Ride-sharing at a Crossroads

The markets are working, but are we willing to agree?

The free market and ride-sharing applications have undergone a cycle from their foundation to a current moment of truth in the transportation industry. This moment was unfortunately inevitable, as politics has that way of creeping in. There was once a status quo in the transportation industry but ride sharing has turned a superficial profession (for example: gas pump attendant) into a part-time gig at best. This moment in time for ride-sharing services will turn into one of two choices: stay true to their intent, operating an application which ensures accessibility to a valuable service, or to give in and become a taxi service, returning to the status quo.

The ride sharing industry, with companies such as Uber or Lyft, is a win-win for all involved; consumers benefit from low fares, quick pick up times, and ease of access, while drivers benefit from turning their extra time and seats in their car into cash. It is almost too easy sometimes to use ride sharing as a prolific model for a free market in action with lack of coercion and complete voluntary interactions.

Recent news about Uber, and similar applications such as Lyft, includes stories of drivers angry about low fares, drivers taking out excessive loans to purchase vehicles, and riders who throw tantrums over high fares they agreed to ahead of time. Looking back, however, at the evolution of the industry before and after Uber entered the market shows this is a typical cycle in the allocation of scarce resources in society, a cycle that helps both consumers and businesses … if it is allowed to run its course.

Too many potential riders and not enough drivers.

The cycle starts with two categories: drivers or riders, and potential drivers or potential riders. Until Uber’s entrance into the marketplace, there was an arbitrary fixed shortage of drivers due to city codes and regulations limiting how many taxis could operate. This was the Dark Ages for customers. Wait times were excessive, oftentimes hours, and even if a taxi was found, good luck having it clean and exempt of foul odors. The rate was the rate – no more, no less – which meant in slow times you could pay far more than necessary and in busy times your emergency was treated no differently than a 21-year-old trying to get to a bar.

Drivers, quality, and accessibility increase. Fares decrease!

Now enter the dawn of Uber. Auto owners had time and empty seats available. These potential drivers found an application offering safe and efficient transactions and acquired riders by offering little wait-times and fare. This was the Age of Reason, if you will, for customers and potential drivers with excess time and capital. Transportation prices plummeted in the slow times to keep excessive cars off the road, and increased during the busiest times to bring in more drivers, ensuring anyone needing a ride could find one. The ancient times of taxis and hour-long waits were over, and the time of trading value for value had come.

Too many cooks in the kitchen!

The risks seemed small and the payoff seemed endless. This led everyone and their moms to enter the market of driving. Some drivers took out tens of thousands of dollars in car loans, thinking the money pot was endless, and some drivers decided it was their full-time job. Yet there were thousands who just worked to make an extra buck on top of their regular job. Like any business, customers and money are not endless but those looking for an easy dollar are.

The moment of truth for Uber has arrived.

Here we are, with some drivers angry they took out a $35,000 loan to drive for Uber full-time, some drivers now demanding unions and benefits, and others demanding higher fares at the expense of riders and themselves.

These are problems society and individuals are figuring out- Determining how best to utilize limited recourses with limited demand. If Uber is doing such a poor job, this means the opportunity for another company is extraordinary, as long as laws do not get in the way. A $35,000 loan is a poor decision of the driver and the bank (Interest rate issues are for another day). Drivers can argue for certain fares, but keep in mind this is at the expense of riders, and turning away many riders completely. Then there are the customers who do not realize alternate taxi options are still there but are unwilling to wait the 1-2 hours. Each individual must make a decision on how much a ride is worth to him or her at any given moment, and if the time doesn’t outweigh the fare, then waiting is your best decision.

A lower fare for Uber means the market has too many empty seats and not enough riders. It is the realization freedom to set prices and to create value will find an equilibrium in the number of drivers and riders. It is finding out Uber’s drivers should probably be the stay-at-home parent who have extra time during school and after bed time, a college student who needs to make a few extra bucks on the side, a person in between jobs trying to make ends meet, or any number of part-time scenarios.

It is time that America and the world understand driving is not a full-time job, and it never should have been. The forces we see today are the realization of such an idea. It is now up to Uber and individuals to determine the future of ride-sharing apps. Should we decide to ensure the market is free to enter with no licensing fees or excessive rules, there is a future where ridesharing exists and transportation costs remain appropriately low and opportunity high. Should Uber and its competitors be burdened with more regulation, and give in to becoming just another taxi company, the hours of waiting and limited opportunity will soon be back.