Improvement in the level of information technology has led to a change in the market level of rivalry. Uber being one of them has propelled the level of competition to a level higher as compared to years before its establishment (Cramer & Krueger, 2016). It uses a given mobile application to bring passengers and drivers who own private vehicles together through an internet application site. The Uber Company does not have its vehicles but uses the individually owned licensed drivers, thereby making Uber appear like a site march developer and not a transport supplier. Therefore, Uber operators do not conform to the laws regarding transportation and communication as opposed to taxi drivers who have to follow the rules to the latter. There have been some controversies between the Uber operators and taxi drivers as taxi drivers are heavily regulated and are required to own one (Sundararajan, 2014). In other regions, taxi drivers have to pay sales tax for operating a taxi, and other taxi companies have to pay a premium to cover for passengers in any case of an unfortunate incidence occurring. However, despite the rivalry with the taxi company since its inception, most passengers have lauded the Uber service.
It's with this interest, therefore, that I tried to assess the economic impact of this activity. It is worthy to indicate that the advent of Uber business has boosted economic development in one way or another. Firstly, it has improved transport activities thereby enabling employees to reach their workstations at the right time. It has equally enhanced delivery of goods and services to the various destinations they required at hence leading to increased production activities. This helps to improve economic levels of a given country. It is also entirely correct that these Uber companies create employment opportunities especially to the drivers attached to them by allowing them to get a platform to earn a living. Undeniably, they contribute to the revenue stream of a given country as they are also charged taxes for licensing their activities locally or operating charges. Consequently, Uber registers as a technological company that offers transport facilities, therefore, help to generate income for the creators of such important internet platform
Demand, Supply, and Equilibrium Price About the Economic Impacts of Uber
The increased demand for Uber has dramatically affected the need for the taxi services by reducing the rate of use of these taxi services. Demand is created when the customer is willing and can pay for the goods and services they desire to acquire. In this case, the emergence of Uber services has led to a decrease in the demand for the taxi service in areas where Uber services have manifested (Sundararajan, 2014). This has been a brilliant case to explain the price of other related products as factors that affect the demand for a product or service. To further illustrate the concept of demand, if cost, efficiency, and effectiveness are considered, the need for Uber services will be a notch higher as compared to taxi because Uber offers very convenient and useful services. On the other hand, if the demand for taxi services improves, which could be due to technological interference or breakdown in the Uber services, the need for the Uber services will massively be interfered with. In this case, therefore, passengers will tend to use taxis than Uber. One of the underlying factors affecting demand is the price (Sundararajan, 2014). Assuming that other factors are remaining constant, an increase in the price of a commodity leads to a decrease in its demand. Consequently, when the costs decrease, the need for the products and services will increase. This completes the fundamental law of demand.
In concluding the concept of demand in the explanation of the relationship between Uber business and Taxi services, the intrusion of Uber into the market expressively reduced the revenues and profits initially enjoyed by taxi drivers. To overcome this, taxi drivers could devise ways like advertising their products and services they offer to boost their demand thereby marching the Uber service providers hence engaging in a fair competition.
Supply is another concept that stands to affect the Uber operators in the long run. Supply is the number of goods and services that suppliers are willing and able to bring to the market at the prevailing market prices. As their activity expands in the country, most firms will be lured to invest in this sector hence creating a pool of Uber operators in this sector. In the long run, because of the increased supply, the prices for the services offered will massively decrease some firms will contemplate leaving the market because of the reduced profit margins. This will bring back the market to its normal operating (Cramer & Krueger, 2016). This is further graphically explained.
Another concept that helps to explain the economic impact of Uber is the equilibrium price. This is the price which equates the quantities demanded and supplied in the market. In the case of Uber services, when the quantity demanded by passengers equates the quantities that they provide to their customers, the resulting price is known as the equilibrium price. This helps to stabilize economy because consumers will head to the market aware of their budget plan. Equilibrium price allows investors to understand the quantities of goods and services to be produced at any given time (Sundararajan, 2014).
Below are some of the graphical representations to help of the various effects of changes in demand and supply and how equilibrium price is achieved.
1. Figure 1 shows the interaction between quantities of Uber that is demanded and supplied. Equilibrium price is attained where the supply and demand curves meet.
2. It shows the effect of an increase in the fares demanded from passengers. From the graph, it is evident that growth in the prices charged will lead to a decrease in the quantities demanded of both Uber and taxi services
3. The third figure shows the rise and a decrease in the demand and supply of Uber products and services.
4. Finally, the fourth graph explains the effect of a reduction in the need holding the amount constant. From the figure, it will lead to increase in the fares charged from the passengers because other firms have withdrawn from the market.
Cramer, J., & Krueger, A. B. (2016). Disruptive change in the taxi business: The case of Uber. American Economic Review, 106(5), 177-82.
Sundararajan, A. (2014). Peer-to-peer businesses and the sharing (collaborative) economy: Overview, economic effects and regulatory issues. Written testimony for the hearing titled The Power of Connection: Peer to Peer Businesses
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