Uber Essay

Valeria Olvera Castro December 7, 2015. Universidad de Guanajuato

Abstract: We’ve all heard about Uber, the phone app that connects drivers with customers, and how it recently has disrupted the taxi industry. It is also well known that technological innovation has developed a fixed cost model where government’s regulations are not needed. Basically, Uber has its own entry barriers which are lower than taxi industry, so Uber operators don’t need to buy or to hire a medallion. Therefore, the whole supply of transportation services has significantly increased. At the other hand, for the customers, the safer and cheaper service, the ease of getting the app and the cashless payment system has raised the private cab service’s success which makes it so threatening for cab drivers who have referred it as untrusted and illegal. This text will argue the Uber’s loyal and legal status in a competitive market. In an economy where producers compete with each other and cannot individually decide the service’s price, any company can entry in the market such as Uber which is dismantling taxi’s monopoly. This paper will discuss the arguments why Uber is loyal and legal based on the two particular cases where it is totally legal: London and Frankfurt, how they are regulated and what could happen in the long run if we keep using this app.

Introduction

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Today’s hectic world we live in demands quality, efficiency, and good prices. We have seen that technological innovation have allowed the emergence of 21 st century business with better cost model utilizing smartphone apps such as Uber Technologies Inc. which has been successful because it is a faster and more reliable alternative to the cabs, furthermore, there are also benefits for drivers who can make a higher earning. As a result, the company is so threatening for cab drivers who have referred it as untrusted and illegal. This essay will argue the Uber’s loyal and legal status in a competitive market. Firstly, we have to know how Uber works.

Uber

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Using Uber is easy for someone who owns a smartphone and a credit card. Basically, it connects riders with drivers through their phone’s GPS, sharing location with both parties so they can know when the ride will arrive. Simultaneously, Uber processes the payment charging it to the passenger’s credit card, it takes between 5% to 20% for itself and deposits the rest into the driver’s bank account, thus, is completely cashless. It is relevant to say that Uber does not owns the driver’s car or has hired him. The big group of riders has made possible for Uber to have several different levels of service, the one with the lowest cost is UberX: which runs cars like the Toyota Prius; the next level is the Uber Black; then we found the Uber SUV that is a larger vehicle; and finally there is the Uber LUX where drivers ride cars like Porsche Panamera and BMW 7 Series Sedan. The referred organization was founded by Travis Kalanick, Thuan Pham, Sally Yoo and Garret Camp in San Francisco, California in 2009. Currently, it operates in 51 countries and more than 254 cities, and the company claims its services are available to nearly 64% of the U.S. population. Since its foundation, Uber has experienced nearly vertical growth, by December 2014, the company was valuated at $40 billion that is double what it was in June 2013, what equals to $19.839 per minute, the company estimates doubling its income every six months. It is important to make clear what are the regulations a taxi cab should follow to operate, The Federal Trade Commission identifies five: entry restrictions; minimum and maximum fare controls; restrictions on the types of services offered, such as ride sharing; requirements to provide certain amounts of service; and quality regulations, which concern vehicle safety, driver qualifications, and liability insurance coverage. Big cities such as New York, Chicago and Boston, have this regulations very well controlled, especially the first one (entry control), they have created a medallion system which states taxi licenses can only be obtained through transfers from an existing license holder for a high payment. Any people could tell Uber is a taxi, with a medallion free privilege, but the corporation has well planed the reply to this kind of reviews by classifying itself as a

technology company instead of a transportation company and classifying its drivers not as employees but as independent contractors saving all the cost any worker could produce. To state what is mentioned before, Uber claims its “All Rights Reserved” to the paragraph ahead: “Subject to your compliance with these Terms, Uber grants you a limited, non-

exclusive, non-sublicensable, revocable, non-transferrable license to: (i) access and use the Applications on your personal device solely in connection with your use of the Services; and (ii) access and use any content, information and related materials that may be made available through the Services, in each case solely for your personal, noncommercial use. Any rights not expressly granted herein are reserved by Uber and Uber's licensors.” Consequently, the effects on the taxi industry are being manifested in significant ways. The city where the company has born is an example of how Uber has disrupted the cabs business. Studies of the Cab Drivers Association of the city of San Francisco have shown that in 2013 one third of the total of 8,500 of taxi drivers left their job for registered Cab Drivers Association. Curiously, they did not opt to drive for a private startup like Uber. Other studies made by the San Francisco Municipal Transportation Agency said that the average trips made by a taxi driver per month have decreased in a 65 percent. The reports showed that in March 2012, the taxi driver was making 1,424 trips per month, while by July 2014, the trips made per month were 504. The Taxis Accessible Services director for San Francisco Municipal Transportation Agency argues that this decreased is linked with the rise of Uber and its 45 percent cheaper rates than taxi cab tariffs. Notably the taxi driver’s resistance to ridesharing companies is only a bunch of people trying to stop progress, this resistance is just because the new cabs system is ending with the monopoly that they have been created since long ago. In many cities, the taxi cab cartels and local regulators have been fighting such services, as a clear example, we can note the Uber situation in Mexico City where the taxi drivers have come out to protest against the ridesharing company several times. The fighting has been occurring for one overriding reason: transportation network companies are or have recently been in complete violation of current laws and regulations, or at the very least of questionable legality.

Considered as the “rogue app” by some tribunes, they have been accusing Uber of failing to protect public safety and using deceptive business methods. Moreover, the cab system adds the charge of unfair competition and consumer fraud, objecting primarily because the company doesn’t have to obey city regulations, this has resulted to fighting some legal battles that have been won. Even though the public support raised enough objection, the cities were forced to rule in favor of the app. The first step to halt these “corruptive practices” is listening to the advice Adam Smith gave when he addressed the problems of regulation in his book The Wealth of Nations, from where I quote: “The proposal of any new law or regulation of commerce which comes from this order [narrowing the competition] ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.” (Smith, 1776). Another clearly dark side to the new transportation network company, is that it will make a sort of revolutionary way to create enterprises in the future: they are casing a degradation on the traditional social contract between employers and employees, in other words, protection and income security could not be guaranteed to workers who will contribute to stabilize the economy. Corporations and owners of the capital will have free reign to exploit workers, subsequent in large profit earnings at the cost of employee´s rights who are left entirely vulnerable to economic insecurity and uncertainty. Until this part of the essay, there have been many objections why Uber Technologies Inc. is dismantling the taxi cab industry, which makes it illegal and, as a result of this, not loyal. Also, how it has made trends that won’t be reliable for workers in the long run, thus, after this point the text will describe advantages of this low cost system company, starting by explaining why it is legal London (one of the exceptions where it is regulated as any other enterprise) as shown in the next paragraph. On June 11, 2014, Uber has scored a legal victory against Transport for London over its operations in the capital, in a development that it hopes will head off a looming regulatory clampdown, so now the capital's High Court has just ruled that the way Uber calculates fares is legal, according to the High Court ruling that will spark further hostilities between the taxi app and the capital's black cab drivers, it will be possible the set of a precedent for other cities, the company's app does not constitute a taximeter. This fact

may change the Uber situation in some other countries because London is the first city that legalize the smartphone app completely. It should be noted that Uber is consider so threatening to the traditional taxi industry manly by its technological innovation, in other words, it is successful because it utilizes the tools of a new generation of information and telecommunications technology to compete in the industry. This way, Uber makes its service a superior one. Furthermore, the internet enabled technologies have facilitated new forms of social contracts, the have reduced risk for actualized companies, and they have increased the control of business operations. One of the features we can see at technology used by Uber and which can be used in another organization employee’s evaluation, is the rating system that helps regulate the market by getting rid of bad drivers: when the trip has ended, the passenger and the driver rate each other in a scale from zero to five stars. The drivers who average less than 4.7 stars are automatically deactivated from driving for Uber. This tool allows the company to increase transparency and accountability since it will incentivize both parties to act appropriately, otherwise, they will be in risk of being shut out of the app. As a consequence, this makes the whole market more efficient and reliable. All around the world there have been people taking advantage of this app, not only by using its service or for riding as a free contractor. The emergence of Uber into the market has helped economy by creating jobs and helping people all over the world to become sort of micro-entrepreneurs. To make this point clear, there is a testimony I would like to quote: Gavin Escolar is a Filipino man who drives Uber in San Francisco to promote his business, he uses the car as his showroom by wearing the jewelry he sells everywhere he can and store extras in the glove compartment, so the passengers can look Gavin’s merchandise. “It’s a salesman’s dream. I have 10 minutes to make an impression. Would that happen if I went door to door? Or if I bought tiny online ads? My way, I get quality time with quality leads. Best of all, I’m being paid as I do it. It’s like Uber is providing a base salary before I make any jewelry sales.” (Escolar, 2015). Another main argument against Uber is that ridesharing care worries relate to the well-being of drivers, passengers, and third parties. But this ends being another techno logical innovation. In some cases there is little evidence that the ridesharing services are more dangerous than traditional taxis. In fact, the ridesharing business model offers big

safety advantages as far as drivers are concerned. In particular, ridesharing’s cash-free transactions and self-identified customers substantially mitigate one of the worst risks associated with traditional taxis: the risk of violent crime. An analysis of the safety regulations governing vehicles for hire does not suggest that ridesharing companies ought to be more strictly regulated. It does highlight, however, that in many parts of the country lawmakers and regulators have not adequately adapted to the rise of ridesharing, which fits awkwardly into existing regulatory frameworks governing taxis. The quick growth of ridesharing provided by Uber, demonstrates that consumers are not satisfied with existing taxi service. The heavily regulated taxi industry, frequently subject to arduous restriction and simultaneously shielded from competition, all too often provides shoddy and unreliable service at inflated prices. So it is ironic when that industry and its supporters attack ridesharing in the name of concern for consumer safety and welfare. But it should not come as a surprise, as government restrictions on who can legally provide a given service are usually justified in the name of consumer protection even though such justifications are frequently worn, and the real effect of such regulations is to protect the big cab monopoly. Lots of quoted people who have become famous because of their researches have an opinion about the topic. Paul Krugman, the American economist awarded the Nobel Memorial Prize in Economic Science, in his blog, which is the most influential economics blog, also agrees with this low cost system company by saying it is widespread and reliable: many Americans can forgot owning a car, which is a resource they currently greatly underutilize; a benefit for both individuals and society is that we would not be tying up so much capital in automobiles. Krugman states one reason why Uber has become a hot political topic is that it represents the smartphone revolution. A second reason is, as said earlier in this text, Uber’s workers supposedly are free contractors, not employees, exempting the company from most of the regulations designed to protect employee interests, and “Republicans are willing to dismantle as many worker protections as they can.” He concludes by saying that it is possible “to promote the use of new technology without prejudicing the interests of workers. But progressives need to work on doing that, and not let themselves get painted as enemies of innovation.” (Krugman, 2015). Personally, I believe that everyone who has ever used Uber´s service knows for sure that is better, in many ways, than using a regular taxi cab. It is easier, faster, more trustable, and cheaper to get a ride. For example, when the demand of people wanting a

taxi outstrips the supply of the cabs, there is no chance but luck you will get a car. For this situations, Uber applies an interesting surge price strategy: they increase the prices of their car’s rides. I found important to say that the company lets the customer know about the excess of demand status by popping a “surge” icon above the price, and if the requester still wants a ride, the app will show the surge multiplier and then ask the consent to a higher price. As a result, people who can wait for a ride often decide to wait until the price falls, thus, the number of people wanting a ride and the number of available drivers come close together, bring wait times back down. To prove what I have said in the last paragraph, I will make reference of case study that the company and The University of Chicago have made on a night of a sold out concert at Madison Square Garden when surge price strategy worked as intended: on that night it was a 4 times increase in the number of the people opening the app, the prices surged, so a considerable amount of people decided not to request a ride. Meanwhile, the total of the ride requests were completed. As I said in this text, technology organizations do not fulfill the standard regulations of the government as any other company registered according to the government laws. But I think the problem is not for the government to stop this new enterprises but to find a way to make corporations under government laws (taxi cab industry in this case) as competitive as the emerging technology organizations. The countries’ administrations should take advantage of this corporations: since the recession of 2008, 3.7 million Americans have lost their jobs or have replaced their full-time jobs to part-time ones, thus, their income have fallen, organizations like Uber are just a way for this people to fill holes in their income. It only remains to the administrations to find a way regulate this kind of innovations.

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Conclusion

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Coming back to my thesis: Uber’s loyal and legal status in a competitive market, my main argument is that the app is registered as a tech company, this is what allows them to operate as legal and the reason why they provide all the taxi services avoiding the highly costs of medallions and all the regulations that have protected the taxi cab industry from competition since the 30’s decade. At the other hand, it is well known that in a competitive market monopolies are not allowed, taxi cab industry is no other thing but a monopoly, thus it should not exist, though they are necessary. I agree with many authors

by saying we can see Uber as a way the taxi cab industry won’t be able to individually decide the service’s price, it would just force the operators to restructure their services and price them more rationally.2 3

References: Colprensa. (March 20, 2015). Uber solo es legal en dos de las 250 ciudades del mundo en las que opera, El País. Retrieved from http://www.elpais.com.co/elpais/colombia/noticias/uber-solo-legal-dos-250ciudades-mundo-opera Constine, J. (2014, June 30). UberX wages war on Bay Area taxis with 25% price cut. Retrieved from TechCrunch website: http://techcrunch.com/2014/06/30/uberxnow45-percent-cheaper-than-taxis/ Geradin, D. (June 7, 2015). Should Uber Be Allowed to Compete in Europe? And If so How?, George Mason University. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2615530 Gongloff, M. (2014, December 4). Uber's value just doubled to $40 billion in 6 months. Huffington Post. Retrieved from http://www.huffingtonpost.com/2014/12/04/uber-40billion_n_6270908.html Hall, J. and Kendrick, C. (September, 2015). The Effects of Uber’s Surge Pricing, Uber Newsroom. Retrieved from https://newsroom.uber.com/2015/09/the-effects-ofubers-surge-pricing/ Isaac, E. (December 7, 2014). Disruptive Innovation: Risk-Shifting and Precarity in the Age of Uber. Retrieved from http://www.brie.berkeley.edu/wpcontent/uploads/2015/01/Disruptive-Innovation.pdf Liberty Fund, Inc. (July 7, 2014). Michael Munger on the Sharing Ecomomy, Econtalk. Retreieved from http://www.econtalk.org/archives/2014/07/michael_munger.html Merket, E. (2015). Antitrust vs. Monopoly: An Uber Desiruption, Fau Undergraduate Law Journal. Retrieved from http://journals.fcla.edu/FAU_UndergraduateLawJournal/article/view/84609/81633 Rogers, B. (January 31, 2015). The Social Costs of Uber, Temple University. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2608017 Uber (2015).Business Licence. Retrieved from http://www.uberpdxpartners.com/businesslicense Youshaei, J. (February, 2015). The Uberpreneur: How An Uber Driver Makes $252,000 A Year, Forbes. Retrieved from http://www.forbes.com/sites/jonyoushaei/2015/02/04/the-uberpreneur-how-an-uberdriver-makes-252000-a-year/

Alejandros’s suggestions: * No hay separación entre conclusión, introducción y marco teórico me cuesta un poco de trabajo entenderlo1 * No me queda claro el argumento de tu hipótesis de que porque debería ser leal y legal, mencionas que es una empresa de tecnología y por ende no entraría legalmente en el mercado de los taxis, pero claramente según muestras en datos compiten directamente con estos, creo que a mi parecer no me queda claro porque debería de ser legal, ya que los taxis pagan impuestos y en algunos países compiten por las concesiones, si fuera tan fácil sería legal en todas la ciudades donde esta no solo en dos como mencionas.2 * En general das referencias buenas y el ensayo es bueno solo pienso que falta especificarte más en tu pregunta clave y que quede clara la respuesta ya que hablas de Uber y mencionas todo lo bueno que sabemos que tiene pero eso no necesariamente contesta tu pregunta.3 * Al trabajo en una escala del 1 al 10 le daría un 8 ya que no me quedo claro la justificación de porque debería de ser legal, pero en general el ensayo se me hizo bastante interesante, dio buenas referencias y analizo bastante a Uber.