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The economy of scale in a taxi business comes from owning a fleet rather than a single vehicle, making the vehicle's purchase and maintenance less expensive tha

The economy of scale in a taxi business comes from owning a fleet rather than a single vehicle, making the vehicle's purchase and maintenance less expensive than what you or I would pay. This isn't possible when each driver has to buy and service his own car at market rates. The economy tops out at a certain point, after which is isn't beneficial to expand the business further -- which is why taxi companies are local and regional. If more money could be made by having a national taxi company, someone would have done that already.

wahern 8y ago
Right, but Uber doesn't have to pay for that fleet. And even though each individual "contractor" effectively pays a premium over what a volume purchaser could do, because each driver (1) would need and can use the car personally, anyhow, (2) can either leverage their own personal assets or otherwise benefit from our car centric culture that makes individual financing relatively cheap, and (3) is willing to eat the premium because of labor economics which favor employers, it doesn't actually put Uber at much of a disadvantage, if at all. Arguably it puts them at an advantage to competitors, even if the sum of vehicle acquisition costs is greater than a hypothetical competitor at that scale. Emphasis on hypothetical, which alone should be a huge clue about the underlying dynamics relating to capital financing, firm size, and transactional costs. Uber exists and their ride-hailing business is clearly a success. It couldn't possibly cost $10 billion/year to maintain their smartphone app and backend IT services, not in a sustaining mode. Economics 101 doesn't suffice to explain the situation. Uber's business exists past the threshold where the transactional costs (regulation, financing, firm size) of non-perfect markets result in outcomes that contradict classic economic models.
- mimixco 8y ago
  Here's a good take on it: http://nymag.com/intelligencer/2018/12/will-uber-survive-the-next-decade.html http://nymag.com/intelligencer/2018/12/will-uber-survive-the... Also mentioned in that story is a link to Hubert Horan's excellent multi-part series "Will Uber Ever Deliver?" It was that series which convinced me of the arguments I'm presenting.

wahern 8y ago

Right, but Uber doesn't have to pay for that fleet. And even though each individual "contractor" effectively pays a premium over what a volume purchaser could do, because each driver (1) would need and can use the car personally, anyhow, (2) can either leverage their own personal assets or otherwise benefit from our car centric culture that makes individual financing relatively cheap, and (3) is willing to eat the premium because of labor economics which favor employers, it doesn't actually put Uber at much of a disadvantage, if at all. Arguably it puts them at an advantage to competitors, even if the sum of vehicle acquisition costs is greater than a hypothetical competitor at that scale. Emphasis on hypothetical, which alone should be a huge clue about the underlying dynamics relating to capital financing, firm size, and transactional costs. Uber exists and their ride-hailing business is clearly a success. It couldn't possibly cost $10 billion/year to maintain their smartphone app and backend IT services, not in a sustaining mode. Economics 101 doesn't suffice to explain the situation. Uber's business exists past the threshold where the transactional costs (regulation, financing, firm size) of non-perfect markets result in outcomes that contradict classic economic models.

mimixco 8y ago
Here's a good take on it: http://nymag.com/intelligencer/2018/12/will-uber-survive-the-next-decade.html http://nymag.com/intelligencer/2018/12/will-uber-survive-the... Also mentioned in that story is a link to Hubert Horan's excellent multi-part series "Will Uber Ever Deliver?" It was that series which convinced me of the arguments I'm presenting.