Ensuring a Level Playing Field for Rideshare

Something something higher Utilization Uber? I read it twice but it’s still a little muddy to me. Are they arguing that since Uber drivers have higher utilization, Uber has to pay less minimum wage padding - so they get an advantage? Isn’t that fair? Or is this more complex than I’m hoping?

Honestly, I don't mind not getting tipped by the old man or single mother going home with a few bags from the grocery store, I know they're broke. On the other hand, I appreciate it when the businesswoman headed to the airport gives me a bigger tip than I expected, I know she can afford it.

Would I rather make a flat extra $7 an hour? Yeah, probably overall. But allowing tipping (in an environment where it's been a tradition for generations) costs the company nothing and results in more income for underpaid drivers. If it's that or simply make less money, well, it may not be the perfect shining ideal of How Things Should Be Done, but I'll take it.

That’s why having tipping be part of the app is so ass backwards. The pricing shown to the customer is what the customer agreed to pay. Some fraction of that goes to the driver and that amount should be enough to be a viable source of income. Banking on an expected X% bonus that’s not listed in the price presented to the customer for the system to be able to operate is disingenuous.

> Honestly, I don't mind not getting tipped by the old man or single mother going home with a few bags from the grocery store, I know they're broke. On the other hand, I appreciate it when the businesswoman headed to the airport gives me a bigger tip than I expected, I know she can afford it.

And if she doesn’t tip do you feel sleighted?

> Would I rather make a flat extra $7 an hour? Yeah, probably overall. But allowing tipping (in an environment where it's been a tradition for generations) costs the company nothing and results in more income for underpaid drivers. If it's that or simply make less money, well, it may not be the perfect shining ideal of How Things Should Be Done, but I'll take it.

Tipping for drivers has always been possible, in cash, outside of the world of the app. Having it total external prevents “expected tip” shenanigans for min wage calculations like goes on in the food service industry. That also has the advantage of being off the books for the drivers (let’s be honest, none of them are claiming taxes on a fiver given in cash by a passenger).

Lyft here is not opposing a plan to ensure drivers make a minimum wage nor opposing a plan to incentivize companies to increase their utilization rate, which is a measure of how much productive traffic they add to the city instead of unproductive traffic.

On the first issue, Lyft is saying that the specific implementation of a minimum wage policy is going to hurt drivers by lessening ride demand overall. Their reasoning is that the policy mandates the wagechange must apply individually to every single ride, rather than applying in aggregate to each driver over longer time spans like a week.

If Lyft can compete through price changes on a ride by ride basis, yet still ensure that at an aggregate level the driver meets or exceeds the wage requirement, this gives Lyft more levers they can pull to keep prices lower for customers and/or strategically decide which types of traffic patterns ought to be paying higher prices that subsidize the wage requirement.

The current policy disallows this type of “smart pricing” and instead insists that all rides must raise in price, which is likely to lead to decreased demand overall, especially for short rides that are less problematic in terms of return-trip utilization risks.

This issue had little to do with Uber except maybe that Uber had greater capitalization to ride out more losses while this law kills off competitors. But Uber drivers could be just as negatively affected as any other drivers from the specific way that a wage requirement is being carried out.

The other issue is very different, it is about rewards given to companies based on the company’s demonstrated utilization rate, which is in part a function of the amount of ride liquidity that company has, which is basically a proxy for market share.

Lyft is asking, hey, if the goal here is to reduce unproductive traffic in line with some studies on traffic congestion, etc., then why is there an individually-calculated reward on a company by company basis that is partly calculated using a proxy for market share? How does that solve the city congestion problem?

For example, let’s say that the city did some research and knows that if companies operate with utilization rate of 60% or higher, this is “good,” and they want companies to have a financial incentive to reach that.

One way would be to offer a price break, freedom to pay drivers less than the new minimum wage requirement, as a reward for hitting the utilization mark.

Instead of that, the law is choosing a formula not based on something like that 60% number from studies or other factors. Instead, it is saying, hey so Uber had a utilization rate of 45% (pretty bad for the city, way less than 60%), but their 45% number (partly due to their market share) is better than say Lyft’s utilization at 40% or something.

In that case, Uber would get more price break than Lyft, because 45% is higher than 40%, despite neither one hitting the mark necessary at 60%.

Worse yet, because Uber’s ability to engineer 45% utilization is largely just because Uber happens to have a larger volume of ride inventory, the reward had nothing to do with proactive policy on Uber’s part, but is instead literally codify the idea of “the rich get richer.”

Many alternatives make more sense in terms of helping the city and preserving fair competition, for example:

- basing price breaks on city-wide utilization target levels that apply to everyone.

- basing price breaks on the amount utilization increases over time, so that the people making the biggest improvements get the biggest rewards.

Once you drop off the rider, you’re less likely to immediately pick up a new rider in that random outlying area, so there’s some “return trip” extra cost built for everybody, in terms of paying the driver to get back to a place with a lot of passengers, the driver spending time to get there, and society bearing a zero utilization period for the driver to get back.

As a result, this typically makes prices for these rides go up to reflect all these built-in costs. And naturally this reaches some equilibrium that reflects what people in the outlying area are really willing to pay for the convenience, and somewhat weighted by the natural demand for rides there.

But one criticism of Uber has been using investor capital to artificially reduce those costs down to levels totally unsustainable in terms of the actual demand and built-in costs. Essentially taking a loss to artificially over-service those areas, leading to huge increase of zero-utilization return trips and huge losses to cab companies that don’t have investor cash injections to artificially suppress the real prices in an attempt to win monopoly market share like Uber is trying to do.

This is just one issue, and there are many more involving ride supply, driver pay, smart pricing, business pricing, etc.

All these things combine to create a really complicated situation for the TLC to genuinely ensure that drivers are paid fairly and companies like Uber don’t just use investor cash injections to skyrocket unproductive “rides in waiting” floating around to artificially make rides more available for market capture.

As a result, very simple policies that do not dig into operating details are unlikely to succeed at all and would be easily gamed, especially for larger operators.