Running head: A CASE ANALYSIS OF UBER 1

A Case Analysis of Uber

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A CASE ANALYSIS OF UBER 2

A Case Analysis of Uber

Introduction

Uber is an international company that was launched in 2009 in San Francisco, United

States. It has become one of the fast-growing companies worldwide. The idea behind leading

to its success is the ability to reach out to potential customers through a mobile application

and website that enable customers to order for the nearest Uber services. Uber's approximate

worth in 2020 was $90 billion (Mudrić, 2020). The main competitors include Taxi, Lyft, and

Sidecar. The largest proportion of revenues comes from profits made through its car-sharing

investments. The fundamental strategies that have supported its fast growth include

partnership development, diversification, and product promotion. The strategies are meant to

increase profitability, meeting the needs of customers, and promoting its products and

services. Analysis of its strengths shows that Uber is capable of further bettering and

sustaining its market position. It has opened more opportunities with its resources and

business model that enables it to overpower its weaknesses. This analysis of Uber explores

Uber Company by undertaking a comprehensive examination of strategic approaches, SWOT

analysis, market positioning, and other factors that keep Uber in the leading position. It also

evaluates what might need to be done by the entity to improve the satisfaction of its

stakeholders and meet its future needs.

The market situation before the entry of Uber

After the 2008 recession, new forms of businesses that were built around information

technology and smart devices began to emerge. These enterprises were exploiting the

technology to support collaborative consumption, sharing of access, and coordinated services.

Initially, taxi companies used to operate using their cars. The arrival of Google, Facebook,

and Alibaba had shed limelight on how the tech era could become a landmark for businesses.
A CASE ANALYSIS OF UBER 3

More than a third of the American workers in the private taxi sector was operating under

occupational licensing. Other jurisdictions in many countries also require taxi drivers to have

a cover of occupational license to be allowed to transport people. Occupational licensing

restrict drivers from serving customers located outside the jurisdiction specified under their

license. Before Uber came in, much of the transport fares were controlled by regulatory

agencies while the number of drivers was limited to specific medallions issued in a particular

location. While occupational licensing can improve the safety of travelers and shield them

from being overcharged, they can potentially undermine economic efficiency by raising the

traveling cost. Customers had to endure long waiting hours for a taxi to pass near the location

as there were no better means of locating the nearest taxi. Urban travelers also paid higher

prices. The traditional booking system was much time consuming and exhausting. In the

moments of bad weather such as rain, winds, snow, and heat, the situation was very stressful.

The services were rather poor and disorganized as there was a shortage of taxis given that

taxis companies would only operate with their cars.

Uber realized various inefficiencies that existed in the taxi industry and designed

technology and a business model that would improve service deliverability. It increased the

availability of taxis by contracting private taxi drivers who were willing to join the company

and get their cars installed with digital devices that improve tracking and visibility of a taxi

through a mobile application. It allowed having flexible schedules while customers would

rate each driver depending on the services provided. The ride-sharing strategy used by Uber

increases efficiency by matching passengers to the nearest drivers. The sharing economy is

essential for cost-cutting and facilitating coordination within an enterprise. It reduces

middlemen and brings down the cost that would instead be covered by consumers. The three

aspects that Uber brought into the taxi industry include availability, speed, efficiency, and

lower fares (Hernández, 2020). This has enabled it to sustain its markets and also penetrate
A CASE ANALYSIS OF UBER 4

many other regions worldwide. Through online booking provisions, Uber provides time-

saving systems that satisfy demand.

Uber’s surge pricing

The demand for Uber services is much dependent on the availability of cars and the

extent of consumer traffic. Surge pricing is where the fare is maintained at regular demand

and surges when the demand rises. When the number of customers booking an Uber ride

exceeds the availability of driver-partners’, the company deploys surge prices in an attempt to

bring demand and supply for services to an equilibrium. The surge depends on the level of

mismatch between demand and supply and proximity of drivers’ partners based on hyper-

local information (Sauviat, 2019). There are reasonable reasons for using the algorithm of

surge pricing. One is that driver-partners freely enter or exit Uber making the company

vulnerable to supply dynamics when the demand surges, Uber needs more drivers to sustain

the supply. Equally, when the number of drivers is higher when demand is low, the company

needs more drivers to leave to sustain the demand. Thus, surge pricing is a way of attracting

more drivers to join Uber services during pick hours. It is signaling passive drivers to enter

the road to transport the customers. Besides, it signals the riders to seek other options because

there are fewer drivers on the road.

Figure 1: Illustrates the algorithm of surge pricing

Price discrimination

Price discrimination involves charging variant prices for a particular product/service

for different customers depending on observable characteristics such as residency status, age,

gender, and unobservable characteristics like happy hour and coupon discounts. Price

discrimination harnesses the variations between the purchasing power of a consumer and how

much consumer values a particular product/service. While it impacts the consumers,

economic theory suggests that society can benefit from price discrimination if particular

conditions are fulfilled (Zeamari, 2020). For instance, Uber’s pricing has enabled it to enter

diverse markets and improve efficiency, thereby improving the general welfare of society.

The objective of price discrimination is to exploit different levels of willingness of consumers

to pay (WTP) and maximize profitability. It accounts for the fact that different consumers

earn a different amount of income and are impacted differently by various circumstances.

Uber’s price discrimination is based on geography.

The economies of scale and economies of scope to Uber’s business model

The two concepts explain the reasons why the cost of Uber is lower compared to other

companies. The economies of scale are where a company acquires a cost advantage by

engaging in higher levels of production for one service or product. The economies of scope

on the other hand are where a company acquires a cost advantage by transacting in a variety

of services and goods. For Uber, the two concepts complement one another. Uber’s business

model makes it more of a tech company rather than a transport company because of how it

has exploited the technology to penetrate global markets through its value proposition. When

it comes to the economies of scope, Uber Company diversifies services across Uber X, and

Uber Eats. The value creation arises because Uber Eats and Uber X are connected via the

economics of scope in which the cost of combining the two activities is much cheaper

compared to doing each separately. The two employ the same application and driver pool to

leverage the onboarding and recruitment cost. During the pandemic in which people are

restricted from traveling, the company would still survive by supplying meals to people

through Uber Eats.

Uber also leverages the economies of scale by targeting as many customers as

possible. Since Uber does not manufacture anything, it highly depends on the network effect

whereby the value of their online platform grows with the increasing use of the platform.

Uber has focused on increasing availability, efficiency, and safety while at the same time-

saving time. Sharing the economy has enabled it to penetrate many countries globally where

it has formed a partnership with drivers and restaurants. This has enabled them to reach out to

many travelers in both small and large cities where the demand for their services is high. As

more travelers use Uber services, the feeling of belonging increases for both the riders and

company, thereby allowing the company to lower its operating budget and offer cheaper

services. Therefore its business model offers value to the driver-partners and the riders.

The concept of game theory

Game theory is a concept that companies use to develop strategic decisions. Uber

deployed the game theory in designing their business model to make it unique, hard to

duplicate, and in line with its strategic mission. The pricing algorithm and policies regarding

the independence of cab owners make it strategically positioned to expand quickly to

different markets through the sharing economy. Uber lures its driver-partners to prevent them

from switching to competitors as a game. Uber uses the network effect to influence new

customers to use Uber services. The Uber app allows customers to see the nearest cab from

the comfort of their homes or location and confirms the name of the customer to the driver.

This offers both the driver and the customer a unique experience that they cannot find in

ordinary taxis. It also manipulates drivers by employing data scientists and social scientists

who design non-cash rewards, video games, and graphics that inspire drivers to work harder

and in locations that may not be very attractive to them. The recently implemented binge-

driving system promotes binge-watching. The system connects drivers to their next customers

while still serving the current rider, with the video encouraging them to click the accept

button rather than the reject button. Through surge pricing, Uber can use the dynamics of

supply and demand to entice customers to accept the prices even regardless of the situation.

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

Uber recognizes that an international presence is necessary for its future success. In

2019, more than 74% of its trips were made outside the United States. Uber has been

succeeding because of its availability, speed, reliability, low cost, and comfort have

revolutionized how people live. It is a combination of demand and technological innovations

that have made the company to be successful in various markets. It has also established a new

level of entrepreneurship and employment in the world. Less-skilled and semi-skilled drivers

have found opportunities for employment with the company, a factor that has made foreign

governments very welcoming for Uber services. When assessing the demand for Uber
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services, there is no doubt that there are gaps to be exploited given that Uber completes an

average of 1.6 million daily rides worldwide (Rosenblat, & Stark, 2015). Uber’s business

model also allows it to keep pace with the needs of consumers. The business model is also

hard to emulate because of how Uber has created value and earned the trust of many

customers worldwide.

Notwithstanding, Uber understands the risks and sensitivities of international markets.

While scaling operations, they have to take into account the cultural diversity, the language of

the locals, demographics, and national policies that vary in different countries. Its rise

depends on how it approached different barriers to entry because its success lies in the ability

to tackle different oppositions from leaders worldwide. However, some countries are very

strict about foreign investment. It may have to shift away from its business model to conform

to foreign policies. For instance, its business model classifies workers as its contractors and

not employees and therefore it may have to shift if regulators in other countries mandate them

to change. Besides, several international markets understand the threat presented by Uber to

its taxi markets and as a way of protecting their taxi drivers from manipulation, regulators

could come up with strict policies that hinder potential investment.

The incentive pay model Uber uses and how it affects the principal-agent

problem

The principal-agent is the employer’s ability to scheme a gratitude model to avoid the

diverging demands of its employees (agent) and get them to work in the company’s interests.

The principle-agent issue faced by Uber is the level of control and independence that drivers

have concerning where they operate from and the fact that the incentives do not match the

company. Uber has however been attempting to alter this using behavioral economics and

game theory. Several lawsuits have been activated against Uber because its driver-partners
A CASE ANALYSIS OF UBER 9

favor incentive regulations to be issued together with gratitude in the electronic receipt.

Recently, Uber has initiated an incentive model in which drivers are rewarded for reaching a

particular number of Uber trips. Additionally, drivers who have completed 2500 trips will be

eligible for a reservation. Uber does not have sufficient insurance coverage and therefore it

lacks liability, protection, compensation, and safety policies for its workers. It also faces the

likelihood of being taxed by different governments based on the jurisdiction in which it

operates and how it deals with contractors.

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

Market sharing in tech companies provides numerous services while simultaneously

enhancing flexibility, real-time monitoring, transparency, and reducing cost. Uber platforms

permit temporary contracts that are controlled via digital algorithms. This creates a new level

of control, surveillance, and monitoring that produce workers’ empowerment and asymmetric

data. The incorporation of car monitoring through CRS, GPS, and CCTV has replaced direct

supervision and eliminated managerial requirements. Uber completely relies on the system to

determine, detect, and rate a contractor’s performance. This leaves gaps in power asymmetry

between the drivers and the company. Trusting strangers based on information provided by

digital systems can also compromise the safety and wellbeing of customers. Privacy concerns

are arising from the use of application because leveraging information access intrudes on

driver’s and client’s privacy. For instance, the company can access the location of a potential

rider and also track the driver as they transit clients to various locations. Laws for consumer

protection can impact the company by restraining asymmetries related to information and

control.

Conclusion
A CASE ANALYSIS OF UBER 10

This analysis of Uber explored Uber Company by undertaking a comprehensive

examination of strategic approaches, SWOT analysis, market positioning, and other factors

that keep Uber in the leading position. Before Uber was founded in 2009, customers had to

endure long waiting hours for a taxi to pass near the location as there were no better means of

locating the nearest taxi. Urban travelers also paid higher prices. The traditional booking

system was much time consuming and exhausting. Uber realized various inefficiencies that

existed in the taxi industry and designed technology and a business model that would

improve service deliverability. Uber uses surge pricing to attract more drivers to join Uber

services during pick hours. It is signaling passive drivers to enter the road to transport the

customers. When it comes to the economies of scope, Uber Company diversifies services

across Uber X, and Uber Eats. Uber also leverages the economies of scale by targeting as

many customers as possible. While scaling operations in different locations, the company has

to take into account the cultural diversity, the language of the locals, demographics, and

national policies that vary in different countries.

References

Mudrić, M. (2020). Public Interest and Regulatory Approach. In Uber—Brave New Service

or Unfair Competition (pp. 57-83). Springer, Cham.

Rosenblat, A., & Stark, L. (2015). Uber’s drivers: Information asymmetries and control in

dynamic work, workshop paper prepared for the Winter School “Labour in the on-

demand economy” at the Centre for European Policy Studies (CEPS). Brussels,

Belgium, 23-25.

Sauviat, C. (2019). Uber’s business model: An uncertain future. Chronique Internationale de

l'IRES, (4), 51-71.

Vargas-Hernández, J. G. (2020). Uber's Strategy as a Competitive Business Model of Sharing

Economy. In Sharing Economy and the Impact of Collaborative Consumption (pp.

97-115). IGI Global.

Zeamari, I. (2020). Uberisation: business model innovation through the interplay of political

(regulatory), customer and platform pressures (the case of Brussels vehicle licenses).

Customer and Platform Pressures (the Case of Brussels Vehicle Licenses)(June 24,

2020).