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Is Uber Exploitative? And What Does It Say About the Sharing Economy?

Raz Godelnik
| Monday July 14th, 2014 | 13 Comments

UberSometimes it looks like Uber has become the world’s favorite punching bag, from taxi drivers across Europe complaining that Uber is “not playing by the rules” to American customers annoyed with the company’s surge pricing tactics.

One of the latest punches came from Andrew Leonard, a staff writer at Salon, who compared Uber to John D. Rockefeller.

Why? Leonard didn’t like the fact that Uber significantly reduced the prices of UberX rides in New York and other cities, making them cheaper now than taxi rides. He suggested that Uber’s deep pockets (it just raised $1.2 billion) could enable the company to lose money on every ride, claiming this is an “anti-competitive market behavior.”

And the connection to Rockefeller? “The founder of Standard Oil built his monopoly by exploiting size to leverage discounted access to railroad transport. Such economies supported price cuts his competitors couldn’t match,” Leonard writes. He’s afraid that we’re about to witness a somewhat similar scenario in the taxi industry, where Uber will use its funds to drive taxis out of business, and then will increase prices, making its investors rich at the expense of the public.

Leonard, as well as others sharing similar concerns, questions the legitimacy or fairness of Uber’s business tactics, especially given the fact that it operates in many places within a “grey area” of the law. Yet, behind these arguments lie even more fundamental questions: Is Uber still considered part of the sharing economy? Is it exploitative? And if you answer ‘yes’ to both questions, what does it say about the sharing economy?

Let’s try to look at these questions one by one.

To answer the first question, we might need to look at what the ‘sharing economy’ actually means.  Rachel Botsman, co-author of “What’s Mine Is Yours: How Collaborative Consumption is Changing the Way We Live,” divides the ‘sharing space’ into four parts: collaborative economy, collaborative consumption, sharing economy and peer economy. In her analysis, she includes UberX as an example of the fourth part — peer economy, which she defines as: “Person-to-person marketplaces that facilitate the sharing and direct trade of assets built on peer trust.”

In a report published last year, “The Sharing Economy: Accessibility Based Business Models for Peer-to-Peer Markets” the authors write: “Due to the lack of scientific publications on ‘the sharing economy’ we confine its definition to companies that deploy accessibility based business models for peer-to-peer markets and its user communities. This type of business model … can, in theory, act as a broker between consumers, for any consumer owned product or service.”

Finally, Cameron Tonkinwise, the director of design studies at the School of Design at Carnegie Mellon University, approaches the definition in his paper “Sharing you can believe in” from a sustainability point of view: “If a system affords people a way of not having to own things in under-utilized ways in individual households, I am going to call it sharing … If a ‘sharing economy’ service creates a new practice that does not replace another practice that depends on owned goods, then it does not meet this aspect of my definition,” he writes.

So, as you can see, the answer to the first question is: Sometimes. UberX can definitely be considered an example of a peer-to-peer market (unlike Uber Black or Uber SUV, it’s not operated by commercially licensed taxi and black car drivers), and if it’s been used as an alternative to buying a second car, for example, it can even be considered sustainable. In all other cases, Uber is neither a sharing nor a sustainable service.

The answer to the second question about the exploitative nature of Uber is not simple either. One way to look at Uber, Glenn Fleishman suggested last month on BoingBoing, is as “an upstart technology company [that] optimizes an inefficient market in a way that all participants benefit: passengers are safer and can more reliably get a ride with a low likelihood of fare cheating; drivers are safer and don’t have people skip on fares.” At the same time, Fleishman warns it can all change if Uber reaches a dominant position in the industry, as the company could become then “both a virtual monopoly and a monopsony.”

Others are more blunt. Economist Michael Munger of Duke University compared Uber’s model to buying cartons of cigarettes cheaply in Virginia and selling them from the back of your truck in New York, where the price of cigarettes in stores is far more expensive. Consumers will love it, Munger says, but this creates an unfair competition for those trying to follow the rules.

Yet, both Fleishman and Munger agree that Uber and other car-sharing services challenge an industry that is inefficient, relatively expensive and has very little incentive to improve due to regulation providing it with an artificial monopoly power. In other words,  it might be that not just Uber, but also the incumbents in the taxi industry that fiercely fight it could be perceived as exploitative to some degree.

However, I wouldn’t like to run away from the question. In my opinion, the fact that Uber finds ways to get around the law as Munger puts it, or reduces prices, utilizing a loss leader pricing strategy, could be characterized in different ways (illegal, unfair competition, a threat to property rights, a bully, etc.) — but not as exploitative. At least for now.

What will happen in the future? Will Uber one day transform into a ruthless monopoly taking advantage of its drivers and charging unreasonable prices for rides? Maybe, but I doubt that this will be the case. Not that I count too much on Uber’s morality or the regulators as much as I count on the power of the market. If Uber fails to fulfill its promise to provide a better service, it can go down as fast as it went up.

So, finally, what does it all say about the sharing economy? One way to look at it is that the story of Uber reminds us that we’re going through a process of mainstreaming the sharing economy. This, as Clay Shirky suggests, includes five stages that the sharing economy will have to go through: technical possibility, social adoption, regulatory reaction, civil disobedience and negotiated settlement.

Another way to look at it is that we’re seeing a movement in transition. Rachel Botsman describes it as something that is still a child, and when asked how she sees it when it’s grown up, she jokingly replied “pimply.”  Well, it might be that Uber is just a sign of the sharing economy’s a pimply adolescence, for better or worse.

Image credit: Adam Fagen, Flickr Creative Commons

Raz Godelnik is an Assistant Professor of Strategic Design and Management at Parsons The New School of Design. You can follow Raz on Twitter.


▼▼▼      13 Comments     ▼▼▼

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  • Melinda

    I was an Uber driver when I customer insisted I run traffic lights since he was in a hurry to get to the airport . I refused to violate the law and they rated me ” 1 ” . As a result Uber fired me because my ratings fell below 4.6 .

    • Tolstoy

      I find that very hard to believe

  • Business Owner

    I spend a year opening up a restaurant here in, Miami going through the permit process, paying all the required fees such as a health inspection . I finally get to open . Would you think it’s fair after going through all the red tape that – Joes Restaurant opens outside my door on the Street without any regulations, rules or health inspections . Doesn’t get required food permits and bypasses all the laws that were applied to me all for customer safety . I am not against competition but that’s how Uber and Lyft are operating, without rules or regulations . Do you think that’s fair ?

    • John Bigbootay

      What would be “fair”, or I should say right, is to get government out of business altogether. But what can you do; too many people want a government that initiates force against its own citizens for one reason… er, I should say for one excuse or another….

  • joe

    As one of the few “American Born” taxi cab drivers in Phoenix, Arizona I can attest that UberX has really put the screws to the taxi profession.

    UberX drivers are everywhere inside the clubs, bars and strip clubs passing out business cards and offering $1.50 a mile rides home.

    I charge $3.00 a mile and I shut down my taxi cab business the first of July, 2014.

    Most of my cab fairs came from street hails, as an independent, I do not have a dispatch service.

    The sad thing about Uber is that with their financial resources they could have implemented everything the right way.

    It’s not that hard to follow the rules in most states when putting a taxi cab on the road.

    In Arizona all you need is commercial liability insurance, the proper vehicle registration and a rear window sticker from Arizona Dept. of Weights and Measures.

    The State checks the meter and requires background checks and drug tests periodically. Cab owners can charge whatever rate they want. From $1.00 a mile up to $3.25 a mile.

    I see UberX drivers, (mostly young men in their mid 20’s) Wearing black pants & white shirts with a thin black tie, openly soliciting people on the street offering rides home to anyone who will take their number.

    They not only have their smart phone dispatch system but they also pick people up on the street, using their personal vehicles with non – commercial vehicle liability insurance and no commercial vehicle registration license plates.

    Many UberX passengers are to drunk to know the risk in getting into these vehicles and those that do, don’t care. It’s cheap ! Period. UberX could end up responsible for and known as a company synonymous with the word carnage.

    UberX drivers are part-time guys who ignore (very serious) state laws & basic rules and leverage their technical advantage to generate a few extra dollars.

    Only time will tell how many people will be hurt by this company.

    Driving a Taxi cab is difficult (and sometimes a dangerous) occupation.

    Phoenix is a relatively safe city but I would not do it in New York.

    That’s why there are so many foreigners driving taxi cabs. Most Americans have a better choice of job opportunities and options – immigrants typically don’t.

    Your dealing with a lot of personalities – people who are sometime drunk (really drunk “vomiting”) couples arguing , people who hate Immigrants and use racist slurs.

    I have had men break out and start punching each other behind me.

    Everyday 2 or 3 individuals ask me for cocaine and/or marijuana.

    Gay men trying to have sex behind me or people who have not taken a bath in 2 or 3 weeks.

    People who “bounce” or run out the rear door and not pay the cab fair.

    Your by yourself all of the time in your taxi cab and dealing with a lot of different personalities.

    Some people will not hesitate to confront you.

    It takes a certain type of person to drive a taxi cab, many many people can’t do this job.

    I think a lot of UberX drivers will find it wearing on them and they will walk away from it eventually.

    Finally, in the end, Uber Technology Inc. is going to wish that they worked with the cab drivers instead of declaring war on them.

    • Simon

      That’s OK with Goober and Lyft since laws, rules, regulations such as drug testing don’t apply to them . Heck, they are above the law !

    • Dr. Norelco

      I sympathize with you but it’s the taxi companies that missed the boat here and by extension are screwing the drivers by failing to adopt new technology. Uber offers a far better product and now the cab companies are moaning about it. You are right, however that we need to watch this play out. Some people may indeed drop out and veteran drivers like yourself will be able to get back in the game.

      Also, it’s fare, not fair. As a cab driver you really ought to know that.

      • Jester

        Good post ( above ) and I too believe that once the law catches up to them they’ll have to comply and their prices will go up and they’ll take a hit but because they offer a superior service to Taxis it won’t put them out of business and they end up having to adapt to regulations,rules & local and State laws . Right now Goober’s word of innovation means ” we are above the law & it doesn’t apply to us ” .

      • Cory the driver

        Well in Arizona u have to carry comercial insurance, have the plates drug test background checks, and a w&m sticker, so they are illegal. so by ur standerds its ok to break the law. then go get a hooked, buy some crack, cause its ok

  • Mark Phillips

    I am not completely familiar with the extent of the services and experiences offered by Uber since I believe we have limited exposure here in PHL, but is it not possible for taxi drivers to organize and respond with similar technology that allows them to compete more effectively?

    • Tolstoy

      It’s been possible for 10 years but the taxi monopolies are dinosaurs far too gone to innovate. Now that they’ve been caught with their pants down they cry bloody murder. It’s their own darn fault. I will proudly use lyft and uber from here on out

      • Cory the driver

        That’s ok keep supporting illegal activities, and the next time something bad happens to u, do me a favor, don’t press charges, he was just trying out new things like ur tv.

  • nick

    and there’s me thinking us cabbies were the acceptable punching bag.