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A Case Analysis of Uber Ride Company (Essay Sample)


This paper is a case analysis of Uber. The paper delves on how various strategies have been a success to Uber's growth. THe strategies include surge pricing, economies of scale, game theory, incentive pay model. Additionally, it also analyzes the potential expansion of uber ride company and the trade policy issues it faces.


Uber Inc. case analysis
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Uber Technologies Inc. is one of the most enchanting companies to emerge over the past decade. Uber is a global ridesharing mobile application. It was founded in 2009 by investors Travis Kalanick and Garret Camp in San Francisco, and since then, it has recorded exponential growth and has been a disruptor in modern transportation. Uber has spread over to more than 400 cities in countries across the globe, with higher popularity in cities in the United States. Recently in 2019, after ten years since being founded, it became publicly traded. This essay will assess the growth process of Uber, the economic models and strategies Uber leveraged to realize its success. It will contrast Uber's business models with various economic theories and concepts like the economies of scale, game theory, and the economies of scope. The paper will also appraise the asymmetric information issues of Uber and its potential for future expansion and competencies that will give it an upper hand in growth.
Market’s situation before Uber’s entry
Uber's entry into ride services impacted the usual way of transacting transportation services. Before Uber's entry, the transport market arena was characterized by high prices, a comparatively low degree of transparency in the process of choosing drivers and fares determination, and relatively substandard quality service. Before Uber, there lacked a definitive ride-booking system, and customers were forced to wait for taxis they were uncertain whether they would come or not (Pepic, 2018). This, in turn, would lead to a significant waste of time. Besides, these taxis lacked an established and convenient credit card payment system, and thus, customers would find themselves paying more due to the issue of change. Since there were no alternatives, customers would therefore end up paying high amounts of money.
Previously, with a lack of geolocation apps, it was hard to maintain the customer service standard. This was as a result of lack of a convenient link and co-ordination between the drivers and customers. As a result, unprecedented delays were common, and the driver could take advantage of increasing the pickup times. However, with Uber's emergence and introduction of geolocation apps, customers can even rate the services which improve performance.
Inefficiency exploited by Uber.
Inefficiency exploited by Uber was the risk transportation service providers posed to their customers. Uber has utilized the chance to partner with drivers to cover the existing loophole. The Uber geolocation app has exploited the inefficiency through facial detection. Facial detect is a real-time I.D. check system that inquiries driver's real-time photos that are matched t those in Uber Company's database (Nelson, & Sadowsky, 2019). In addition, the app has a feature that enables the passengers to identify the driver to pick them up quickly. These features help the passenger identify specific attributes, such as whether the driver is on glasses or not.
The real-time photodetector dubbed Face API is crucial to assure customers of their safety and mitigate the potential risk of kidnapping. The confidence score enables the passenger to verify the delivery of the service. In case of a photo mismatch, the company temporarily suspends the driver's account to prevent them from continuing to provide services to unsuspecting passengers. Further, Uber has established privacy and security training programs for drivers alongside emergency support. They have also introduced a system that enables customers to share their journey with trustees. As an additional measure to guarantee the passengers' safety, they have introduced stricter insurance checks for drivers.
Uber’s surge pricing in contexts of shifts and supply of demands
The payment of an Uber drive primarily depends on the distance and time taken for a given trip and the Uber operation fare at the moment. Surge pricing often goes into effect when the availability of drivers is relatively lower compared to the number of riders in a particular region. As a result, the availability of more passengers leads to higher rates. When more passengers inquire about services from Uber, then there is a rise in prices. This is common during busy days. However, during regular days prices maintain to be expected.
In many cases, it happens that multiple passengers will attempt to book a cab simultaneously. Thus the number of available drivers will be overridden by available customers seeking services (Cachon et al., 2017). As a result, Uber is forced to introduce surge pricing to meet the supply and demand equilibrium state. Surge pricing, when the demand is high, attracts more drivers to cater to demand. Surge prices are used to signal the driver in an economic model that is sound in influencing supply status by inducing more drivers to meet the emerging demand. Thus, even with higher demand, all the passengers accessing the app will stand a chance to get a reasonable response and in good time.
In a visual representation in a demand curve, on busy hours/ days, the demand tends to shift from a point D to D' where D' characterizes a point of high demand. As a result, prices surge from P to P' representing regular to surge prices respectively. Therefore more drivers are induced into the roads, and thus the supply increases along the supply curve S, bringing a new unstable equilibrium. The precarious balance is since some drivers are slow to respond to surge prices since they do not last long. Thus, the inducement of more drivers into the road ends the surge prices returning prices to normal. However, the supply level does not reduce, indicating a lower opportunity cost for driving, and drivers will spend more time on roads. Therefore, amid the end of surge prices, the tendency for more drivers to remain in the market is high.
Uber’s surge pricing in the context of price discrimination
Price discrimination is a strategy used by firms to portray the disparity between the value put on a product by a consumer and how much they pay for the product. They achieve this by charging different consumers different prices by exploiting the disparity in willingness by the consumer to pay (Cachon et al., 2017). However, much as this strategy sounds to come at the expense of the consumers, a society can benefit as a whole because certain conditions are met. For instance, Uber can utilize this strategy by entering a new market, solving passengers waiting time, and simultaneously charging higher rates while boosting g the welfare of the affected society.
Nevertheless, in price discrimination, Uber must play as per specific conditions. Uber must fully control the supply level, inhibit service reselling from one customer to another and ensure that the elasticities of prices in various Uber's markets are transparent and different. In surge prices based on the context of price discrimination, Uber increases the rates based on reliability which is achieved by availing more cars for customers at the time they are busy. With enough cars on the road, the price will fall back to normal. When Uber increases the charge rates, they motivate more drivers to the road at high rates until the supply level settles at equilibrium. This is common when there are too many people traveling, e.g., during holidays. Uber has an opportunity to provide services to a wide range of passengers with a diversity of income levels by creating multiple lines of service that deliver similar tasks.
The concept of economies of scale and economies of scope in Uber’s business model.
Economies of scale are the cost benefits a firm experiences when the production process is efficient as costs can be efficient for larger quantities of goods and services (Jordan, 2017). Uber has significantly achieved economies of scale through increasing its production level. Uber has tapped more drivers and cars efficiently and at lower costs and offers customers efficient prices and high standard service delivery. Economies of scale are categorized into internal and external. Internal economies of scale are based on Uber's management decisions, while external is based on the outside factors. In Uber, economies of scale result in low per-unit costs due to more significant advertisement buys or low capital investment. Increased labor specialization and leverage on mobile apps technology have increased production. In the internal economies of scale, Uber has performed in information technology, accounting, and marketing. As a result, the firm has internally cut its costs. Due to external factors that impact business, and since Uber has excelled in them, it has achieved economies of scale. Despite that, no single company can control the costs on its own, Uber through maintaining high standards in labor and customer security has managed to achieve economies of scale.
Economies of the scope hold that the production capital of a particular good leads to a decrease in the production cost of another related good. These are the efficiencies created by variety rather than volume. There is an anticipated lower per-unit scale for Uber as a result of economies of scope. Economies of scale occur due to different but related goods production processes being complementary. Ubers can do this by merging with other businesses related to it. This model helps a firm increase its business revenue through a combination of different product lines and, at the same time, reduces costs invested in warehouses. Thus, through complementary production and shared inputs, a firm boost its economies...

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