In Defense of Uber.

Ok, let’s talk about Uber.  Since the service's inception, there have been complaints about pricing models and competition practices.  The volume of the grievances has recently crescendoed with the revelation of a plan named "Operation Slog" which aimed to recruit drivers from competing services.  While many are claiming these practices are unethical, I personally believe that surge pricing, aggressive recruitment practices, and competition with traditional livery services should be viewed not as unfair practices but rather as a sign that an innovative company is finally starting to shake-up an archaic market.

Surge Pricing

This has been one of the longest running complaints against Uber.  The argument goes that Uber “price gouges” by charging more during periods of high demand.  Apparently, the proponents of this line of thinking fail to realize that the other option would be not getting a ride.  Surge pricing merely attempts to reduce the imbalance between supply and demand.  The higher prices not only incentivize drivers to get out on the road and sign on to the Uber app but also decrease the demand.  Surge pricing makes the consumer ask if this trip is really worth it.  Furthermore, there are other options.  You can still call a traditional car or taxi.  However, the chances of getting a traditional transportation purveyor to pick you up during a surge period are slim to none.  Sure you are paying more but the other option is to walk or not go.  Before Uber, if you really needed to get across town on New Year’s Eve and failed to pre-schedule a car months in advance, you were out of luck.  With Uber, you may pay more but you will at least be able to get there.  It should also be noted that private limousine services regularly increase prices during periods of expected high demand (e.g. charge more for New Year’s Eve service).  Uber, on the other hand, waits until a supply and demand inequality occurs before scientifically applying a price discovery algorithm to determine the equilibrium price.

The graphs above illustrate the shortage caused by the traditional model and the equilibrium reached using a supply and demand adjusted model.

Another argument I have read, which could only come from people who have never used Uber, is that passengers don’t know about the surges and are blindsided by huge fares.  To those that proffer this argument, I present the following illustration:

The picture above shows two screenshots of the Uber application during surge pricing periods. The application clearly states, in huge print, that there is a surge in effect and what the rate will be.  Furthermore, the user cannot continue to book a ride without first explicitly agreeing to the rate.  Buyer’s remorse is not a valid argument. 

Driver Recruiting: Operation Slog

It was recently revealed, by Uber, that a campaign known as Operation Slog is being used to recruit drivers from competitive ride sharing companies.  Basically, Uber Ambassadors book rides with a competitor and try to convince the driver to switch to Uber.  The Ambassadors pay the drivers the regular rate for the service and engage in a discussion with the drivers during the trip.  The argument made against this is… I’m not really sure what the argument against this is.  I guess people just think it is mean.  Well business is mean sometimes.  In a market of limited supply (drivers) the only thing that will set one company apart from another is the amount of supply controlled by a company.  Failure to obtain and maintain an adequate supply of drivers to meet the demand would result in users abandoning Uber.  Uber not only has a right to solicit other companies’ drivers, they have a responsibility to do so.  Furthermore, any agreement, even a tacit agreement, to not recruit drivers from other companies would be collusion and likely illegal under anti-competitive practice statutes.  I personally would be more concerned if Uber wasn’t trying to recruit drivers affiliated with their competitors.

Competition with Traditional Taxi Services

Traditional taxi drivers are up in arms with the competition brought into the market by Uber.  Their basic complaint is that their “medallions” or other licenses, which cost them considerable capital, will be made worthless by Uber’s ride sharing.  First, they won’t be rendered worthless but they may be less valuable.  However, this is not the only argument against this stance.  The Taxi drivers are in essence taking the same position that buggy-whip makers were arguing at the advent of the “horseless carriage.”  Times change, technology improves, and you adapt or become extinct.  If the current system were perfect, or even adequate, the tremendous growth of Uber would not have been possible. There are multiple problems with the current system.   

First, why are there a limited number of medallions in the first place?  It simply doesn’t make sense.  Why do cities feel the need to limit the number of licensed cabs?  Why does it think it can do the best job of managing supply and demand?  Open the market to competition.  Supply and demand will find the correct number of livery vehicles.  Require insurance, require a valid driver’s license, and let people drive.  If there are too many cars, they will not make enough money to sustain the market and some will stop driving to find other, more profitable, professions.  The only people who benefit from the medallion system are the medallion owners who are rarely, if ever, the actual drivers.  The drivers are forced to pay huge lease fees to the owners.  Let’s end the patronage medallion system and put the free market to work. 

Second, let’s go back to the surge pricing issue.  You cannot get a cab on New Year’s Eve or other major “going out” holidays.  You just can’t.  I have called taxi dispatch to get a car, which they claim is on the way, only to never be picked up.  Apparently there is no retribution if the taxi that has been dispatched to me picks up someone else instead.  With Uber, if a driver cancels the ride, it is reflected in their rating which will affect the number of passengers they get.  Furthermore, there are more Uber drivers on the road on those days because of the surge pricing. The traditional system has no viable plan in place to increase supply when demand is high.

Third, it is impossible to get any sort of real resolution when you have a problem with a cab. 

Driver won’t take a credit card… fill out this form.

Cabbie takes the longest way possible to your destination…fill out this form.

Cab reeked of cigarettes…fill out this form. 

The traditional response to consumer livery complaints is “Fill out this form and we’ll get back to you…eventually…maybe.”  With Uber, the transaction occurs automatically.  There is no way for the machine to be down.  The driver cannot pressure you into paying in cash.  A receipt is supplied automatically via email.  Uber tracks trips via GPS and can tell when a driver fails to take the fastest or most direct route.  I have personally experienced Uber’s responsiveness to this issue and was impressed.  I was immediately refunded a portion of my fare.  I have also complained to Uber about an ashtray cab and they immediately addressed it.  Uber provides a level of customer service that never would be provided by a traditional, city run, taxi commission.

Finally, taxis and limousines simply are not always the answer.  The traditional services currently have a monopoly at most airports.  Uber and other ride sharing companies are explicitly banned from picking riders up there.  Even with this monopoly, the taxi companies cannot manage to get drivers to the O’Hare cabstand on a regular basis.  The Taxis blame it on the city contractor which manages the cabstand.  I personally don’t care who is at fault.  I just don’t want to walk out of the airport to find a long line and NO taxis.  It is not only aggravating to me, but also is an embarrassment to the city.  As for limousines, booking one is a hassle and is more expensive.  Any change in flight times results in an inconvenience to both the driver and passenger.   If Uber was allowed to pick-up at airport terminals, passengers would not have to expend the time and money to book a sedan nor wallow in the purgatory that is the airport taxi line.

These are just a few of the many issues with the current livery systems which Uber solves.  Uber is providing a superior service and this is the real reason the traditional purveyors are up in arms.  They are afraid.  They are scared that Uber might force them to provide better service or face extinction.  They like the way things are right now.  So did the buggy whip makers.

Uber is a smart company in a competitive market and engaged in an aggressive strategy of organic growth.  They have caused a disruption in the marketplace and that will cause some friction.  This type of change has been viewed skeptically since the dawn of time.  However, friction and skepticism do not indicate that what Uber is doing is wrong or needs to be regulated.  Steel was better than iron, democracy was better than feudalism, and cars are better than buggies.  These innovations caused blacksmiths, kings, and stable boys to get pretty upset.  Society still moved on.  Uber is better than the traditional livery transportation system.  They are improving the market and offering a level of service that has never been seen before.  This will cause the medallion owners, bad drivers, and bureaucrats who depend on the status quo to become upset but we cannot allow them to stop the progress of innovation.   It is time for the naysayers to move into the 21st century and support progress rather than attempt to stifle it.  I am personally quite happy the horse drawn carriage lobby didn’t get its way…