How Is the Sharing Economy Characterized? Can Sharing Economies Go Global? What Are Uber’s Core Competencies?

Question 1

How is the sharing economy characterized? Can sharing economies go global? What are Uber’s core competencies?

The sharing economy takes advantage of existing resources. It creates a use for an otherwise unused asset. This decreases excess waste and consumption by limiting the total number of cars being used and increasing their usage. Uber essentially created a new marketplace by connecting consumers and suppliers. There is an accepted level of trust in this system, which presents challenges, especially as it is first adopted. Uber has done well setting regulations and standards that allow passengers to expect safety, without which the model would fail. Going global means adjusting the model to fit the standards of trust and ownership to each new area.

Since they rely on internet availability to connect potential customers and drivers, going global would be limited to areas that have this technology, in addition to a reliable vehicle. The same concept applies to all sharing economies with any platform used to connect people and the actual good or service being shared. In Uber’s case, the technology and trust have not been adopted by everyone even in the US. Older individuals are less likely to have a smartphone with the Uber app and are likely to be less trusting of a stranger giving them a ride. Areas with a population whose majority shares these challenges is unlikely to quickly adopt, if at all.

Core Competencies

Pricing model

Why does Uber use surge pricing?  Data has shown that Uber’s marketplace is highly efficient, and responds to market conditions in the exact way that basic economic models predicate. Uber is fundamentally a free market where supply and demand are controlled by the application’s users and drivers. Uber’s data analysis and research has displayed that individually the supply curve and the demand curve are highly elastic.

Supply side[pic 1]

Early on Uber realized that the drivers were not willing to operate late at night.  However, they could be incentivized to increase the supply of available drivers by offering a higher price to operate during peak demand.  This indicates that the supply side of the Uber model is price elastic, and drivers will stay on the clock longer to receive higher pay during the weekend party rush from 1am-3am, events, and travel rush hours.

Demand side

On the demand side, Uber has confirmed price-elasticity of demand under different conditions. As surge pricing is utilized, the market responds with an instantaneous reduction in the open-to-order ratios. When demand outpaces the available supply, dynamic pricing algorithms take effect and increase prices to guide the supply and demand sides of the market to equilibrium.

As the supply and demand model illustrates, higher prices reduce overall demand within the market. This effectively lowers the number of rides that go unfilled due to lack of supply. The only real alternative to dynamic pricing, would be a majority of unsatisfied riders complaining about the decrease in supply availability and the resulting lack of reliability within the market for ride-sharing provided by Uber.

Market Substitution

Uber’s surge pricing has the ability to track and react to market conditions that other forms of transportation cannot immediately address. During surge pricing many users try an alternative other than Uber. The free market has other services available, such as taxis, town car services, finding a flex car, or taking the bus or subway. Consumers will find that accessibility, reliability, and convenience for all forms of transportation are affected by the same market conditions simultaneously. Under these conditions, a fixed price taxi will be virtually unavailable, and a fixed price subway would be unbelievably overcrowded.

Labor model

Another point to keep in perspective is that the operator of each and every car on the Uber service is a human just like all of the passengers. Each day, and each hour for that matter, these drivers decide whether or not to open the Uber application and accept requests for rides from Uber customers. By implementing dynamic pricing, Uber provides the necessary market incentives to establish equilibrium and maintain constant supply to meet demand.

The simple idea that Uber could require its network to be available in a normal state and at a normal price while demand is increasing and supply is decreasing is not practical. Economic theory put into practice dictates that the only alternative available to dynamic pricing is to leave customers stranded, staring at screens that read “No Cars Available.”

Uber is unique in that they are not simply trying to take away the competition’s customer base, but their labor force as well. They appeal to potential drivers with flexibility and ease of entry.

Expansion/growth strategy

Uber provides an alternative to the inconvenience and poor service associated with taxis. Because traditional service providers were failing to meet consumer needs and expectations, transportation sharing platforms like Uber have the opportunity to thrive. As of 2015, only 8% of adults had utilized  a ridesharing service, indicating that there is significant room for growing the market. Studies also indicate that consumers want automotive sharing to succeed because of the social benefits and the current cultural emphasis on sustainability.

Uber’s expansion strategy is to raise capital through investments and then implement city-by-city launches. When launching in a new city, Uber typically offers free rides to generate strong positive impressions. Rather than investing heavily in marketing, Uber relies on word of mouth from their initial customers to market the service. Each expansion has brought unique challenges, but Uber’s business model and expansion strategy have been highly successful in the US. It remains to be seen whether this strategy can be successfully adapted on a global scale.

Question 2

What challenges does Uber face during global expansion? Is Uber’s business vulnerable since it is easy for others such as Didi Kuaidi in China and Ola in India to imitate?  Can Uber overcome the challenges from foreign governments?  Should it try to collaborate with these foreign governments?  If so, how?  What are the pros and cons of doing so?  What strategies should Uber implement to expand globally?

Regulations and Culture

Uber is a disruptive model and while the U.S. seems to be ever seeking disruption, other countries may not be so quick to accept. Traditional Taxis are a major part of culture in some countries with strict licensing rules that Uber does not follow. However, we are seeing the protest of Uber overseas more frequently in the news from local competitors, such as taxis, and new government regulations requiring it to act more like a taxi company; following the same rules instead of simply a technology company. In a few cities, Uber has been pulling out or partnering with the biggest competitor, such as in Russia and more recently Taiwan, as they are unable to successfully expand.