Aidan Borre
Uber to Make Taxis Extinct
Anyone who has visited a big city such as New York, San Francisco, Los Angeles, or Chicago knows that getting around can be a near impossible task. While taxis are widely available in these cities hailing a cab has become quite the exercise. Even after rushing to the street corner and flailing your arms in the air you may still be faced with a real life game of frogger as you attempt to cross the street to get to the cab. However, your troubles wouldn’t end there. After entering your taxi you would then experience the driving of a person who would appear to be competing for an award for the world’s most aggressive driving. Then entered the app called Uber. This app allows you to request a ride from your phone. Uber is said to be all around a better option than taxis. This video rates both taxis and uber and can help you better understand their differences.
The second graph shows the amount of trips made by taxis compared to Uber drivers. We can see that there is a decrease in Demand for taxis as availability of Uber increases. This is causing a drop in the supply of taxis. However, there is an opportunity cost to using Uber vs taxis. While taxis use distance and time of your trip to calculate cost Uber has adopted a controversial method for determining the final cost of your trip. For Uber your fare is calculated by distance and the demand for rides in the city at the time you request to be picked up and the supply of drivers available in your zone of the city. This is called surge pricing which means that as the quantity of rides demanded rises so does the price. So while at low traffic times an Uber may cost less than a taxi, but come rush hour your fare could be quite a bit more. Uber has admitted that there are times where this surge pricing has been inappropriate such as in times of natural disasters, but that being said if someone is going to drive me around at the risk of being caught in the middle of a natural disaster they deserve to be paid a little more. This graph shows the number of people in the app and the number of requested rides. Based on this data from economists at the University of Chicago we can tell that the demand price is rather inelastic even during periods where demand is high. When we look at the opportunity cost of using an Uber we see that you can end up paying slightly more for comfort and ease. 
In the long run the supply of drivers for Uber will increase ultimately causing the prices to drop. For now though Uber will continue to attempt to make taxis an inferior good.
Kerr, Dara. "Detest Uber's Surge Pricing? Some Drivers Don't like It Either - CNET." CNET. N.p., 23 Aug. 2015. Web. 27 Oct. 2015.
Murphy, Mike. "Uber Got Two Economics PhDs to Explain How Supply and Demand Works." Quartz. N.p., 17 Sept. 2015. Web. 27 Oct. 2015.
The Data Team. "Substitutes or Complements?" The Economist. The Economist Newspaper, 10 Aug. 2015. Web. 27 Oct. 2015.
Phillips, Abby. "No, Uber Drivers Can’t Game the ‘surge Pricing’ System the Way One Driver Claims." Washington Post. The Washington Post, 19 Aug. 2015. Web. 27 Oct. 2015.
Nice topic. I agree that right now, Ubers seem like they are going to run taxis out of business. Do you think that with taxis extinct, the demand for Ubers will be too great compared to the supply? I also found it interesting how you determine the price of an Uber ride. Do you think some day they will become such a necessity that no matter what the cost, people will use them?
ReplyDeleteWith Uber being relatively new I think it is tough to say that the demand will surpass the supply, but at this point and time the opportunity cost of being a driver for Uber makes the job not worth the effort. However, if the demand for drivers continues to rise the drivers will have an opportunity to make more money driving for Uber vs other jobs. While demanded price at the time is rather elastic, but in the future I feel as though prices would drop due to the fact that surge pricing takes the number of available drivers in an area into account. So assuming the company continues to grow its supply of drivers I don't think people would be ok with paying a higher fare, and would ultimately end up finding a different form of transportation if prices were to rise too much.
DeleteThe introduction of Uber shows how a new idea or technology can change a market and increase competition. Before Uber there was little competition for taxis and now their use is going down. We also might see more innovation from the more traditional taxis in order to compete with the new threat to their business. Uber is also able to use higher prices because transportation is an inelastic good as people need to move from one location to the next.
ReplyDeleteWhen I was in San Francisco, I definitely saw this effect that Uber has on the taxi market. I rode in a taxi, and the driver even acknowledged the competition. Uber drivers and taxis are definitely substitutes, however, it is debatable whether taxis are the inferior goods. While they may be easier to access, that is because just about anyone can be a driver. How safe is that, really? As we learned earlier this year, official taxis must have a certification/sticker and maintain certain sanitation and safety standards, whereas, I am unsure if Uber drivers are held to such standards.
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ReplyDeleteUber has definitely become more popular, however, I do not think Uber can compete with taxis yet. When I was in New York, I saw more yellow cabs than any other car; I think this is because of the fare rate that you discussed. Yellow cabs have always been a credible form of transportation, because the drivers and taxis are checked and certified, but with Uber there is a controversy. There is no background checks for Uber drivers, and anyone can register to drive them. Even though Uber has offered another sources of transportation that can become less expensive as more drivers enter this market, I do not think that consumers are ready to get rid of the opportunity cost of higher priced yellow cabs for a less reliable Uber driver. Unless Uber implements higher standards for their drivers, Uber cannot become the superior good.
ReplyDeleteTaxis and Ubers are inelastic because there are other ways to travel; like buses, walking, bikes, and subways. It will still get you from point a to point b. So as supply increases in Ubers then the quantity will increase. The demand of taxi's price will descend and the quantity will incline. As the supply of taxis increase and Uber's demand increases then the quantity of both will meet at an equilibrium. You will always need taxis and Ubers so taxis won't ever leave.
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