Valeria Olvera Castro

December 7, 2015.
Universidad de Guanajuato

Abstract:
Weve all heard about Uber, the phone app that connects drivers with customers,
and how it recently has disrupted the taxi industry. It is also well known that technological
innovation has developed a fixed cost model where governments regulations are not
needed. Basically, Uber has its own entry barriers which are lower than taxi industry, so
Uber operators dont need to buy or to hire a medallion. Therefore, the whole supply of
transportation services has significantly increased. At the other hand, for the customers,
the safer and cheaper service, the ease of getting the app and the cashless payment
system has raised the private cab services success which makes it so threatening for cab
drivers who have referred it as untrusted and illegal. This text will argue the Ubers loyal
and legal status in a competitive market. In an economy where producers compete with
each other and cannot individually decide the services price, any company can entry in
the market such as Uber which is dismantling taxis monopoly. This paper will discuss the
arguments why Uber is loyal and legal based on the two particular cases where it is totally
legal: London and Frankfurt, how they are regulated and what could happen in the long
run if we keep using this app.

Introduction

Todays hectic world we live in demands quality, efficiency, and good prices. We
have seen that technological innovation have allowed the emergence of 21 st century
business with better cost model utilizing smartphone apps such as Uber Technologies Inc.
which has been successful because it is a faster and more reliable alternative to the cabs,
furthermore, there are also benefits for drivers who can make a higher earning. As a result,
the company is so threatening for cab drivers who have referred it as untrusted and illegal.
This essay will argue the Ubers loyal and legal status in a competitive market. Firstly, we
have to know how Uber works.

Uber

Using Uber is easy for someone who owns a smartphone and a credit card.
Basically, it connects riders with drivers through their phones GPS, sharing location with
both parties so they can know when the ride will arrive. Simultaneously, Uber processes
the payment charging it to the passengers credit card, it takes between 5% to 20% for
itself and deposits the rest into the drivers bank account, thus, is completely cashless. It is
relevant to say that Uber does not owns the drivers car or has hired him.
The big group of riders has made possible for Uber to have several different levels
of service, the one with the lowest cost is UberX: which runs cars like the Toyota Prius; the
next level is the Uber Black; then we found the Uber SUV that is a larger vehicle; and
finally there is the Uber LUX where drivers ride cars like Porsche Panamera and BMW 7
Series Sedan.
The referred organization was founded by Travis Kalanick, Thuan Pham, Sally Yoo
and Garret Camp in San Francisco, California in 2009. Currently, it operates in 51
countries and more than 254 cities, and the company claims its services are available to
nearly 64% of the U.S. population. Since its foundation, Uber has experienced nearly
vertical growth, by December 2014, the company was valuated at $40 billion that is double
what it was in June 2013, what equals to $19.839 per minute, the company estimates
doubling its income every six months.
It is important to make clear what are the regulations a taxi cab should follow to
operate, The Federal Trade Commission identifies five: entry restrictions; minimum and
maximum fare controls; restrictions on the types of services offered, such as ride sharing;
requirements to provide certain amounts of service; and quality regulations, which concern
vehicle safety, driver qualifications, and liability insurance coverage. Big cities such as New
York, Chicago and Boston, have this regulations very well controlled, especially the first
one (entry control), they have created a medallion system which states taxi licenses can
only be obtained through transfers from an existing license holder for a high payment.
Any people could tell Uber is a taxi, with a medallion free privilege, but the
corporation has well planed the reply to this kind of reviews by classifying itself as a

technology company instead of a transportation company and classifying its drivers not as
employees but as independent contractors saving all the cost any worker could produce.
To state what is mentioned before, Uber claims its All Rights Reserved to the paragraph
ahead:
Subject to your compliance with these Terms, Uber grants you a limited, non-

exclusive, non-sublicensable, revocable, non-transferrable license to: (i) access and use
the Applications on your personal device solely in connection with your use of the
Services; and (ii) access and use any content, information and related materials that may
be made available through the Services, in each case solely for your personal,
noncommercial use. Any rights not expressly granted herein are reserved by Uber and
Uber's licensors.
Consequently, the effects on the taxi industry are being manifested in significant
ways. The city where the company has born is an example of how Uber has disrupted the
cabs business. Studies of the Cab Drivers Association of the city of San Francisco have
shown that in 2013 one third of the total of 8,500 of taxi drivers left their job for registered
Cab Drivers Association. Curiously, they did not opt to drive for a private startup like Uber.
Other studies made by the San Francisco Municipal Transportation Agency said
that the average trips made by a taxi driver per month have decreased in a 65 percent.
The reports showed that in March 2012, the taxi driver was making 1,424 trips per month,
while by July 2014, the trips made per month were 504. The Taxis Accessible Services
director for San Francisco Municipal Transportation Agency argues that this decreased is
linked with the rise of Uber and its 45 percent cheaper rates than taxi cab tariffs.
Notably the taxi drivers resistance to ridesharing companies is only a bunch of
people trying to stop progress, this resistance is just because the new cabs system is
ending with the monopoly that they have been created since long ago. In many cities, the
taxi cab cartels and local regulators have been fighting such services, as a clear example,
we can note the Uber situation in Mexico City where the taxi drivers have come out to
protest against the ridesharing company several times. The fighting has been occurring for
one overriding reason: transportation network companies are or have recently been in
complete violation of current laws and regulations, or at the very least of questionable
legality.

Considered as the rogue app by some tribunes, they have been accusing Uber of
failing to protect public safety and using deceptive business methods. Moreover, the cab
system adds the charge of unfair competition and consumer fraud, objecting primarily
because the company doesnt have to obey city regulations, this has resulted to fighting
some legal battles that have been won. Even though the public support raised enough
objection, the cities were forced to rule in favor of the app. The first step to halt these
corruptive practices is listening to the advice Adam Smith gave when he addressed the
problems of regulation in his book The Wealth of Nations, from where I quote:
The proposal of any new law or regulation of commerce which comes from this
order [narrowing the competition] ought always to be listened to with great precaution, and
ought never to be adopted till after having been long and carefully examined, not only with
the most scrupulous, but with the most suspicious attention. (Smith, 1776).
Another clearly dark side to the new transportation network company, is that it will
make a sort of revolutionary way to create enterprises in the future: they are casing a
degradation on the traditional social contract between employers and employees, in other
words, protection and income security could not be guaranteed to workers who will
contribute to stabilize the economy. Corporations and owners of the capital will have free
reign to exploit workers, subsequent in large profit earnings at the cost of employees
rights who are left entirely vulnerable to economic insecurity and uncertainty.
Until this part of the essay, there have been many objections why Uber
Technologies Inc. is dismantling the taxi cab industry, which makes it illegal and, as a
result of this, not loyal. Also, how it has made trends that wont be reliable for workers in
the long run, thus, after this point the text will describe advantages of this low cost system
company, starting by explaining why it is legal London (one of the exceptions where it is
regulated as any other enterprise) as shown in the next paragraph.
On June 11, 2014, Uber has scored a legal victory against Transport for London
over its operations in the capital, in a development that it hopes will head off a looming
regulatory clampdown, so now the capital's High Court has just ruled that the way Uber
calculates fares is legal, according to the High Court ruling that will spark further hostilities
between the taxi app and the capital's black cab drivers, it will be possible the set of a
precedent for other cities, the company's app does not constitute a taximeter. This fact

may change the Uber situation in some other countries because London is the first city
that legalize the smartphone app completely.
It should be noted that Uber is consider so threatening to the traditional taxi
industry manly by its technological innovation, in other words, it is successful because it
utilizes the tools of a new generation of information and telecommunications technology to
compete in the industry. This way, Uber makes its service a superior one. Furthermore, the
internet enabled technologies have facilitated new forms of social contracts, the have
reduced risk for actualized companies, and they have increased the control of business
operations.
One of the features we can see at technology used by Uber and which can be used
in another organization employees evaluation, is the rating system that helps regulate the
market by getting rid of bad drivers: when the trip has ended, the passenger and the driver
rate each other in a scale from zero to five stars. The drivers who average less than 4.7
stars are automatically deactivated from driving for Uber. This tool allows the company to
increase transparency and accountability since it will incentivize both parties to act
appropriately, otherwise, they will be in risk of being shut out of the app. As a
consequence, this makes the whole market more efficient and reliable.
All around the world there have been people taking advantage of this app, not only
by using its service or for riding as a free contractor. The emergence of Uber into the
market has helped economy by creating jobs and helping people all over the world to
become sort of micro-entrepreneurs. To make this point clear, there is a testimony I would
like to quote: Gavin Escolar is a Filipino man who drives Uber in San Francisco to promote
his business, he uses the car as his showroom by wearing the jewelry he sells everywhere
he can and store extras in the glove compartment, so the passengers can look Gavins
merchandise. Its a salesmans dream. I have 10 minutes to make an impression. Would
that happen if I went door to door? Or if I bought tiny online ads? My way, I get quality time
with quality leads. Best of all, Im being paid as I do it. Its like Uber is providing a base
salary before I make any jewelry sales. (Escolar, 2015).
Another main argument against Uber is that ridesharing care worries relate to the
well-being of drivers, passengers, and third parties. But this ends being another techno
logical innovation. In some cases there is little evidence that the ridesharing services are
more dangerous than traditional taxis. In fact, the ridesharing business model offers big

safety advantages as far as drivers are concerned. In particular, ridesharings cash-free

transactions and self-identified customers substantially mitigate one of the worst risks
associated with traditional taxis: the risk of violent crime. An analysis of the safety
regulations governing vehicles for hire does not suggest that ridesharing companies ought
to be more strictly regulated. It does highlight, however, that in many parts of the country
lawmakers and regulators have not adequately adapted to the rise of ridesharing, which
fits awkwardly into existing regulatory frameworks governing taxis.
The quick growth of ridesharing provided by Uber, demonstrates that consumers
are not satisfied with existing taxi service. The heavily regulated taxi industry, frequently
subject to arduous restriction and simultaneously shielded from competition, all too often
provides shoddy and unreliable service at inflated prices. So it is ironic when that industry
and its supporters attack ridesharing in the name of concern for consumer safety and
welfare. But it should not come as a surprise, as government restrictions on who can
legally provide a given service are usually justified in the name of consumer protection
even though such justifications are frequently worn, and the real effect of such regulations
is to protect the big cab monopoly.
Lots of quoted people who have become famous because of their researches have
an opinion about the topic. Paul Krugman, the American economist awarded the Nobel
Memorial Prize in Economic Science, in his blog, which is the most influential economics
blog, also agrees with this low cost system company by saying it is widespread and
reliable: many Americans can forgot owning a car, which is a resource they currently
greatly underutilize; a benefit for both individuals and society is that we would not be tying
up so much capital in automobiles. Krugman states one reason why Uber has become a
hot political topic is that it represents the smartphone revolution. A second reason is, as
said earlier in this text, Ubers workers supposedly are free contractors, not employees,
exempting the company from most of the regulations designed to protect employee
interests, and Republicans are willing to dismantle as many worker protections as they
can. He concludes by saying that it is possible to promote the use of new technology
without prejudicing the interests of workers. But progressives need to work on doing that,
and not let themselves get painted as enemies of innovation. (Krugman, 2015).
Personally, I believe that everyone who has ever used Ubers service knows for
sure that is better, in many ways, than using a regular taxi cab. It is easier, faster, more
trustable, and cheaper to get a ride. For example, when the demand of people wanting a

taxi outstrips the supply of the cabs, there is no chance but luck you will get a car. For this
situations, Uber applies an interesting surge price strategy: they increase the prices of
their cars rides. I found important to say that the company lets the customer know about
the excess of demand status by popping a surge icon above the price, and if the
requester still wants a ride, the app will show the surge multiplier and then ask the consent
to a higher price. As a result, people who can wait for a ride often decide to wait until the
price falls, thus, the number of people wanting a ride and the number of available drivers
come close together, bring wait times back down.
To prove what I have said in the last paragraph, I will make reference of case study
that the company and The University of Chicago have made on a night of a sold out
concert at Madison Square Garden when surge price strategy worked as intended: on that
night it was a 4 times increase in the number of the people opening the app, the prices
surged, so a considerable amount of people decided not to request a ride. Meanwhile, the
total of the ride requests were completed.
As I said in this text, technology organizations do not fulfill the standard regulations
of the government as any other company registered according to the government laws.
But I think the problem is not for the government to stop this new enterprises but to find a
way to make corporations under government laws (taxi cab industry in this case) as
competitive as the emerging technology organizations. The countries administrations
should take advantage of this corporations: since the recession of 2008, 3.7 million
Americans have lost their jobs or have replaced their full-time jobs to part-time ones, thus,
their income have fallen, organizations like Uber are just a way for this people to fill holes
in their income. It only remains to the administrations to find a way regulate this kind of
innovations.

23

Conclusion

Coming back to my thesis: Ubers loyal and legal status in a competitive market,
my main argument is that the app is registered as a tech company, this is what allows
them to operate as legal and the reason why they provide all the taxi services avoiding the
highly costs of medallions and all the regulations that have protected the taxi cab industry
from competition since the 30s decade. At the other hand, it is well known that in a
competitive market monopolies are not allowed, taxi cab industry is no other thing but a
monopoly, thus it should not exist, though they are necessary. I agree with many authors

by saying we can see Uber as a way the taxi cab industry wont be able to individually
decide the services price, it would just force the operators to restructure their services and
price them more rationally.2 3

References:
Colprensa. (March 20, 2015). Uber solo es legal en dos de las 250 ciudades del mundo
en las que opera, El Pas. Retrieved from
http://www.elpais.com.co/elpais/colombia/noticias/uber-solo-legal-dos-250ciudades-mundo-opera
Constine, J. (2014, June 30). UberX wages war on Bay Area taxis with 25% price cut.
Retrieved from TechCrunch website: http://techcrunch.com/2014/06/30/uberxnow45-percent-cheaper-than-taxis/
Geradin, D. (June 7, 2015). Should Uber Be Allowed to Compete in Europe? And If so
How?, George Mason University. Retrieved from
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2615530
Gongloff, M. (2014, December 4). Uber's value just doubled to $40 billion in 6 months.
Huffington Post. Retrieved from http://www.huffingtonpost.com/2014/12/04/uber-40billion_n_6270908.html
Hall, J. and Kendrick, C. (September, 2015). The Effects of Ubers Surge Pricing, Uber
Newsroom. Retrieved from https://newsroom.uber.com/2015/09/the-effects-ofubers-surge-pricing/
Isaac, E. (December 7, 2014). Disruptive Innovation: Risk-Shifting and Precarity in the Age
of Uber. Retrieved from http://www.brie.berkeley.edu/wpcontent/uploads/2015/01/Disruptive-Innovation.pdf
Liberty Fund, Inc. (July 7, 2014). Michael Munger on the Sharing Ecomomy, Econtalk.
Retreieved from http://www.econtalk.org/archives/2014/07/michael_munger.html
Merket, E. (2015). Antitrust vs. Monopoly: An Uber Desiruption, Fau Undergraduate Law
Journal. Retrieved from
http://journals.fcla.edu/FAU_UndergraduateLawJournal/article/view/84609/81633
Rogers, B. (January 31, 2015). The Social Costs of Uber, Temple University. Retrieved
from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2608017
Uber (2015).Business Licence. Retrieved from http://www.uberpdxpartners.com/businesslicense
Youshaei, J. (February, 2015). The Uberpreneur: How An Uber Driver Makes $252,000 A
Year, Forbes. Retrieved from
http://www.forbes.com/sites/jonyoushaei/2015/02/04/the-uberpreneur-how-an-uberdriver-makes-252000-a-year/

Alejandross suggestions:
* No hay separacin entre conclusin, introduccin y marco terico me cuesta un poco de
trabajo entenderlo1
* No me queda claro el argumento de tu hiptesis de que porque debera ser leal y legal,
mencionas que es una empresa de tecnologa y por ende no entrara legalmente
en el mercado de los taxis, pero claramente segn muestras en datos compiten
directamente con estos, creo que a mi parecer no me queda claro porque debera
de ser legal, ya que los taxis pagan impuestos y en algunos pases compiten por
las concesiones, si fuera tan fcil sera legal en todas la ciudades donde esta no
solo en dos como mencionas.2
* En general das referencias buenas y el ensayo es bueno solo pienso que falta
especificarte ms en tu pregunta clave y que quede clara la respuesta ya que
hablas de Uber y mencionas todo lo bueno que sabemos que tiene pero eso no
necesariamente contesta tu pregunta.3
* Al trabajo en una escala del 1 al 10 le dara un 8 ya que no me quedo claro la
justificacin de porque debera de ser legal, pero en general el ensayo se me hizo
bastante interesante, dio buenas referencias y analizo bastante a Uber.