A Case Analysis of Uber

Analysis of Uber
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Analysis of Uber
In December 2008, Garrett Camp and Travis Kalanick tried to get a ride on a cold evening during winter in Paris without success. That was the time when the idea of what if a person could request a ride from a smartphone came up. In March 2009, the two individuals developed an app that allows people to request a ride using their smartphone with just a tap (Uber Newsroom, 2022). Today, Uber has become a global company, and the ride-sharing service has facilitated individuals' mobility in different parts of the world. The paper analyzes Uber by starting with how it entered the transport industry and the business model that has made the company successful internationally.
Before Uber's Entry and Inefficiency that the Company Exploited
Before Uber was established, individuals used to hail taxis on roadsides when they were in a hurry or the public transport was unavailable. In that light, a person who needed a taxi was required to stand by the roadside and wait for a passing cab without a customer. At a time, it took an extended period for an individual to get a ride. In that light, one of the inefficiencies before Uber was time wastage waiting for a taxi. Since numerous taxis were found in towns or areas with numerous people, it was difficult to get a taxi in remote areas. The cost of paying for a taxi depended on the driver, meaning there was no standard pricing strategy for the services provided. As such, weather conditions, such as rain and snow, caused the price to hike. Besides, it was challenging to get a taxi during harsh weather conditions since individuals were unable to stand on the roadside waiting for taxis, which had high chances of not turning up. Camp and Kalanick encountered this problem during a cold winter evening when the idea of developing Uber struck their mind. As a result, before Uber was established, taxis led to numerous inefficiencies that the company has exploited to grow and expand domestically and internationally.
Uber's Surge Pricing in the Context of Shifts in Supply and Demand
Uber has a surge pricing algorithm that is used to balance the demand and supply. For the company to manage fluctuating demand for cars across different zones, on-demand platforms are used to share market forecasts with available Uber drivers informing them of the area the services are needed the most by numerous clients. If the demand for Uber services is high in a specific area, prices surge temporarily above the normal cost (Guda & Subramanian, 2019). Uber's surge pricing leverages the demand and supply. When there is a high demand for Uber rides, the prices are raised, and a surge icon appears on the app. Individuals who are in a hurry can consent to the high costs to be taken to their destinations. However, those who are not in a hurry can wait until the prices return to normal. Uber reduces the surging prices by re-allocating more drivers to areas with a high demand for rides (Lee, 2017). As such, when more Uber drivers arrive at the on-demand area, the prices go back to normal.
Uber's Surge Pricing in the Context of Price Discrimination
Price discrimination refers to the attempt of a company to capture the value of specific products or services based on what consumers are willing to pay. In other words, it involves selling goods or services at distinct prices to different buyers for reasons not associated with the cost of commodities. Uber has been alleged to surge prices based on what customers are able and willing to pay (McKenzie, 2017). For instance, when a client requests a ride traveling to a wealthy estate or suburb, Uber increases the prices for such a specific individual. However, customers using Uber services in areas not renowned for attracting rich people pay normal prices unless there is demand for Uber services, where prices have surged temporarily. Price discrimination is meant to increase the revenues of a company. For instance, Uber's surge pricing in the context of price discrimination is appropriate for clients going to wealthy suburbs, airports, and luxurious hotels. In most cases, these individuals are willing to pay more since they believe that high prices mean quality products and services (Mehra, 2021). Consequently, price discrimination is not a crime, and Uber can use it to maximize its revenues.
Uber's Business Model and the Concepts of Economies of Scale
Economies of scale entail the cost benefits that a company gets from increased production since the costs are distributed over a significant quantity of goods. Uber's business model relies on convenience. Notably, individuals can request Uber rides using the smartphone app when they want to move from one place to another, regardless of the time or weather conditions. Uber's disruptive business model has made the firm grow and expand in different geographical locations (Lobbers, Hoffen, & Becker, 2017). Unlike what many people might think, Uber is a technology company and not a transport firm. The company's approach needs it to innovate constantly and improve its system. Uber's business model goes beyond leveraging demand and supply. In addition, it builds sustainable measures that encourage customers to rate the services provided. During travels, clients are offered water, Wi-Fi connections, and phone chargers. Customers can also use Uber's smartphone app to monitor the route their drivers take and see the time remaining to reach their destinations. In that light, the economies of scale facilitate creating more value for clients and are significantly determined by innovations. For instance, Uber introduced Uber Angel in 2014, a service that allows drivers to pick up clients who are drunk and cannot drive their vehicles. As such, Uber maximizes its output by bringing more drivers on board and ensuring that they are where they are needed to enhance convenience.
Uber's Business Model and Economies of Scope
Economies of scope depict that the average production cost of a firm reduces when there is an increased variety of products and services. On that note, a company gets cost advantages by increasing complementary goods without compromising its core competencies. Uber led to the rise of a sharing economy, which is why it is referred to as a disruptive technology. The company does not own vehicles that take its customers from one place to another. However, it welcomes drivers to join its platforms and make money by matching the needs of its customers to Uber drivers. Uber's business model emphasizes sharing concept, establishing clients' and drivers' trust, offering personalized services, and matching the demand with supply (Tao, Yuqiao, Nawaz, & Shafique, 2019). As such, the company decreases the production cost by innovating more complementary products. For example, when a client books an Uber ride, one can know the price to pay, the time it will take to reach the destination, choose the route to use, and get other things, such as the Internet connection. As such, many individuals are willing to request Uber rides since they are convenient and have the ability to get other complementary services that are unavailable when using other means of transport.
The Concepts of Game Theory to Uber's Market
Game theory entails interacting choices available for the economic agents to produce outcomes based on the agents' utilities or preferences, where such outcomes are not intended by the agents. In other words, the choices and actions of the agents significantly affect the outcome. Game theory assumes that the players in the game are rational and that they strive to maximize their ...