> “if Uber needs to “pad” their drivers wages $2 per hour and Lyft needs to pad $4 to reach minimum level due to Uber being able to use its size to get higher utilization, then that seems like competition as it should work?”
The problem is that Uber’s higher utilization is an arbitrary metric, and if we’re picking arbitrary metrics, why would we pick one that intrinsically entrenches the current market leader?
Just because Uber’s utilization might be higher than Lyft’s, that doesn’t mean either one of them is operating with a satisfactory utilization or an unsatisfactory one. What if Uber operated at 99% utilization, and Lyft at 95%. At that point, offering any financial incentive based on ranked utilization would be a huge waste of taxpayer money.
Meanwhile, if Uber and Lyft are at 15% and 10% utilization, it’s equally a waste to reward because those are such bad numbers that society is enduring major congestion costs.
Here’s an analogy. Suppose in the US that the government decided sports teams are a morally bad influence on society due to executive and athlete behavior.
As a result, they will reduce your team’s roster size unless you donate money to charity.
Suppose they were to “unlock” one new roster spot for every $1 million of charity donation. That seems possibly fair. Teams can each decide if it’s worth it, and it’s a flat fee affordable even by the least financially well-backed teams.
But instead suppose they tallied up all the donatioms to charity and ranked each team. The top team gets all roster spots, the next team gets most of them, and so on down to the teams that did not donate, which get no roster spots unlocked.
What’s the problem with the second model? It seems like a nice auction sort of way to do it, and that’s fair right?
Well one problem is that the whole point was to raise money for charity to offset ethical problems, and the auction method does not necessarily cause much donation to happen, only enough to be the winner, say. The winning team might have only donated $500k total, but they are still rewarded like they did something awesome. Society loses out.
The second problem is that it intrinsically favors teams with more money. They can buy the roster spots just based on their size, regardless of whether it is addressing the underlying ethical problem. For big teams it’s just a cost of doing business and the players can keep on doing cocaine in the hotel room, who cares. But for the small teams, even if they want to reform the underlying problem, they may not be able to afford to unlock roster spots, which reinforces that they won’t make as much money from winnings, which keeps them unable to buy future roster spots, and so on.
The utilization reward policy is like this in many ways. It doesn’t reward based on absolute levels of utilization or improvement of utilization... it intrinsically rewards based on your ranked utilization, which just reinforces the market share of existing operators.