Monday, March 14, 2016

Why are Uber drivers more efficient than taxi drivers?

Marginal Revolution explains why uber's capacity utilization is 30% higher and its miles driven 50% higher than traditional taxis.

Four factors likely contribute to the higher utilization rate of UberX drivers: 1) Uber’s more efficient driver-passenger matching technology; 2) Uber’s larger scale, which supports faster matches; 3) inefficient taxi regulations; and 4) Uber’s flexible labor supply model and surge pricing, which more closely match supply with demand throughout the day.

9 comments:

  1. Uber seems to be the hottest topic of the moment in all facets of life. Even here in Upstate New York, where we don’t have Uber, it’s been a topic of conversation for months (as in residents want Uber here but state regulations are not in place to allow Uber here).

    As an outside observer, someone who grew up in New York City, and someone whose father was a black car driver for years, I find the conversation regarding Uber particularly interesting. My initial thought regarding this post was “of course Uber has a higher capacity utilization rate than taxis. There’s an app that pairs riders with Uber cars”. Traditionally, a taxi cab drives around the streets of Manhattan looking for a fare with their hand up in the air. Demand has always been there, so cabbies rarely drive around for hours, but as far as efficiency goes, it leaves a lot to be desired. Even if a cabby picks up a fare, there’s not telling whether the fare is several miles or just a couple of blocks away. Efficiency is hard to come by in that scenario.

    On the other hand, Uber drivers rely on the technology of the app to maximize efficiency. One of the most investing pieces of this post (and the adjoining article) is the piece on pricing. Because of surge pricing, the dollar per mile rate for Uber drivers tends to be higher than cab drivers. But the idea of charging more when demand rises is a relatively newly accepted practice (thanks Amazon and Ebay). Up until now, a rider in a cab hit with a surcharge depending on how many people were trying to hale a cab would have caused a scene. Now you just put in your credit card number and hit “accept”.

    This is also a really good article from March of last year which helps to paint a fuller picture of the Uber expansion in New York City. it’s a quick read.

    http://www.slate.com/articles/technology/technology/2015/03/more_ubers_than_taxis_in_new_york_actually_that_doesn_t_mean_much.html

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  2. I agree with Serge’s comment on the price discrimination advantage employed by Uber. My initial thought on why Uber has more capacity utilization was that they can increase or decrease prices based on demand. Regulated taxi drives are required to charge one price 24 hours per day, and in the case of travel from New York City to a regional airport, they may only charge a single flat rate.
    Price discrimination allows Uber to take advantage of low value customers during times of low demand. Potential customers can save on costs by hiring an Uber car at a lower price when demand is low, rather than paying the standard rate of the regulated taxi. This allows Uber to gain sales from the high value customers who enjoy the convenience of a scheduled ride during high demand periods, and pick up the low value customers who enjoy the cost savings during the low demand periods. While the profit margins during low demand periods may not be as high as the peak demand periods, the sales still contribute to total revenues and increase the bottom line.
    Uber also employs this same price discrimination strategy by offering different levels of quality to different customers. UberX is a low end offering of basic services while Uber LUX is a luxury high end offering. Uber can charge higher value customers more for the LUX service, even though there may not be a significant cost difference to Uber to provide the service. This is the essence of price discrimination, charging more to certain customers that are willing to pay, even though the costs haven’t changed.
    Stan.
    Reference:
    https://www.intelligenteconomist.com/uber-price-discrimination-strategy/

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  3. "Can you imagine if, when you were hungry, you had to stand around trying to get a wandering food vendor’s attention so that you could get a bite to eat? Why do we queue up in orderly lines waiting to buy our food or coffee, but when it comes to hailing a cab it’s an every-person-for-themselves, take-no prisoners affair?" (Forbes, 2012).
    When someone "orders" an uber, they put in their location and their destination. It is easier for the uber driver to know exactly what they are going to make off of that trip because they know where they are taking the person. A taxi driver in NYC as well as other cities has to drive around to find someone who hails them or wait for a dispatcher to tell them where to pick someone up. When they pick the person up they could be picking someone up who is going around the block but they don't know where the person is going until they are in the taxi. This is a downfall to a taxi driver. They are wasting their gas money and time. Uber drivers can pick the longer routes so that they can make more money. They also can sit at home and wait for their "job" to come through so they are economically saving rather than wasting money on gas driving around trying to find people to pick up.

    http://www.forbes.com/sites/quora/2012/02/28/is-there-any-reason-to-take-uber-versus-nyc-cabs/#54a9e2f85183

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  4. Besides the apparent price discrimination that my classmates have mentioned above I think one of the most important factors that make Uber more appealing than regular taxis is the fact that they may be more accessible to younger customers. Let’s face it, we are living in the technology age in which everyone is browsing their phones several times a day. I have a close firend that was doing corporate limo service and within two weeks he left because he was earning a lot more money by doing Uber. He explained that while each ride is significantly less than one customer from corporate customer, the Uber requests would come in much faster. He also explained that Uber was much more flexible letting drivers dress any way he pleased. The favorable characteristics of Uber and why it’s so popular does not end there. Uber is always looking for ways to stay competitive. According to Mr. Bruno, the nest move by Uber could leave the competition in the dust. Uber is trying to integrate Google Maps with Uber. This would not only make it easier for Uber drivers but also for customers when they want to book a ride. All in all, I think the technology is appealing to young customers and is attracting people of all ages to work for Uber.

    Bruno, A. (2016, March 17). Uber: Uber's Next Project Could Be Huge. Retrieved March 27, 2016, from http://www.profitconfidential.com/news/uber-ubers-next-project-could-be-huge/

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  5. Uber is a great way of traveling around and easy to use. You can easily reserve your spot on the internet, with the Uber app, and pay with a credit card before the scheduled pick up time. Uber gains a great database of customers, using this concept.

    So why are Uber Drivers more efficient than taxi drivers? First of all, the available Uber drivers respond to the demand of the public and are directed to locations where there are a lot of people who need their service. Because of that Uber demand, more people are attracted to that service and they are all independent drivers. The supply of their drivers have increase because they are attracted to the concept. Uber offers flexible labor supply and pricing structures. The Uber supply curve and the demand curve are both highly elastic. They offer surge pricing during high peak times and dates, like Saturday nights or holidays. This gives more incentive to labor, because drivers are enticed with the concept of raising the prices and making more money, during those high peak times and days. That provides more supply to the consumers. The surge pricing drops are offered at off hours, when there is not a great demand, which will still attract the consumer.

    Taxi cab services, park their cars in high demand areas, and sit and wait for their passengers to flag them down. This is not efficient use of their time in the modern world. They also have licensing requirements, based on out dated philosophies, that limit their ability to meet the demand of the customers. That system just doesn’t seem to be as efficient as Uber, where they work with predicting industry changes using supply and demand.
    Uber, uses the modern technology of the internet, with an app that connects the passengers to their drivers. The passengers can pay on their credit cards with ease, are able to connect with a local driver and can get an estimated time of arrival, almost instantly.

    Taxi cab services use outdated concepts of using the phone, or waiting around in high demand areas, like airports, train stations, cities, until they attract their customers.
    If the traditional taxi cab services want to compete in the world of Uber, they have to step up their technology. They have to look more closely at meeting the supply and demand of the consumers, with more efficient methods, larger scale services, to compete in the modern world.

    References:
    Gurley, B. (2014, March 11). A Deeper Look at Ubers Dynamic Pricing Model. Retrieved from Above the Crowd: http://abovethecrowd.com/2014/03/11/a-deeper-look-at-ubers-dynamic-pricing-model/
    O'Brien, A. (2016, January 2). Ubers Surge Pricing Illistrates Supply and Demand. Retrieved from The Liberatarian Rebublic: http://thelibertarianrepublic.com/ubers-surge-pricing-illustrates-supply-demand/


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  6. I believe a lot of Uber’s advantage comes from the ability to match the Uber driver with a fare. Instead of drivers dropping off one fare and driving around searching for another or in the case of the taxis maybe having to travel clear across town to get their next fare because that was the next call that came in. another study I found looked at the efficiency of Ubers across five large cities. Uber had the advantage in all but New York. I hypothesize that this is because in New York there is a lot of people in small space; they usually do not have to travel far to pick up there next fare. The demand for rides is higher in a smaller concentrated area. Then comes pricing, an article on consumerreports.org states that Ubers tend to be more expensive than taxis and tend to use surge pricing in high traffic spots, making them more expensive with increased demand. Uber may use some psychological
    pricing, they are counting on consumers “feeling” like they are getting a better deal from Uber and therefore not mind they are paying a higher price.


    Picchi, A. (2016). Uber Vs. Taxi: Which is Cheaper? Web Consumerreports.org
    http://www.consumerreports.org/personal-finance/uber-vs-taxi-which-is-cheaper/

    Warmoth, B. (2016). Here’s Uber’s Key Advantage Over Taxis in One Chart.
    http://dcinno.streetwise.co/2016/03/17/uber-vs-taxis-more-efficient/

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  7. Uber has created a service that has become preferred over traditional taxi services, especially with millennials, due to their ease of access. Utilizing an app, consumers can easily and quickly request the type of transportation that they need with an Uber driver responding faster than traditional taxis. There is also more transparency because consumers can use the app interface to see the suggested route to their destination, expected price, information about the driver and their car, as well as allowing them to pay through the app. This keeps consumers safer and more informed about the service that they are being provided. With traditional taxis, the consumer typically can have as much as a 45 minute wait time and are not sure who will be picking them up, what route they will take, or how much it might cost. This can create safety problems for the consumer as well as making it so that a driver could potentially add fees to a fare. These are among many of the reasons as to why patrons are more likely to use Uber, driving (pardon the pun) up the company's capacity utilization.

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  9. It is not surprising that Uber drivers are much more efficient than the standard Taxi drivers. As a consumer, I can confirm that Uber services are much more convenient for me because the wait time for the Uber service is much shorter than the wait time for a standard taxi. Their driver-passenger technology makes their services super convenient. The GPS Map allows the customers to see how many minutes it will be before the Uber arrives. Additionally, I like the fact that the price of the trip is calculated right away and the trip cost is automatically billed to the credit card. The ease of the Uber Application and the simplicity behind the idea makes it a preferred choice of transportation especially during holiday seasons.

    In terms of price, per Guerrini, F. (April 9, 2015), “Uber appears more expensive for prices below 35 dollars and begins to become cheaper only after that threshold.” Therefore, a taxi is much cheaper for short distance trips and more affordable. However, again, because Uber has the best driver-passenger matching technology as well as other convenient advantages, the consumers preference is most likely Uber despite the small differences in price.

    References:
    Guerrini, F. (April 9, 2015). Which is Cheaper to Use in NYC: Uber or a Taxi? Big Data Will
    Solve The Dilemma. Retrieved from: https://www.forbes.com/sites/federicoguerrini/2015/04/09/living-in-new-york-this-app-will-tell-you-which-is-cheaper-uber-or-a-taxi/#170e26525bd7

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