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Uber's "Route-Based Pricing" Predicts How Much You're Willing to Pay

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Re: Uber's "Route-Based Pricing" Predicts How Much You're Willing to Pay

#51

Post by green_rover »

dahdum wrote: post #49
jessriedel wrote: post #10

Earlier quoted context omitted.

They were losing money on you before by subsidizing your ride. Now their price better reflect the actual economic costs, and it's not surprising that this means you don't take a taxi as often.

Uber has been profitable in most developed markets* for over a year, this is just meant to squeeze them further so they can subsidize new ones. We are going to live in a bold new world, where getting picked up at Whole Foods costs X% more than a Grocery Outlet across the street. It's really amazing how loose they are with ethics and how willing to court controversy. *Uber points to profits in all developed markets ht…

Wouldn't this suggest that they aren't subsidizing rides to compete with Lyft except when Lyft subsidizes rides as well?

I always see people saying that Uber subsidizes rides now and that rates will rise later if they win a market, but the evidence doesn't support those claims. If they just want to gouge people as everyone speculates they would already do so in markets where there is no "competition".

Instead, it looks like even absent a direct competitor, that they still have competition in the form of car ownership. We should be celebrating their ability to keep driving costs down until it's cheaper to use Uber than to own and operate a car.

Re: Uber's "Route-Based Pricing" Predicts How Much You're Willing to Pay

#52

Post by green_rover »

barronlroth wrote: post #27

Just to clarify, this isn't personalized pricing based on how much a user is willing to pay (user history), but rather pricing based on the "net-worth" of trip's origin or destination?

From what I read, I also understood it to be based on the route (start location and end location).

Re: Uber's "Route-Based Pricing" Predicts How Much You're Willing to Pay

#53

Post by green_rover »

HenryBemis wrote: post #37
voidmain wrote: post #33

I have trouble seeing how this is supposed to work. In the short run, my willingness to pay Uber is roughly "whatever Lyft is charging for the same route." In the long run, if Uber and Lyft somehow collude to increase prices a lot, I buy another car and use both services much less. My short-run behavior won't tell them where this threshold lies, and once it has happened it is too late for them to get my business back…

I believe Uber's tactic is to be the "last man standing". This seems to be a money pit, and the ones who fund it continuously know about it. It's a game of patience. When taxis will be nullified, and competition will have ran out of money, then and only then they will be the crowned. A Pyrrhic victory if you may. As for the ethics of Uber, it is like the $1 billion in my bank account. It doesn't exist :)

It's every company's goal to be the "last man standing". In this case though, the other "men" on the playing field includes car ownership. Even absent Lyft, taxis and other competitors, the big prize isn't winning the current market for livery services. No, the big prize is winning the market for transportation. To win that market, Uber needs to be faster, cheaper and better than Lyft, taxis, public transportation, car rentals and car ownership. If they succeed, consumers win.

Re: Uber's "Route-Based Pricing" Predicts How Much You're Willing to Pay

#54

Post by green_rover »

sebleon wrote: post #16

The flip side is that they can also predict what's the minimum pay an individual driver is willing to take. The airline industry has been doing personalized pricing for years - if you don't believe me, redo a flight search in incognito mode. It's interesting how Uber's other transgressions have place a magnifying class over all their other activity.

Amazon and other retailers do this too.

Uber doesn't appear to be doing anything here that isn't already par for the course.

Re: Uber's "Route-Based Pricing" Predicts How Much You're Willing to Pay

#55

Post by BurningFrog »

vmarsy wrote: post #30
BurningFrog wrote: post #17

Earlier quoted context omitted.

Let me try to demystify what we're talking about, and show competition works fine even in this scenario. Let's say a ride is worth $20 for the consumer and $12 for the producer, for a total surplus of $8. If the price they agree on is $14, the consumer surplus is $6 and the producer surplus is $2. If the producer can be sure the consumer values the ride at $20, they can charge $19 and take home most of the surplus. N…

You're describing a "race to the bottom" those 2 competing producers would participate in. But we all know that when there's a quasi-monopoly with only 2/3 big players, they would "cooperate" to maintain the high prices. Phone providers are a good example of this: In France for many years there was phone providers with extremely high prices: 50, 60, or even 70 euros per month for unlimited plans. They were all tellin…

Not a big fan of the "but we all know that..." argument by anecdote.

Economists have studied this stuff extensively for a very long time, and their consensus is that normally markets are quite effective at keeping prices down, as long as they're kept open.

There are certainly exceptions and corner cases where it works differently, but that is what they are.

Re: Uber's "Route-Based Pricing" Predicts How Much You're Willing to Pay

#56

Post by dbbk »

rdlecler1 wrote: post #41

Let's not forget that the ride is a commodity. So wealthy people -- who may use ride services more frequently -- move to Lyft. That is, unless, drivers turn of the service outside of rich areas and Uber can ensure better supply.

Surely wealthy people would be more concerned with getting a ride faster than cheaper?

Worth pointing out also that Lyft only operates in the US. Uber is in 81 countries.

Re: Uber's "Route-Based Pricing" Predicts How Much You're Willing to Pay

#57

Post by vmarsy »

BurningFrog wrote: post #55
vmarsy wrote: post #30

Earlier quoted context omitted.

You're describing a "race to the bottom" those 2 competing producers would participate in. But we all know that when there's a quasi-monopoly with only 2/3 big players, they would "cooperate" to maintain the high prices. Phone providers are a good example of this: In France for many years there was phone providers with extremely high prices: 50, 60, or even 70 euros per month for unlimited plans. They were all tellin…

Not a big fan of the "but we all know that..." argument by anecdote. Economists have studied this stuff extensively for a very long time, and their consensus is that normally markets are quite effective at keeping prices down, as long as they're kept open. There are certainly exceptions and corner cases where it works differently, but that is what they are.

You're right the telecom has this particularity of not being a "open market" with these big government regulations and bids for frequencies etc.

As the sibling comment points out : "Nothing's stopping Newber from showing up with a shiny new app and undercutting both". As long as this statement stays true (i.e Lyft/Uber don't abuse their dominant position to prevent competitors to enter the market), then the market should be healthy. I'm not convinced they would though.

Re: Uber's "Route-Based Pricing" Predicts How Much You're Willing to Pay

#58

Post by gshulegaard »

BurningFrog wrote: post #17
gshulegaard wrote: post #9

Earlier quoted context omitted.

Not really, competition only checks this effect if the price-discrimination advantage isn't so compelling such that: 1) All firms start doing it...because what Producer wants to leave money on the table? 2) The firm that does it best gains a significant advantage over competitors thus leading towards non-competitive market conditions. And, from a purely speculative perspective, if the price discrimination advantage w…

Let me try to demystify what we're talking about, and show competition works fine even in this scenario. Let's say a ride is worth $20 for the consumer and $12 for the producer, for a total surplus of $8. If the price they agree on is $14, the consumer surplus is $6 and the producer surplus is $2. If the producer can be sure the consumer values the ride at $20, they can charge $19 and take home most of the surplus. N…

I really...like really am not the person to speculate credibly in this area...but so long as people want to have a discussion I do enjoy hypothetical speculations :)

But...let's remember first that my intent is not to make claims...I am merely continuing a mental exercise in speculation/critical thinking.

Forgive me if I am over simplifying, but the example you forward is a traditional take on perfect competition.

But I don't think that we should discount the possibility of a lack of competition in this theoretical market. First, Price Discrimination itself requires that the firm doing the discriminating has some degree of monopolistic control/power in the market [1]. The existence of any price discrimination precludes the presence of effective competition in a market.

I think the Uber market is one that already exhibits signs of imperfect competition given the plethora of competitors that have struggled to find a footing:

* https://techcrunch.com/2016/11/08/uber-competitor-karhoo-shu...

* http://austininno.streetwise.co/2016/11/30/scoopme-an-uber-c...

* https://qz.com/583498/uber-competitor-sidecar-is-shutting-do...

Let's further suppose that Uber chooses not to pocket the revenue from this price discrimination immediately and instead re-invests it in the short term to establishing a Network Externality [2].

> Network effects become significant after a certain subscription percentage has been achieved, called critical mass. At the critical mass point, the value obtained from the good or service is greater than or equal to the price paid for the good or service.

If they keep it up long enough they should be able to slowly grind competitors out of the market. And while they might actually succeed in creating a monopoly, they don't have to in order to start rent-seeking [3]. Arguably, they already are doing so by increasing producer surplus with this price discrimination and widening the gap between rider cost and driver pay.

In this dystopian market state, Uber need not fear competitors because they could reduce their rent-seeking percentage to match or beat new entrants. They could also spread costs of undercutting local competitors to their entire user base (including raising prices on users it identifies using this price discrimination technique that would be willing to stomach the increase) which would allow them to potentially operate at margins unsustainable/unattainable for new competition. This would be a classic monopoly [4].

Now, there is nothing intrinsically bad about markets that have Monopolies...in fact there are some examples where it is more efficient to have a single supplier. But that is a different speculative discussion. I am just trying to explain why competition may not be an effective check to this practice.

TL;DR Uber's market likely already suffers from imperfect competition casting into doubt the effectiveness of competition to check this trend. Moreover, a firm might use price discrimination to carve out network externalities in amenable markets.

[1] http://www.economicsonline.co.uk/Business_economics/Price_di...

[2] https://en.wikipedia.org/wiki/Network_effect

[3] https://en.wikipedia.org/wiki/Rent-seeking

[4] https://en.wikipedia.org/wiki/Monopoly

Re: Uber's "Route-Based Pricing" Predicts How Much You're Willing to Pay

#59

Post by erikpukinskis »

objclxt wrote: post #39
sebleon wrote: post #18

Earlier quoted context omitted.

Interesting, I hadn't heard that defense before. It seems like Uber's app-based hailing is the reason why poor neighborhoods are able to get serviced. Previously, no taxi driver would drive around in those areas - because of opportunity cost of higher fares in richer areas, and fears of getting robbed when there was tons of cash in the car.

> Previously, no taxi driver would drive around in those areas - because of opportunity cost of higher fares in richer areas Well, if Uber is using dynamic pricing to ensure fares from richer areas are more expensive than those from poorer ones won't that have the exact same effect?

No, because Uber publishes all of the ride requests, regardless of fare. As long as there is one driver willing to go there, the ride gets fulfilled.

If you are leaving drivers to their own devices to try to find hot spots, they have no way to know someone ten blocks over needs a cab right now from a poorer area.

Re: Uber's "Route-Based Pricing" Predicts How Much You're Willing to Pay

#60

Post by andruby »

barronlroth wrote: post #27

Just to clarify, this isn't personalized pricing based on how much a user is willing to pay (user history), but rather pricing based on the "net-worth" of trip's origin or destination?

Knowing Uber's reputation, I doubt that they would use the trip origin and destination as only input variables. I'm sure they know a lot about the user from their history, credit card, social media accounts, etc.

Why would Uber stop at the route and not charge by estimated user income, their job, age or maybe even the reason why they are traveling?

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