Launched as UberCab in 2009, Uber’s founders invented a smartphone app that hails a ride at the tap of a button (Samuelson & Marks, 2015; Uber Technologies Inc., 2018). The company connected its first rider and driver in the summer of 2010 and soon after shortened its name to simply Uber to distinguish its service from the taxicab industry (Uber Technologies Inc., 2018). As of December 2016, Uber operated in 500 cities worldwide and counted its five-billionth trip 5 months later (Uber Technologies Inc., 2018). Uber’s competitive fares and driver rating feature have led to its multibillion-dollar revenues (Samuelson & Marks, 2015).
The Uber business model comprises an interdependency of the corporate component and its independent drivers (Horan, 2017). Uber’s past deregulation efforts lack industry efficiency and consumer welfare benefits (Horan, 2017). Uber is required to report only the financial results that it charges its independent drivers that must pay for all vehicle expenses and maintenance (Horan, 2017). In 2015, Uber eliminated its driver incentive programs and reduced the drivers’ share of each passenger dollar by 33%, which earns drivers $0.30 per $1 in revenue (Horan, 2017). Uber’s requiring drivers to provide and maintain their own vehicles transfers wealth from labor to capital, which does not improve efficiency or service (Horan, 2017). Uber’s operating model has not changed but drivers have been given the option to either purchase or rent a vehicle in the past 5 years (Samuelson & Marks 2015).
Uber has designated itself as a technology platform and not a taxi company with drivers classified as registered partners and not employees (Dudley, Banister, & Schwanen, 2017). Uber’s Senior Vice President of Communications and Public Policy, Jill Hazelbaker (2018), claims that the company’s platform of connecting people in cities induces a unique regulatory problem of regulating the app and transport models. Hazelbaker (2018) further maintains that Uber welcomes regulations to protect consumers but governments should acknowledge new technology and models. There is a difference between the anonymous hailed taxicab and using the Uber app to request transportation, mainly that riders agree to the displayed price in advance of the ride (Hazelbaker, 2018). While Uber asserts that it is an app-based company that uses technology to match riders with independent drivers nearby, the service itself functions as a private transportation platform and should be subject to the same regulations as taxicab companies, as well as digital enterprises.
A decrease in fare prices causes an increase in demand for Uber rides and an increase in revenue (Samuelson & Marks, 2015). Revenues equal price (fares) x quantity (number of rides). A 1% cut in price would only slightly change prices but the reduction is not impressive enough to alter an increase in demand. For example, a ride at a rate of $19.50 from a home in Seattle to the Seattle-Tacoma International Airport (SeaTac) with a 1% price cut is a mere $0.20 savings, for a total fare of $19.30. Uber’s competitor in the Seattle area is Lyft, a competitor that aggressively challenges Uber rates, has the Seattle-to-SeaTac trip fare at $18.69 to Uber’s $19.30, which a typical fare comparison. A 23% reduction of fares that influenced a 12% increase in revenue is a validation that Uber pricing of fares is not regulated. Uber’s surge pricing during peak hours is often double, triple, or more the cost of a trip during normal off-peak times. The government does not apply pricing regulations for Uber to set a minimum fare or a price cap on what the company charges.
Independent drivers have the freedom to devote flexible schedules in offering their services to passengers (Hall & Krueger, 2018). In the previous years when the national unemployment rate declined, the demand for Uber services steadily rose as a more affordable alternative to taxis and car services (Hall & Krueger, 2018). In 2015, an Occupational Employment Statistics survey revealed that Uber drivers earned an average net hourly wage of $19.35 excluding vehicle expenses (Hall & Krueger, 2018).
Uber drivers’ marginal benefit from providing labor is considered in the figure below. The earnings of working 30 hours per week will earn approximately $30 per hour, while 40 hours will earn $20 per hour. At $20 per hour and below with 40 or more working hours, there is an increase in demand and a shortage of drivers. The higher per hour earnings are due to an increase of drivers and a reduction in demand. An increase in earnings does not necessarily make Uber drivers better off because of vehicle expenses – gas, maintenance, repairs, and depreciation – as well as personal income taxes.