I'm in San Francisco, where the taxi market is completely broken. I've never felt the need for Uber when I've been in places like Sweden, Singapore, Japan, etc, since in these places regular cabs work just fine. In all these places local taxi companies also have hailing apps or SMS services, so simply adding streamlined payment and reputation services doesn't a monopoly make.

I used to live in Europe and I echo this sentiment. Getting a taxi in London, Stockholm, Munich, etc. has never been an issue. Dually, the price is fair as you can hail an alternative mini-cab (in London for example) at a reasonable rate and the service is on par with that of a black cab. When Uber came to London for example - the only difference from a consumer perspective was that (1) cabs were auto-dispatched based on technology (as opposed to a manual dispatcher like Addison Lee, etc used) (2) the car and driver quality was much higher and (3) the mobile app works universally regardless of whether I'm in London or Brighton.

In NYC, Chicago, LA and SF the cab situation is atrocious, and very few private markets are set up to compete against the existing medallion monopolies.

Uber is in the position of a network provider, and hence in a position where it can naturally become a monopoly via network effects.

Any market with network effects has high barriers of entry and therefore reduced competition, unless regulation exists to lower the impact of network effects (e.g. mandating interoperability).

The important part you are missing is that there is already a monopoly on cab services precisely because of regulation. Uber is currently disrupting this monopoly. So what you said, but other way round.

I don't think it's that strong a network. Drivers are businessmen - they aren't going to shun another app just because it's too much trouble to sign up. So there's big no chicken / egg problem - any competing network with half a chance of taking on Uber will get plenty of drivers.

It's kind of like eBay stores, not the "sell and buy junk from strangers" eBay. And since there's only one product, the customers won't flock to Uber because they want variety.

I'd rate it lower than eBay and far lower than Facebook in terms of the strength of the network.

Except the largest barrier to entry in the cab market is politics protecting the status quo in the regulated cab business. By tearing this down, Uber is effectively paving the way for competitors such as Sidecar and Lyft to disrupt them.

Also, I personally am sick of people complaining about Surge pricing. It's supply and demand. The tradeoff is ability to get a ride. When it rains, the supply of cabs stays the same but demand sky rockets. This surplus is passed to the consumers who are lucky enough to get a cab but many are literally caught in the rain. Uber raising the price is simply allowing the person who wants the ride the most to benefit from it.

> This surplus is passed to the consumers who are lucky enough to get a cab but many are literally caught in the rain. Uber raising the price is simply allowing the person who wants the ride the most to benefit from it.

I think people understand that. But they might feel like distributing the limited cab supply based on luck is more fair than based on who will pay the most.

Why? If I'm running late to an appointment I will be willing to pay more than someone who is heading home from work to unwind and is in no particular hurry.

I love the concept that my fate is in my hands. It's not a matter of skill or chance in hailing a cab. I'm given all the information I need to make an adult decision and get to choose if it is worth it or not.

Sorry, rereading that some of the language gives a condescending tone which is very much not my intent.

So I don't actually know, does Uber flash up a big red warning when you're about to book a cab that your usual $10 ride is going to cost you a lot more? One of the reasons people dislike the surge pricing is that it was taking people by surprise.

If Uber wanted to still please the people with more money than time they could just add a 'bribe' button to add $5 or $10 or more to your ride request so drivers will be more likely to accept that request.

Yes, they show a big warning and make you type in the surge multiplier to confirm that you've seen and understood it.

perhaps they would like to make surge pricing optional and let passengers agree to pay the surcharge or not..then let drivers choose which passengers to pick up..

But they might feel like distributing the limited cab supply based on luck is more fair than based on who will pay the most.

A similar situation is seen in distribution of immigration visas. Some people 'pay' for the privilege via investor class visas. Some people get in through nepotism via family class visas. Some people get in randomly through visa lotteries.

It's hard to say which of these is more fair than another. Probably depends on your point of view.

"First come first served" isn't a great way to distribute limited resources, but I don't see how "serve the richest first" is better, socially speaking.

Honestly, my problem with Uber has nothing to do with surge pricing and everything to do with the fact that they've completely circumvented all the normal regulations surrounding cabs when realistically they're a cab company in everything but name.

Really, though, it's on the municipalities to modernize their anachronistic taxi regulations to properly handle services like Uber.

they're not. The fact that they've circumvented the regulations is because the regulations don't necessarily make sense: They don't "cruise" like taxis do, so they cause less traffic congestion. They don't use taximeters, so you don't have a device which needs to be calibrated and checked by the state. In the case of UberX, they own their own cars, so they're less likely to be reckless drivers. They don't require queues like taxis do outside of bars, or even worse, at the airport, where a queue attendant has to be paid to make sure passengers don't accidentally jump the queue. By having a rating system, there is less of a need for enforcement of a 'taxicab bill of rights' which shifts costs of monitoring and handling misbehaving cabbies onto the state, etc.

I asked an Uber driver about surge pricing once, and he said that he doesn't see what the surge rate is. He just gets texts from Uber sometimes saying, "demand is off the charts! get out there!" So it's interesting to hear all the almost-dogmatic free market rhetoric from the company, when it seems the reality is that the market isn't very free at all.

How? "Demand is off the charts! Get out there! Increase supply!" This is free market basics.

Free market basics would be "this it the current price for your services, would like you like to provide supply at this price?". This is more like your boss telling you to get back to work because it's busy.

Is it? thenmar was not clear whether the text was advisory or an order.

Though either way, I'm not sure what bearing that would have on how "free" the market is. Employers in some sense exist to entice you to do things you don't fundamentally "want" to do, by compensating you for it.

The text isn't an order. A couple of my friends drive Uber in their spare time for cash, and they can work when ever they'd like. They just sign in to the app on their phone and they become available, and can sign out when they don't feel like working anymore.

They get texts when surge pricing is in effect like above to incentivize them to sign in and drive.

The point wasn't about whether it's advisory or an order, the point was that the actual price was not part of the message. Given that market principles are supposedly about using price signals, this is rather at odds with market principles, don't you think? ;-)

I'm unclear on how the operators are going out there without information on what to charge. It seems like we're making up "facts" here, then drawing convenient conclusions.

Users connect their card to the Uber app. Drivers simply press "start trip" and "end trip" (on their own device, after having accepted the call and arriving at the pickup location) - all the billing is done by Uber. The driver isn't paid directly.

I don't understand this part:

As more people use Uber, there will be fewer people trying to hail cabs, and fewer cabs picking up people, which will lead to reduced expectations cabs will be available, and so on and so forth. Gradually the ‘open cab market’ will be displaced by a closed Uber service. I’ve already noticed it’s harder to hail cabs where I live, capacity is often taken up by Uber riders.

Supposedly traditional cabs are ridiculously profitable, so even if Uber reduces their demand somewhat they should still be profitable enough to stay on the road.

Uber is a complete and total mystery to me. I don't live in the US, but every year I spend at least few weeks in NYC and SF. Yet, I have never seen (not to my knowledge) an Uber car (though I have seen a couple of Lyft cars), nor personally heard of anyone using it. On the other hand, I hear a lot about this company in various online publications, and every single thing I have ever heard about them was negative: that their CEO is an Ayn Randian fanatic, that they hold the law in contempt, that they're exploiting their drivers, that they're mistreating their drivers, and that they're leaving their drivers out to dry if they get into trouble.

I have heard of people comparing Uber to AirBnB because they're both "disruptive". But unlike Uber, I see people use AirBnB all the time, and I've even used it myself on several occasions. I hear both positive and negative things about AirBnB, but mostly positive.

Now, what's the deal with Uber? Seriously, I have never heard anything good about this company nor seen any actual signs for its existence other than its own advertising and lots of negative press. Who are they? Does Uber really exist or is it a fictional internet meme? Is Uber just some boogyman the internet uses to scare people of an imminent dystopia? Is Uber Keyser Soze?

I can put your mind at rest a bit. Uber is definitely real, at least in NYC where I live. You haven't seen their cars because they're unmarked, but there are a lot of them everywhere. It's used by a large chunk of my social circle, which has almost no techies in it.

Most of the drivers I speak to use it as one of a number of dispatch tools funneling them rides. All have been broadly positive about it, their complaints being mainly those of any professional driver (i.e. sometimes there just aren't any passengers.)

The number one feature we need to add to P2P transportation services is common carrier laws. There is no reason that I need to check N different services to get a ride. Plus, making it possible for all buy and sell orders to be available across network does the most to protect the consumers and suppliers.

These companies should be free to operate their own apps, but they should be require to make their buy and sell orders available to others so that a generalized market can be built on top.

It all depends on what your goal of the taxi market is.

From a regulatory standpoint, the role of taxi regulations is to manage supply in a two-sided market. The goal of managing this is often to balance availability of taxis with the ability of the taxi drivers/companies to make a profit without gouging the customer. Uber just formalizes the type of price gouging that these regulations are designed to prevent. It's consumer-hostile to take a market where fixed prices are the expectation and then say "Oh, well everyone else needs a taxi right now too... so you have to pay more." I'm not saying anything about its economic viability, but it makes the user experience of Uber suck ass.

More problematic is the attitude many taxi drivers take towards money. Uber assumes that every driver is trying to maximize profit; which is not always the case. In my experience (and I take taxis on a daily basis in many cities) the prevalent attitude is "well I needed to make $800 this week to pay my bills. I've made $800, so I'm going to stop working and go hang out with my family instead." Taxis drivers are generally independent contractors, so they can do this. If this happens in a place with a regulated number of drivers, helping them maximize profit quickly reduces the overall availability of taxis, again driving up prices.

Frankly, I hate using Uber. Whenever I need it, the price is jacked up to ridiculousness thanks to surge pricing. That makes it unreliable to me because I'm not paying $50 for a 3 mile cab ride. It's gotten to the point where I usually don't check Uber anymore. Thankfully, most of the local cab companies have similar mapping apps now that replicate enough of Uber's functionality that I am willing to use them.

What city do you live in?

My ratio of good to bad Uber experiences is moving toward bad. In NYC it is about 1:1 now, while other cities still weigh heavily toward positive.

Philadelphia. It's not hard to hail a taxi in most places anywhere near downtown, but when you can't find one, Uber's not really a better option unless you're willing to pay over $50 for a ride.

Uber definitely has a niche where it is useful, but it's not going to displace taxis as a whole.

IMO Uber was born out of a specific fucked-up regulatory marketplace for taxis in San Francisco. Most of the taxis there are "limousine services" that are allowed to answer hails on the street. I found the situation pretty annoying, because rates are negotiated up front and are always more than what a metered taxi would cost. Many cities prohibit this because taxi drivers routinely use it to scam tourists (hence why taxi regulation exists.) Uber is a great solution for the regulatory situation in SF; but most big cities have better taxi regulation than SF.

What do you mean by "whenever you need it"? Are these situations where taxis are unavailable due to demand? If so, that seems to back up Uber's point that raising prices during high demand times creates a reliable transportation system. It seems like the point is to incentivize people to look for other options (or to wait) when demand is at it's highest, so that it can always offer a ride. The price for that ride might be higher, but it's there. The price for the taxi (in those high demand times) might be lower, but if it's unavailable, that price doesn't do you any good.

If you prefer not to pay the gouging rates, nothing stops you from using the normal cabs at the expected rates, so long as you're willing to wait in times of high demand.

I don't see how Uber has made things any worse for you; if anything, they've made it better in terms of your options.

> Uber thought its capital would be best used to run a fleet of cars, it would simply hire people straight out to be drivers. That it’s not doing that suggests something.

Uber buying a bunch of cars and hiring a bunch of people to drive them is FAR less in line with market principals than using that capital to help other people start their own small businesses, so they can work on their own terms and set their own hours.

I wouldn't put it that way. There's an economies of scale advantage to buying cars and hiring drivers. So that option isn't any less in line with "market principles."

The reason Uber doesn't buy cars and hire drivers is: 1) it insulates them from legal liability; and 2) they get to use other peoples' capital instead of putting up their own.

hiring drivers means hiring managers and administering 401k plans and meetings and dress codes and did you get the goddamn memo or not

financing contractors means lots of minds making their own value judgements, risking their own resources and gaining more of the rewards for themselves.

> The reason Uber doesn't buy cars and hire drivers is: 1) it insulates them from legal liability ....

Uber hopes it will do that, and to a certain extent it very well might --- but personal-injury plaintiffs' lawyers are remarkably creative in coming up with arguments why they should be allowed to recover damages (and percentage-of-the-recovery contingent fees) from any deep pockets in sight. Sometimes, some of those arguments succeed in persuading judges.

On a tangential note, I predict someday soon some subset of Uber drivers will be suing Uber for overtime, unemployment benefits, etc., on grounds that, no matter what the contracts say, under the law the drivers purportedly are "employees," not independent contractors. [1] This is a not-infrequent occurrence with delivery-service drivers; see, e.g., Narayan v. EGL Inc., 616 F.3d 895, 898-99 (9th Cir. 2010) [2].

[1] I've long thought that much of legal advocacy could be summed up in two words: Yeah, but ....

[2] http://scholar.google.com/scholar_case?case=1839421424161903...

It is a feature that they set the price, because like a store with a ton of inventory, it is complicated to sort through all your options if every cab sets it's own price. It makes complete sense that surge pricing occurs when there is a supply demand imbalance and it makes complete sense that it evens out the imbalance.

"In fact, Uber is even starting a financing program for its drivers, so they can get loans for cars."

Whoa. I did not know that, although I should have expected it.

Now I have Sixteen Tons stuck in my head.

Since private marketplaces over the internet seem to spread everywhere and do have some monopolistic power ,i wonder, is there a more open strategy that works against such markets ?

Interesting - like most new marketplaces this seems to be a "winner take all" situation. The online marketplaces really tend to converge into huge monopolies by virtue of network power.

It obviously seems to behave that way, but I wonder why. Much like search there is very little lock in. Nothing stops a user from having 3-4 different car apps, or one third party car app that checks 4 services.

Maybe it is the drivers? If you driver for Uber can you not drive for another service? I could see that tilting things in their favor. Everyone uses Uber because that is where the drivers are and drivers join Uber because that is where the passengers are.

You can absolutely drive for UberX (not sure about UberBlack) and another service. I work for Flywheel, an Uber competitor, and we regularly see people who drive for UberX, Lyft, Sidecar, and us all simultaneously.

Uber and Lyft, the big players, definitely push more passengers than smaller companies like we do, so drivers do tend to congregate to them. Passengers, though -- there really isn't much of a network effect. Lots of services in SF can get you a car. Your friends using Uber doesn't make the service any better or worse for you.

And some people do hop services. I think that there are people who use UberX most of the time, but hop to us when Uber is surging.

I think that most of the lock-in you see has to do with marketing and funding, though. Uber and Lyft have both been funded to the tune of a quarter-billion dollars. They get in front of a lot of people who haven't heard of the smaller players. The broad "get a ride with your smartphone" space has: Uber, Lyft, Sidecar, Hailo, TaxiMagic, InstantCab, us (Flywheel), and several other people taking a go at it (Yellow Cab has an app, for example). I don't think it's particularly destined to be a monopoly.

You are right about lock-in, but there is a significant convenience factor. I mean network effects as in eBay (more buyers, therefore more sellers, GOTO 10), not like Facebook (i.e friends).

If Uber has the largest fleet it really makes it hard for other services to compete as no one wants to check multiple apps for that (and the existence of aggregators a la Kayak needs some sort of open API, which I don't think exists).

"‘uber’ is a German word which means ‘over’ or ‘better than’ or ‘the ultimate’."

The word is "Über". "Uber" doesn't mean anything. In 2014 one should expect people to find Ü or \u00DC. Since the two dots stem from a superscript "e", "Ueber" would be ok. Uber is not.

I think Uber would be much more efficient if the drivers were just employees of Uber and paid a flat salary. Instead they have to do a song and dance to skirt around various regulations. It makes the whole thing vastly over-complicated.

Nitpick: uber is not a german word, if anything its a version of the actual german word über where someone garbled the encoding. It also doesn't mean the best, it simply means above.

Über in German has had both a physical and abstract sense for a long time, like 16th century long time. While English usage is a bit looser, it's not as completely unfounded as you make it sound. Wikipedia actually covers usage better than I would have expected:

http://en.wikipedia.org/wiki/%C3%9Cber#In_German

This is a fundamental problem with services that need to be public goods/institutions and already happens with cabs today.

The public safety/consumer issue that led to taxi commissions is that dense areas would be choked with cabs of questionable safety quality and the rates would vary greatly. So the solution is a price ceiling. The local taxi commission controls the number of licenses issued and sets prices. Lots of issues there... for example, the rates are locked in while the costs for operating cabs (fuel, labor) is variable.

IMO, Uber is a net-benefit to the market because they are breaking the regulatory monopolies enshrining cab companies. They have first-mover advantage, but other apps or services can emerge to compete for drivers and customers.

Does Uber hold patents which prevents competitors or the cab companies from entering the same market?

stopped reading at:

"As more people use Uber, there will be fewer people trying to hail cabs, and fewer cabs picking up people, which will lead to reduced expectations cabs will be available, and so on and so forth. Gradually the ‘open cab market’ will be displaced by a closed Uber service. I’ve already noticed it’s harder to hail cabs where I live, capacity is often taken up by Uber riders."

for a supposed "financial journalist" he literally has zero comprehension of basic economics. open is closed and closed is open. wut?

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