A Case Analysis of Uber

Uber is a ride-sharing service started in 2009. If you are not familiar with Uber, you can learn more about the services it provides at Uber.com.

Construct an eight-page analysis of Uber using the following criteria.

Analyze the market before Uber’s entry. Describe the inefficiency Uber exploited.

Explain Uber’s surge pricing in the context of shifts in supply and demand.

Evaluate Uber’s surge pricing in the context of price discrimination.

Apply the concepts of economies of scale and economies of scope to Uber’s business model.

Apply the concepts of game theory to Uber’s market.

Assess Uber’s potential for international expansion and potential trade policy issues.

Explain the incentive pay model Uber uses and how it affects the principal-agent problem.

Discuss any asymmetric information issues with Uber’s business model.

Your essay must be at least eight pages in length (not counting the title and references pages) and include at least five peer-reviewed resources. Adhere to APA Style when writing your analysis, including citations and references for sources used. Be sure to include an introduction. Please note that no abstract is needed.

If you wish to include a supply and demand graph in your paper, view the video How to Graph in Word for some guidance. Also, not that any graphs you include in your paper should be placed in the Appendix of your paper.

Essay Preview:

Introduction Uber is a ride-sharing service that was founded in 2009 in San Francisco. The company has since grown to become one of the most successful and well-known startups in the world. Its platform connects drivers with passengers in need of transportation and has disrupted the traditional taxi industry. This paper will analyze Uber’s market entry, pricing strategies, business model, and international expansion. It will also discuss the potential trade policy issues, incentive pay model, and asymmetric information issues with Uber’s business model.

Market Before Uber’s Entry Before Uber’s entry, the taxi industry was heavily regulated, and entry into the market was difficult. Taxi medallions, which are licenses to operate a taxi, were expensive, and the number of medallions was capped by cities. As a result, the supply of taxi services was limited, and prices were high. Additionally, the quality of service was often poor, and there were few options for payment, such as cash or credit card.

Inefficiency Exploited by Uber Uber exploited the inefficiency in the taxi market by creating a platform that connected drivers with passengers in need of transportation. By utilizing a smartphone app, Uber was able to bypass the traditional taxi medallion system and enter the market more easily. The app also allowed for a more efficient matching of drivers and passengers, leading to faster pick-up times. Additionally, Uber offered a wider range of payment options, such as credit card and mobile payments, which improved the customer experience.

Surge Pricing Uber’s surge pricing is a pricing strategy that adjusts prices based on shifts in supply and demand. When demand is high and the number of drivers is low, prices increase to incentivize more drivers to come online and meet the demand. This helps to ensure that there are enough drivers available to meet the high demand, and that drivers are able to earn more during peak times.

Price Discrimination Uber’s surge pricing can also be viewed in the context of price discrimination. Price discrimination is the practice of charging different prices to different groups of customers based on their willingness to pay. In the case of Uber, surge pricing can be seen as a form of price discrimination because it charges higher prices to customers who are willing to pay more for a ride during peak times. This can be seen as a way to maximize profits by capturing the surplus value of customers who are willing to pay more.

Economies of Scale and Scope Uber’s business model utilizes economies of scale and scope. Economies of scale refer to the cost advantages a company can achieve by increasing the size of its operations. Uber is able to achieve economies of scale by increasing the number of drivers and riders on its platform. This allows the company to spread fixed costs, such as marketing and technology development, across a larger number of transactions.

Economies of scope refer to the cost advantages a company can achieve by producing a variety of products or services. Uber’s platform allows the company to offer a variety of transportation options, such as UberX, UberPOOL, and UberBLACK. This allows the company to spread fixed costs across a larger number of products and services, which results in lower costs per unit.

Game Theory Game theory can be applied to Uber’s market to analyze the strategic decisions of the company and its competitors. Uber’s decision to enter the market and disrupt the traditional taxi industry can be seen as a strategic move in a game with the existing taxi companies. The company’s decision to use surge pricing can also be viewed as a strategic move to increase profits by capturing the surplus value of customers during peak times.

International Expansion Uber has the potential for international expansion, as the company has already expanded to many countries around the world. However, there are potential trade policy issues that could arise, such as regulations and laws that differ from country to country. For example, in some countries, Uber’s business model may be illegal, or the company may face resistance from existing taxi companies and governments. Additionally, Uber may need to adapt its business model to fit the cultural and economic differences in each country it expands to.

Incentive Pay Model Uber uses an incentive pay model to motivate its drivers. The company rewards drivers who meet certain performance standards, such as completing a certain number of trips or maintaining a high rating from passengers. This model helps to align the interests of the company and the drivers, as both parties benefit when the drivers perform well. However, this model can also lead to the principal-agent problem, where the drivers may make decisions that are not in the best interest of the company.

Asymmetric Information There are asymmetric information issues with Uber’s business model. For example, drivers may not have complete information about the passengers they are picking up, and passengers may not have complete information about the drivers they are riding with. This can lead to issues such as safety concerns and discrimination. To address these issues, Uber has implemented a rating system for both drivers and passengers, as well as background checks for drivers.

Conclusion Uber is a ride-sharing service that disrupted the traditional taxi industry by exploiting the inefficiencies in the market. The company’s surge pricing strategy, which adjusts prices based on shifts in supply and demand, has been successful in maximizing profits. The company’s business model also utilizes economies of scale and scope, and game theory can be applied to analyze the strategic decisions of the company and its competitors. Uber has potential for international expansion, but may face trade policy issues and cultural differences. The company’s incentive pay model aligns the interests of the company and drivers, but also leads to the principal-agent problem. Asymmetric information issues such as safety and discrimination are also present in Uber’s business model, but the company has implemented measures to address these issues.

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