Microeconomics Eco 561

The Microeconomics of Uber’s Attempt to Revolutionise Taxi Markets

ECO/561

June 23, 2014

Dr. George Sharghi

Transportation can be a challenge a hassle especially during peak seasons. Getting from one place to another should be a fairly easy task, however, it is far more difficult than imagine able. The main concern is on-ground commute in regard to taxi service and the fares that come along with the convenient ride. During peak seasons, the availability of taxis can be scarce causing customers to rethink their traveling means. It is convenient to schedule vacations without dealing with parking personal vehicles and the responsibility of maintenance on those vehicles. Therefore, Uber was formulated to give customers lower prices with availability at all times, however, this is not always the case.

Analysis and Evaluation

Uber is a new taxi business that launched in 2010 in San Francisco. Its main aim was to reduce the scarcity of cabs during the peak season such as Christmas Eve by linking independent taxi drivers with customers who wanted a ride. This method used by Uber has faced critique, but economists suggest that the surge pricing of Uber business should be welcomed because although it does have disadvantages, there are many advantages (The Economist, 2014).

Uber taxi business provides an opportunity for customers to request taxi services at the comfort of their homes available at a cost. Uber prices are cheaper during low season compared to the street-hailed cab but the prices increase during peak season and busiest times. Uber’s price surge is improving taxi markets to a great extent. The Uber firm confirms that many drivers are price sensitive hence are tempted to get to the road at wee hours to earn more money. This has increased the number of taxis during the peak hours.

However, a fixed price of 20% of matchmaking fare demanded by Uber may not be possible. In low peak hours, when fares are not high, this matchmaking fee may...