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Because once rideshare companies corner specific markets, they're no longer incentivized to keep paying drivers competitive rates. A few years ago, Uber and Ly

Because once rideshare companies corner specific markets, they're no longer incentivized to keep paying drivers competitive rates. A few years ago, Uber and Lyft left Austin, which in turn created a local, non-profit MVP rideshare app called RideAustin that worked OK. It wasn't perfect, but it covered the bare necessities of ridesharing fairly well. The drivers I spoke with were pretty happy with RideAustin because they made more money than they had been using Uber and Lyft since RideAustin took a smaller cut. When Uber and Lyft returned, they enticed drivers with rates that RideAustin couldn't keep up with. Within a few weeks, it became a lot harder to hail a ride through their app. And within a month, I couldn't get a ride consistently from my apartment in north Austin. If I wanted to get a ride, it had to be through Uber or Lyft. Once they regained the market, they cut the rates to drivers, who have no rights to negotiate pricing since they're contractors. Rideshare drivers are essentially a captive labor force that must accept all conditions to work without really any say over what they're paid.

gridlockd 7y ago
Wait, you didn't finish the story. Now that RideAustin is once again (presumably) paying the better rates, why don't the drivers just switch back? Did RideAustin go out of business? > Rideshare drivers are essentially a captive labor force that must accept all conditions to work without really any say over what they're paid. They clearly aren't "captive", otherwise they couldn't have just switched to RideAustin in the first place. Nothing stops them from becoming completely independent drivers either, but then they need to find their own customers. In the end, they are getting paid market rates. Maybe those rates are really bad, but that's just what happens when supply is far larger than demand. Prices are always driven down by the people at the bottom, how can Uber/Lyft be faulted for that?
- mattzito 7y ago
  Except that the market effects of Uber/Lyft’s network, coupled with their cash reserves, allows them to potentially distort the free market in such a way that they can push out the competition until they have a dominant position, and then it’s no longer a free market economy. As far as what happened to RideAustin, from last year: > Uber and Lyft's brand recognition, as well as discounts the companies were offering when they returned to Austin, made it difficult to compete, RideAustin's Tryba said.
  - gridlockd 7y ago
    > Except that the market effects of Uber/Lyft’s network, coupled with their cash reserves, allows them to potentially distort the free market in such a way that they can push out the competition until they have a dominant position, and then it’s no longer a free market economy. This is the argument against "price dumping", but that strategy doesn't work in the long run. These companies are burning through their cash reserves to achieve that "dominant position". Once they're done with that, they will have to raise prices and competition is viable again.
    - mattzito 7y ago
      Sure, in the abstract, but it’s not purely about prices. If I’m a business traveler who uses Uber in 90% of the cities I visit, I’m not going to price shop when I visit Austin - a) it’s not my money and b) the friction about downloading a new app, creating a new account, etc. is probably not worth it. Secondly, it’s not enough to look at Uber’s price manipulation, it’s necessary to look at the opportunities that the small, local startup lacks. Even if their prices are competitive with Uber’s, they likely don’t have the cash to do what Uber did, namely subsidize/incentivize drivers to drive even when there are not enough customers. It becomes a trap: Uber artificially lowers prices, boxing out the smaller players. Once the market is cornered, raise prices. The smaller players are now price competitive, but the two-sided marketplace has already been defined. The passengers are already in an app with their preferences, and the small percentage who are comparison shoppers might fire up the startup app, only to find that there are not enough drivers - why? Well the drivers don’t have enough capacity to keep them busy, so they drop off the startup app to focus on the big guys. Free markets are fine and good in a vacuum, but the equivalent to a truly free ride sharing market would be where there was only one app, all the platforms put their inventory on it, and users could decide where to put their money, based on price, luxury, ideals, whatever. To claim the current system is free market is to willfully ignore the other dynamics at play.

gridlockd 7y ago

Wait, you didn't finish the story. Now that RideAustin is once again (presumably) paying the better rates, why don't the drivers just switch back? Did RideAustin go out of business? > Rideshare drivers are essentially a captive labor force that must accept all conditions to work without really any say over what they're paid. They clearly aren't "captive", otherwise they couldn't have just switched to RideAustin in the first place. Nothing stops them from becoming completely independent drivers either, but then they need to find their own customers. In the end, they are getting paid market rates. Maybe those rates are really bad, but that's just what happens when supply is far larger than demand. Prices are always driven down by the people at the bottom, how can Uber/Lyft be faulted for that?

mattzito 7y ago
Except that the market effects of Uber/Lyft’s network, coupled with their cash reserves, allows them to potentially distort the free market in such a way that they can push out the competition until they have a dominant position, and then it’s no longer a free market economy. As far as what happened to RideAustin, from last year: > Uber and Lyft's brand recognition, as well as discounts the companies were offering when they returned to Austin, made it difficult to compete, RideAustin's Tryba said.
- gridlockd 7y ago
  > Except that the market effects of Uber/Lyft’s network, coupled with their cash reserves, allows them to potentially distort the free market in such a way that they can push out the competition until they have a dominant position, and then it’s no longer a free market economy. This is the argument against "price dumping", but that strategy doesn't work in the long run. These companies are burning through their cash reserves to achieve that "dominant position". Once they're done with that, they will have to raise prices and competition is viable again.
  - mattzito 7y ago
    Sure, in the abstract, but it’s not purely about prices. If I’m a business traveler who uses Uber in 90% of the cities I visit, I’m not going to price shop when I visit Austin - a) it’s not my money and b) the friction about downloading a new app, creating a new account, etc. is probably not worth it. Secondly, it’s not enough to look at Uber’s price manipulation, it’s necessary to look at the opportunities that the small, local startup lacks. Even if their prices are competitive with Uber’s, they likely don’t have the cash to do what Uber did, namely subsidize/incentivize drivers to drive even when there are not enough customers. It becomes a trap: Uber artificially lowers prices, boxing out the smaller players. Once the market is cornered, raise prices. The smaller players are now price competitive, but the two-sided marketplace has already been defined. The passengers are already in an app with their preferences, and the small percentage who are comparison shoppers might fire up the startup app, only to find that there are not enough drivers - why? Well the drivers don’t have enough capacity to keep them busy, so they drop off the startup app to focus on the big guys. Free markets are fine and good in a vacuum, but the equivalent to a truly free ride sharing market would be where there was only one app, all the platforms put their inventory on it, and users could decide where to put their money, based on price, luxury, ideals, whatever. To claim the current system is free market is to willfully ignore the other dynamics at play.