Matt Stoller: How Uber Creates an Algorithmic Monopoly to Extract Rents

By Matt Stoller, who writes for Salon and has contributed to Politico, Alternet, Salon, The Nation and Reuters. You can reach him at stoller (at) or follow him on Twitter at @matthewstoller. Originally published at Observations on Credit and Surveillance

We are not setting the price. The market is setting the price. We have algorithms to determine what that market is.

That’s a remarkable quote from the CEO of Uber.

Uber of course is a cab service that lets you order a cab from your smartphone via an App. It’s really neat, you get to watch the cab approach on a map, the payment is automatically applied so you don’t have to even deal with the transaction itself. The company is now taking its approach to logistics, and moving to ‘disrupt’ the delivery industry as well, competing with courier services, UPS, Fedex, and the Post Office. It’ll be interesting to see what happens there.

But it’s important to recognize just what Uber actually represents. Uber started out named UberCab, and ‘uber’ is a German word which means ‘over’ or ‘better than’ or ‘the ultimate’. So UberCab meant, the ultimate cab. At the core of Uber’s strategy has been lobbying and advocacy to make sure that it can get into regulated cab markets. And this is so Uber can ‘disrupt’ and destroy them. 

A healthy cab ecosystem relies on expectations of a market (with price-fixing by political authorities, mostly taxi commissions). There have to be people trying to hail cabs, and cabs driving around to find customers. As more people use Uber, there will be fewer people trying to hail cabs, and fewer cabs picking up people, which will lead to reduced expectations cabs will be available, and so on and so forth. Gradually the ‘open cab market’ will be displaced by a closed Uber service. I’ve already noticed it’s harder to hail cabs where I live, capacity is often taken up by Uber riders.

Open cab markets aren’t gone, but they will die eventually. They will go the way of open cattle, pig, and chicken markets, which mostly don’t exist anymore due to concentration in the meat market (read The Meat Racket for a great understanding of what happens when markets are captured by big business).

Uber’s ascendance hasn’t come without controversy. A lot of people are focused on the company’s use of surge pricing, which is when the company charges more money to customers because there is ostensibly high demand, such as during snowstorms or during New Year’s eve. It’s a controversial practice, to say the least.

The CEO of Uber, Travis Kalanick, has responded by basically saying ‘deal with it, it’s market-pricing.’ His argument is that higher pricing brings more drivers into the market, matching supply with demand. It is the optimal way to get as many people home as possible.

His argument, though, is phrased somewhat oddly. Kalanick notes “we are not setting the price, the market is setting the price.” But then, non-ironically, immediately adds “we have algorithms to determine what that market is.” In other words, the prices his company sets in the markets that his company controls are somehow, well, natural. So complaining about this is like complaining about the rain.

This is, of course, absurd. Uber is aiming for an algorithmic monopoly, control of a market through contract pricing. That the contract pricing is done with a complicated algorithm doesn’t make it a market, it just makes it complicated. Standard Oil would love this rationale.

There are three big issues with Uber’s model.

One, Uber controls all of the information in this so-called ‘market’. One of the premises of a market is relatively balanced information on the part of both the buyer and the seller. But Uber is neither a buyer or seller, it’s a broker. And as a broker, it shows the buyer and seller only what it wants to. Its algorithm is not regulated nor is it transparent, so neither the buyer or the seller has any credible information. This isn’t a market, it’s a monopoly. It’s a special type of monopoly, an algorithmic monopoly. It may mimic market-style pricing, or it may not. That’s up to Uber.  

We’ve already seen that Uber withholds supply to drive up prices, as illustrated by a text message encouraging drivers to stay home so pricing would surge. Uber denies doing this, but even the denial proves the point that Uber absolutely controls all aspects of the ‘market’. Here’s the company’s PR on the text message debacle.

“The message was a poor choice of words by the local team but its clear purpose was to get more supply on the system, not less — to keep surge pricing down and the numbers speak to that,” says Noyes. “Only 3.1% of all Valentine’s Day trips in San Diego had surge pricing. The average Valentine’s Day trip price was 2% more expensive or $0.26 more expensive on average.  In addition there were 306 drivers onboarded in the 2 weeks leading up to Valentine’s Day.”

Noyes explained the bit about not activating new drivers to The Verge:

“[Noyes] explained the text simply noted that Uber did not onboard as many San Diego drivers as they could have that week because in the two weeks prior, a very large number of new drivers were added to the system,” The Verge’s Ben Popper writes. ”Earnings had been low, and the company wanted to reward new drivers with a strong holiday paycheck.”

“The company wanted to reward new drivers….” But wait, how is ‘rewarding drivers’ consistent with market pricing? Markets don’t reward anyone, they simply clear at a price. So the answer is, it’s not a market, it’s contract-pricing controlled by Uber.

Right now, the only competitive force working to constrain Uber is the open cab market (well there’s politics, but that’s being swept away effectively). As this disappears, will Uber’s algorithms, aka the magical market, adjust as well? I think we can count on it. Uber believes in supply and demand, and when Uber is the only supply, well…

The second problem is simpler to explain. Cab drivers have a history of discrimination, whether it’s not picking up African-Americans or refusing to go to certain neighborhoods. Uber solves this problem, as Latoya Peterson explains in Racialicious. Here’s a sample comment.

A good example of race, class, and gender intersecting and the cost of racism and sexism. As a black woman I don’t get discriminated with Uber and feel safer than hailing a cab since my ride is tracked but if I couldn’t afford Uber, oh well. I take Uber all the time and have never been sexually harassed or treated rudely like I have the many times I’ve taken cabs in DC over the past 10 yrs.

Getting rid of racism is a good thing. But in eliminating one problem, this service introduces another. You have to have a smartphone and credit to use Uber. As Uber displaces the regular cab market, racism as a screen for cab drivers will decline. But the new screen, which will be contained in the magic market, aka Uber’s algorithm, will be whether you have a credit card and a smartphone. That means you can’t give someone twenty dollars for cab fare. It means that an entire slice of the population simply can’t get into Uber’s magic market. 

And three, Uber is quietly gaining enormous power, almost feudal power, over its drivers. Remember, Uber wanted to ‘reward’ drivers with a great paycheck. This works both ways. Are you an Uber driver who is complaining too much about Uber stealing your tips? Well, gosh, it seems like the magic algorithm keeps giving you bad customers. Or no customers. Or think a few years down the road, when there is nothing but Uber in certain localities. Then Uber can raise prices on consumers, who may have other options and can squeal. But it can also lower prices paid to drivers, and these drivers are dependent on Uber for their livelihood. In fact, Uber is even starting a financing program for its drivers, so they can get loans for cars. 

Remember, the customer doesn’t even pay a driver, the payment goes through Uber. What are these drivers going to do when Uber totally controls the market? Sue? Ha, not if they want the algorithm, I mean the market pricing, to ‘reward’ them. And let’s be clear, when a company offers low cost financing for capital investment for independent contractors and controls all aspects of the transaction and customer relationship, these are no longer independent contractors. They are employees. Only in this case, they are employees who have taken on debt to work for Uber. Uber has figured out that it is cheaper to trick people into thinking they are independent contractors and get them to risk their capital. Then Uber can happily take the profits. I guarantee you, if Uber thought its capital would be best used to run a fleet of cars, it would simply hire people straight out to be drivers. That it’s not doing that suggests something.

Uber is a fascinating and convenience-inducing shift in urban logistics, for now. I’ve used it. But what the company is really doing is supplying a governing service, replacing taxi commissions, and taking a fee for doing that. This means no input from the public, and since the public seems to hate politicians these days, maybe that’s what people want. But still, to the extent that there is interest in democratic decision-making, algorithmic monopolies are something antitrust authorities should watch. Right now Uber is wringing a lot of inefficiency out of the taxi industry. But eventually it will have so much power that it will introduce problems of its own.

Uber used to be called UberCab, with the goal of bettering all the cabs out there, creating an indispensable service. It’s nearly there. Soon after starting, it removed ‘cab’ from the name, and is just called Uber. Now it’s expanding into new areas.

What’s next? Maybe everything.

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  1. OIFVet

    There is a lawsuit in Chicago against Uber:
    “Shakman also branded those companies as an “exclusionary, elitist taxi system,” in that they accept clients by smartphones and payment by credit cards, while setting their own shifting rates and declining to go to some city neighborhoods — an illegal practice for licensed taxis.”

    And it appears the reason Uber removed the “Cab” part of its name was simply to avoid municipal regulations by calling itself a ride-share service instead. From the same article:
    “The suit was filed a day after Mayor Rahm Emanuel submitted an ordinance that would establish a separate license for what he called “transportation network providers” or “ride-share companies….. Shakman, who is most famous for the long-running patronage suit against the city that bears his name, also took issue with describing the rival taxis as “ride-share services. “That’s a misnomer that’s being hung on this industry by the industry. This is not ride sharing,” he added. “These are taxi services. They walk like a duck, and they quack like a duck, and they’re a duck.””

    Chicago cab companies are in serious need of improvement to their service and Uber and its likes can just push them in that direction. I just don’t like the fact that its business model pushes all the risks onto its “independent contractor” employees while leaving almost all the profits for the company. And the fact that Rahm Emanuel is pushing “regulations” that place traditional cab services at competitive disadvantage seals it for me. As a long-suffering Chicagoan I know that every time Emanuel pushes something through it is bound to seriously hit me in my pocket while providing me with no benefits in return.

    1. Dirk77

      Well, Rahm’s next move should be to sell the Chicago taxi licensing service to JP Morgan for twenty years for X dollars knowing fully well it will generate 10X in that time.

    2. harposox

      Rahm and his cronies are chafing because they don’t get a cut of Uber’s pie, as the city has a complete stranglehold on Chicago’s taxi industry. A taxi medallion costs upwards of $360,000 to obtain(!), and the number of medallions available is artificially suppressed in order to keep the cost of entry so high. This study estimates that after expenses, the average taxi-driver makes barely more than $12,000 a year in net income:

  2. James

    Not really sure how this “proves” that Uber creates a monopoly?

    Uber is actually 3 separate services.

    Uber (for hailing cabs registered with a medallion), UberX (for independent contractors), and Black Car (their limo service).

    First of all this article fails to make the distinction between the three. It’s not exactly clear how Uber controls the cab market, if all of the Uber drivers have to be cabbies in the first place (it also prevents the oh-so-annoying problem of broken credit card machines, which used to be rampant, but have mysteriously vanished now that Uber is a service). Plus, since picking up fares from the streets yields higher earnings, cabbies have an incentive to only use Uber if there is no business.

    Second, there are many alternatives to Uber. For one, dispatch companies could easily release their own system for hailing registered taxis with very little barriers to entry, and come up with their own pricing scheme that is better than Uber. Nothing really stopping them here. Second, UberX faces, of course, competition from Lyft. And Black Cars are private car services that compete with traditional limo services.

    Finally, the author of the article misses a critical point. Economics is, at the end of the day, a study of trade-offs and opportunity costs. He feels confident railing against Uber, but fails to recognize the shortfalls of the cab system.

    No mention, of course, of the artificial (and arbitrary) cap that medallions place on the system to enrich the owners of the medallions at the expense of the drivers. No alternative for how cabs could know to pick up fares on side streets off the main road at the push of a button. No alternative pricing model (because that would be too difficult), or mention of competitors. The author basically takes “monopoly” at face value and fails to consider the competition.

    The reasons I use Uber are such:

    1) No broken credit card machines

    2) I can hail a cab from my favorite bar, which is 2 maybe 3 blocks off the main road.

    3) I can do the above two points at the touch of a button.

    When the dispatch companies can do that, then we can talk.

    1. diptherio

      There are surely problems with the traditional taxi system. However, allowing the service to become dominated by one or two private firms (newsflash: two firms does not a competitive market make) is not a good solution. The problems of monopoly/oligopoly are widely known, and even discussed in mainstream economics courses. The fact that a wannabe monopolist has had positive effects on those it is trying to drive out of business, or that it currently performs some aspects of the service better than traditional firms, is not a reason to believe that the monopolist will continue to provide this higher quality of service over the long-run.

      Stoller mentions the racism that plagues taxi services, and there are doubtless many other issues that I’m not familiar with (being something of a hick), but transitioning from an imperfect but relatively open taxi ecosystem, to one dominated by one or two firms may well be jumping out of the frying pan and into the fire. The latest poll results that I have seen indicated that upwards of 60% of people in the lowest income quartile do not have access to the internet from any location. I assume this means that they don’t have smartphones either, since one can access the internet from a smartphone. So, if Uber and Lyft take over the cab ecosystem, po’ folk without groovy tech gadgets will be unable to make use of taxi service at all. This is also a form of racism, and classism (they are, afterall, closely tied).

      I understand that Uber is convenient for you and I’m glad to hear that you’re getting a ride home from the bar. However, you should be aware that what is a better option for the relatively affluent (or at least teched-up) is totally unavailable to those of us existing on the lower rungs of the economy.

      Cab regs probably need a massive overhaul and numerous improvements to the existing system could no doubt be made–which is what I would like to see happening, rather than depending on the benevolence of one (or two) private companies.

      1. John Kensington

        A low end smartphone can be had for under $100 these days. I doubt that poor folk without groovy gadgets take cabs which can cost $20 for a single ride. Instead they just take the bus or car pool.

        As for your racism and classism suggestion, are you suggesting Ferrari are also racist and classist since poor people can’t afford their cars? uber is not affordable for all people, but taxi services never have been. I seriously doubt people who make $7.50 an hour can afford to catch taxis – at least with the cost of living as high as it is.

        Monopolies and oligopolies only develop when the cost of entry is incredibly high, i.e. ISPs and firms that make processors. The kind of investment required to start your own uber of lyft isn’t anywhere near that high. All you need is a few coders, a few drivers, a few cars and a few servers. It would be difficult for uber to create a monopoly. The only reason taxis were able to maintain a monopoly beforehand were legal restrictions that prevented other companies from creating their own taxi system.

        I’m not sure about what you mean by the relatively open taxi system – the taxi system is a monopoly run by rent seekers. uber isn’t perfect by any means and there’s definitely the possibility it could overcharge consumers in the future, but there’s nothing stopping someone else from starting their own competitor.

        With the previous taxi system you were stuffed – either you pay what the taxi cartel wanted or you get could stuffed. uber, lyft and other similar services allows for choice and competition for consumers.

  3. sarath1024

    Wow, do you guys need to administer every detail of human interaction?

    If Uber were the only company allowed to do this, then yes, maybe we’d have a problem. But if they’re successful, it will just draw competition. So if you don’t like their algorithm, create your own car service. It’s really not that difficult to stop pontificating and start actually doing something. Millions of us do.

    1. Yves Smith Post author

      Please bone up on network effects and first mover advantage. Information network based services are natural monopolies. Once someone moves in and establishes a meaningful position, the economics of establishing a competing service are unattractive. No one with any sense will try to compete.

      That’s why, back in the day when the government took its responsibilities to make sure markets operated fairly, that the AT&T monopoly was broken up. Pretty much every telecom expert agrees that had AT&T remained in place, the rise of cellphones and the Internet would have taken place much later, if at all.

      Monopolies (and you don’t have to control a market to have monopoly pricing power, you merely need to have a dominant position) are widely acknowledged in the economics literature as being a Bad Thing. They lead to much higher prices and stifle innovation

      And you ignore the proof in the pudding. Matt Stoller says he already finds it harder to get a cab in Washington. But you Uber-defenders promote the same sort of neoliberal cant that messed up the economy and brought us, among other things, the global financial crisis.

      1. Banger

        What you you and Matt say is certainly true but Uber points the way to a more efficient and rather easy system to regulate, i.e., the technology is obvious and simple to implement so why not do it everywhere? Municipalities could run their own systems or buy licenses from Uber. A key problem hers is, of course, that the public has little faith in the ability of any government entity to create good service so they may not even try considering the corruption that seems to dominate not just the feds but local governments as well.

        What is your alternative? There is clearly a need in some municipalities for something like Uber. Public transportation in the U.S. is dreadful and needs a lot of help.

        1. Matt Stoller

          Some cab systems are actually creating apps to compete with Uber, DC has one. Public transportation is very bad in the US, but Uber’s not public transportation. And I’m guessing it’ll be pretty easy for them to turn their fierce lobbying machine against public transportation once they’re done eating up cab markets.

      2. RalphR

        Quite the outbreak of markets Uber alles defenders in the middle of the night and very early AM. Looks trollish to me. Yves, Lambert, are James and sarath1024 newbies and thus possible/probably partisans?

        1. indio007

          I was thinking the same thing.

          1. Some of the comments seem inorganic.

          2. They don’t address the points in the article and use the straw man fallacy

          3.They give a testimonial style sales pitch.

      3. allcoppedout

        You sound like an ideological American here Yves. I’ve also seen plenty of argument that the breaking-up of our nationalised industries may have been counter-productive.The right kind of monopoly might have its place. There’s a tiny corner of the argument here – – and there are 100s of challenges on whether privatisation or big firm break up made things better or worse in telecoms and elsewhere.

        In consumer and environmental terms we have technology to create taxi buses, share rides and challenge public transport and private car ownership. What Uber is doing is typical of a cheap commercial grab of high prices and environmental dumping.

        We have ‘Uber’ in the UK and commercial hauliers use much more sophisticated systems to run near capacity. What ‘Uber’ isn’t is either a way to drive prices down, raise wages for drivers, make passengers safer, do the environmental thing or make professional driving a decent job with good benefits. I’d be thinking this through before trying to relate it to a few pages of economic textbooks or neo-liberalism.

        Nor can I see the ‘Uber App’ providing much sustainable competitive advantage. A public service running door-to-door shared journeys just might. But then, I’m not American and haven’t listened to your fairy tales since I was a girl or lived in a country that can’t manage a national health service and pays twice what it should for the private system it does manage. And where other than in management fairy tales does monopoly kill innovation?

        Two famous Schumpeterian hypotheses were: 1) the existence of a positive relationship between innovation and monopoly power with a concomitant increase in profits, and 2) large companies are more innovative than small firms.

        In fact, as this rather typically dire paper (of 1000s) concludes, – – there is a long debate without much conclusion on innovation and monopoly.

        Whatever Yves. Stay safe and use taxi firms you know if you can! We British are just brought up on different fairly tales.

            1. notexactlyhuman

              Your bizarre defense of monopoly power, as if it were either benign or beneficent and not corrupting, led me to think that perhaps you were being held captive. Are you being held captive?

      4. lazylizard

        1. how about monopolies that exist because they do their job better than their competiton? amazon, google, perhaps even microsoft for a long time..i’d say they bring net benefits to consumers. perhaps only monopolies maintained by laws lead to higher prices and stifle innovation? and even then, governments have had plenty of practice regulating such industries as utilities, such as at&t, which are natural monopolies..

        2. perhaps there’s a need for surveys to be commissioned by regulatory authorities to see how much regulation should they put on firms like uber. they cabs, buses or lifts, is always too slow…

    2. Klassy

      Hey Sarath,
      Will you be happy when every single human interaction is a market transaction?
      Could we get over the idea that “doing something” is always preferable to doing nothing?

  4. BigRed

    This is one of those funny abuses of German words in English.

    “Über” in combination with nouns and adjectives typically carries a meaning of “too much”:

    “übervoll”, for instance, is “overful”, “Übermass” means “excessive amount” etc

    Sometimes it can mean “superior” – the “Übermensch” would be most appropriately translated as “superman”, “Übermacht” refers to superior power etc

    So “Übercab” doesn’t make a whole lot of sense, unless it’s meant ironically to play on the fact that they artificially induce cab scarcity.

    notably, “überflüssig” is the German word for superfluous :)

  5. Dan Kervick

    OK, as a New Hampshire rustic with no current involvement in the world of cabs, I don’t really know how this works. But it seems to me that the issue here, if I understand Matt’s picture correctly, is that Uber is trying to position itself as a monopsony buyer of cab services which they in turn sell on at a higher price to cab consumers as a monopoly seller of cab services. This, of course, would allow Uber to control the price paid to cabbies and the price charged to coinsumers

    It seems to me then that the best way of disrupting this strategy would be for someone to create a new app – call it “Hail” – which simply executes electronic hailing and payment of cabs without the additional monopsony buyer/monopoly seller. The cabbies all sign up for the service, if they choose, by downloading the app and registering themselves, and when someone hails a cab, the hail is directed to whatever registered driver happens to be closest and unoccupied – which is more or less what happens on the streets of New York anyway. If that driver declines the hail, it is sent on to the next closest driver etc. The developers of Hail don’t get involved in any pricing, buying and selling of cab services. They just charge for the app, or charge advertisers for add space, etc. using the conventional business model for apps.

    1. Larry Headlund

      Let us look at your ‘Hail’ app, since I’m in the business of software development. You do know how much robust software development costs?
      1. If you are paying through your smartphone then you have entered an interesting realm. Essentially you are a credit card service. Think tips, disputes over fares, local regulations, intereactions between drivers, taxi companies, etc.
      2. It has no ongoing revenue other than advertising. Possibly another slice of the fare, on top of credit card fees.
      3. It has to be customized for each locality. There are laws about which cabs can pick up in which location.
      4. You can’t charge the consumer for the app. (Uber is ‘free’)
      5. Your market in drivers may be limited. Some taxi companies only let their drivers be contacted through their dispatcher.
      6. Contracts directly with taxi companies will be delicate. They may not be thrilled letting you know where their taxis are.
      7. Your target market (drivers/cabs) isn’t that big, For example, 1,825 taxis in Boston, about 7,000 drivers. If you are counting on them buying the app to finance things, this is important.
      8. Basically you are shouldering almost all of the expenses of Uber for a fraction of their revenue. Plus negotiating another layer, the taxi companies.

      Contact me when you get financing lined up. You will need financing. I’m not doing this one solely for equity.

      1. allcoppedout

        I can think of another approach to this. Taxis could be run from large organisations like banks and hospitals doing car pooling for employees. This could be ‘Ubered’ and the big organisations could do vehicle, insurance and driver vetting. The cars would switch to the general market away from peak times. But who would want a resource efficient system like this?

        1. Larry Headlund

          Your proposal looks a bit like the ‘Google Buses’ which work a dense urban living to concentrated workplace situation. If you’re doing a central workplace to dispersed living, where taxis make sense, I would think it would be simpler to have a mechanism for car pooling/taxi pooling at the workplace, arrange for regular pickup at the workplace (most taxi companies accomodate regular pickup) and don’t care what the taxis do other times.

        2. Larry Headlund

          I will also add that where I used to live (Boston) Mass General Hospital runs its own shuttle bus service between its various facilities and a few other spots around town and employees and patients can use it. similarly Harvard/MIT have shuttle services if you are traveling between their service points.

          This only seems to make sense in urban areas or the aforementioned Goggle Bus situation.

  6. John A

    “what the company is really doing is supplying a governing service, replacing taxi commissions”

    No, it is not a government service. If a private company can do it and charge it’s customers directly for that rather than every single taxpayer paying for NYC’s Taxi & Limousine Commission’s parasitic existence then so much the better. The only thing the TLC is really necessary for it to ensure that all of the drivers/vehicles/bases are insured. That’s it. Everything else that the TLC “does” is completely and utterly parasitic.

    I run a limousine company in NYC and compete directly with Uber. Even so, I wish them the best of luck. Anything that destroys the traditional, corruption-filled, summons mills that are local taxi commissions is fine by me.

  7. Katniss Everdeen

    Lots more to “cab-culture” than I was aware of.

    But I have a question. As incomprehensible to me as it is, I hear that some people “vacation” in big cities like New York and DC.

    Does this mean that I, with my traveler’s checks and “dumb” Jitterbug phone, had better steer clear of these places since cab rides will no longer be part of the bargain?

    No problem. I prefer sand, palm trees and people who understand the value of cold, hard CASH anyway.

    But I gotta say, watching your cab approach you on your smartphone does sound pretty “neato” to my disturbingly undisrupted self.

  8. H. Alexander Ivey

    “As more people use Uber, there will be fewer people trying to hail cabs, and fewer cabs picking up people,…”
    Err, well, maybe in the US, but that is not what has to happen. You have it right, Matt, when you briefly described a taxi ecosystem. It includes, not by an afterthought, an institution that is more or less independent from the producers and the consumers sides (independent meaning “does not make money for producing or consuming the product). “Uber” seeks to be that institution as well as being able to get money from both sides of the street (producer and consumer). This is a recipe for price gouging, poor service, and misery for one and all except for the “Uber” person (harhar – could not resist!) who has too much control and not enough limits.

    “Right now Uber is wringing a lot of inefficiency out of the taxi industry.”
    Beware of the term “efficient”. It is meaningless in an economic argument. Just what are you talking about? About how when you want a taxi you can not get one when and where you want every time? So the answer is to have plenty of taxis just waiting for your call or hail (or app ping?) But then having extra taxis, waiting, is inefficient for the taxi company or the taxi drivers. So who is inefficient now? Usually when the word “efficiency” is used in economics, it means “I’m inconvenienced and I don’t like it. Get me the item now, and screw the cost to other people.”

    1. lazylizard

      flagging cabs driving around looking for passengers is inefficient.
      calling a cab allocates resources better.
      more ways to get cabs matched with passengers, even better.
      efficient as in fuel efficient because maybe cabs can spend more time with passengers in them. efficient as in more time spent on economic activities as both passengers and cab drivers spend less time waiting for a chance occurence to see each other along the road..

  9. Dean

    I have recently used Uber and found it to be a quite pleasant experience. I was a bit dismayed at the surge pricing component but i was prompted to confirm the higher rate. Assumed it was market forces at work, not some world dominating algorithm.

    There is another app I use called taxi magic. Can hail a cab from my phone and have option to pay via cc thru the app. A reason I tried uber is the taxi magic app did not allow me to hail a can in Playa del Rey, CA (don’t want to generalize to all of LA based on this one datapoint but PdR is near LAX). Instead it referred me to a dispatch number and forced me to call. Took 6-7 minutes to speak with a dispatcher and another 10 for the cab to come. The taxi magic app ‘knew’ I was in LA and wouldn’t hail a cab.

    No such problem with uber. Does Uber have a more effective lobbying arm to let their app ‘work’ in LA? Don’t know. Is the reason taxi magic didn’t work because of franchise agreements? Don’t know. But the cabbies do have an app similar to uber albeit the payment and reimbursent mechanism differs greatly from Uber.

    The cabbies will certainly adapt but it seems like it’s a city by city basis with the cabbies fragmented geographically while uber is one nationwide system.

  10. Ed

    I didn’t have much of an opinion of Uber before, so this is an excellent piece that gave me alot of information on the service and makes a convincing argument that its a negative trend.

    There seem to be two separate bad effects of the service. The first is that if the norm becomes that you hail a cab using a smartphone, soon the only way to hail a cab will be from your smartphone. This is bad news for people without smartphones. Street hails, which are great, go away. However, there are some mitigating factors here. The first is that street hails are already rare, in fact my impression is that you can only do this in New York City and Chicago. So maybe the NYC and CHI TLCs want to be careful about allowing Uber to operate, in most of the country service should improve. Second, there is nothing to prevent TLCs themselves from introducing the tech without Uber, and I think without the push they would have gotten around to it eventually.

    The second issue is to the extent to which the corrupt but public TLC monopolies are displaced by a corrupt private monopoly. This is worrisome, but its not like the current system is ideal. What would work better in the US would be relaxing the licensing monopoly and expanding the number of commercial hires available. If Uber facilitates this thats great, if they just replace the TLC monopolies with their own without any expansion of service, the situation will have gotten worse.

  11. just me

    About the magic algorithm, I’m reminded of this from Jaron Lanier (not about taxis per se):

    Matt Miller: Just a couple of minutes left with Jaron Lanier. In that spirit, there was one line you had I think that kind of echoed the humanism at the heart of your book where you talked about, even though everyone kind of extolled the promise of artificial intelligence, you observe at one point, Apple wouldn’t leave the design choices for its products to an algorithm as opposed to Steve Jobs, and that’s another way you have of sort of putting the human at the heart of things, isn’t it?

    Jaron Lanier: Well, this is a sort of nerd supremacy problem, because we’re all asked, and we agree, to let algorithms choose what music we listen to, who we date, all these pretty personal decisions that have to do with who we are, what movies we see. But Silicon Valley isn’t going to believe that stuff. We know it’s crap. And so for our stuff, you know –

    Matt Miller: (laughs)

    Jaron Lanier: You know, I mean it’s like we’re not going to live by that because we know better. We know that these algorithms don’t actually do anything and so we don’t live by them ourselves, and that’s something that’s worth noticing.

    Though the interview isn’t even about Uber, it does seem like it could be remarkably prescient here, perhaps, recognizing a pattern that he says keeps repeating itself.

    Jaron Lanier: Yes. I mean, you can for a while eliminate risk for yourself. You can be this switchboard or this like sort of perfect actor who’s just letting everybody else take the risks, and you don’t do anything, you just have this superior computational position and you just sort of take a cut from everybody else’s lives. But then eventually the society isn’t big enough to absorb, you know, this subsidy to the people who own the biggest computers, and then it crashes and there’s some huge public bailout. And it’ll just keep on happening.

    In the end we are hollowed out and collapse, and the companies and products that did it collapse too. It’s not a viable ecosystem, it’s not a real economy.

  12. just me

    Serfs up. Contractors = employees, except not. This part:

    In fact, Uber is even starting a financing program for its drivers, so they can get loans for cars.

    Remember, the customer doesn’t even pay a driver, the payment goes through Uber. What are these drivers going to do when Uber totally controls the market? Sue? Ha, not if they want the algorithm, I mean the market pricing, to ‘reward’ them. And let’s be clear, when a company offers low cost financing for capital investment for independent contractors and controls all aspects of the transaction and customer relationship, these are no longer independent contractors. They are employees. Only in this case, they are employees who have taken on debt to work for Uber. Uber has figured out that it is cheaper to trick people into thinking they are independent contractors and get them to risk their capital. Then Uber can happily take the profits. I guarantee you, if Uber thought its capital would be best used to run a fleet of cars, it would simply hire people straight out to be drivers. That it’s not doing that suggests something.

    Says so much, coming from Wolf Richter’s post here today on car loans being next subprime crisis. And, contractors don’t get minimum wage guarantees. Contractors don’t get health insurance. It’s a way to have employees without any liabilities or responsibilities for yourself.

    Court cases mentioned of drivers against Uber are in Boston, Chicago and San Francisco. The San Francisco one specifically asks that the contractors get recognized as employees. From 12/7/13:

    On Thursday, U.S. District Judge Edward Chen of San Francisco rejected Uber’s requests to dismiss the drivers’ claims for compensation for their lost tips and for reclassification as employees, which would allow them to recoup expenses for gas and other costs. He said two drivers, who want to expand their case into a nationwide class action, have described practices by the company which, if proven, would violate state law.

  13. mikkel

    Uber and its ilk in various industries (AirBnb and even going back to eBay) are totally trying to do what Stoller is commenting about, but they rely on two aspects: monopolization of information control and democratization of service providing.

    These two aspects should be viewed separately and this post only addresses the first. The solution is quite simple, municipalities need to work together on an open source infrastructure that will ensure they have a public access market. Of course this would undermine the current operators and cut down on the chance for graft and corruption, so it won’t happen.

    Still, I would hope that NakedCapitalism would seeing that public control of information can work together with democratization of services to curb excesses of both the private and public sectors.

      1. mikkel

        I mean the whole “sharing economy” jazz. I’m not going to pretend that it is an unqualified good — it has huge repercussions for full time jobs — but it is definitely a way to help ends meet and lower overall consumption. I believe degrowth is not only inevitable, but desirable due to environmental issues and this will lead to a long term reduction in specialized employment. These sorts of things can help fill the gap, until governments hopefully wake up and lead forward in a 21st century way.

        Just because a few people are trying to become oligarchs by controlling the information doesn’t mean that their points are invalid. It just means that we should work on ensuring there are public options.

        1. just me

          In the Jaron Lanier interview I quoted above, he said something in passing I think is key:

          We need to have a situation where if we’re going to have market economies at all, everyone needs to be a first-class citizen in them. And that has to be true even if it’s primarily an information economy, or else we’ll just create this new plutocracy that’ll be really extreme.

          “…if we’re going to have market economies at all…” His theme is that those very few with the biggest computers are going to wipe the rest of us out and collapse everything. His solution is that we all pay each other peer to peer micropayments when we use something from each other online, thus realizing the Internet’s potential to blossom into wealth for everyone. If we wanted Facebook to pay us for our information, say, that would be Facebook as company store, so that’s not the answer. He doesn’t go into how these payments are going to be arranged or what will protect us from banks, PayPal, NSA, etc. It’s such a hole.

          I want to believe he’s onto something, but when I think of what his kind of market would be like, I’m thinking it’s awful. It horrifies me to think of constantly translating every real thing into a price in a poisoned market, micropayment by micropayment, beans, beans, beans. But I don’t know how to fix things.

          From the Baffler article on neoliberalism from Links:

          Both before and after 2008, ours has been an economic order that, largely designed to reward paper speculation and penalize work, produces neither significant job growth nor wages that keep pace with productivity.

          I think Michael Hudson left a comment here not too long ago about the problem of substantiating and encouraging work-based money as opposed to speculative money.

  14. c1ue

    This article misses a number of important points:
    The taxi vs. Uber isn’t a case of the $12K/year taxi driver vs. the $25+/hr Uber driver.
    What it really is, is the medallion holder vs. Uber.
    And it is the fully commercially insured taxi driver who has zero liability and risk beyond the (for SF, $90+gas) daily lease of a taxi vs. the fully liable (for collision whether driver is at fault or not), pay all expenses (flat tire, wear and tear, gas, etc etc) vs. the $8/hr + tips taxi driver.
    Note that the $12K/year is the legally declared compensation – I guarantee actually compensation is significantly higher.
    The article also fails to mention why the medallion system exists. The medallion system was created because there were so many cabs in New York in the Great Depression, that the term cabbie became synonymous with crook. By limiting the number of cabs able to operate, the medallion system seeks to promote long term cab operation welfare.
    Thus what Uber and other “ride share” (really taxi competitor, as opposed to true ride sharing) companies are doing is also getting around this piece of originally progressive legislation. Not that the medallion system is perfect – many of the issues raised above are perfectly valid ones.
    However, I would note that Uber is mostly successful in a few key cities. Uber’s presence in New York – outside of UberBlack and UberSUV which are 1% directed – is quite poor. Even Uber’s own leaked numbers from last year show this – the average fare turned out to be something like $25 per ride. As someone who’s done ride-sharing, this is nowhere near normal “taxi” fares unless large surge multiples are applied. What this means to me is that the core of Uber’s business is to the 1% – whether banksters or hipster techies.
    The fact that Seattle – a fairly progressive town – has decided to limit the maximum number of ride-share cars on the road is a pretty good sign of what really is going on: medallion busting masquerading as ride share has done a great job in shaking up a fairly complacent industry, but ultimately all of this needs to be put under one regulatory umbrella – for everyone’s sake.

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