> So we found that in 2015, if you extrapolate to the whole U.S., we found that the overall consumer surplus added up to almost $7 billion. So people spent about $4 billion on Ubers, but they actually would have been willing to spend about $11 billion. So for every dollar people spent on Uber, they got about $1.50 worth of extra joy that they would have been willing to pay on average above and beyond what they did pay. And to put it in a context just how big this consumer surplus is, the total amount of money that went to what Uber calls the driver partners, the people who are driving the cars, was something like $2.5 billion. So the consumers got more than twice the benefit of all the money that went to the drivers. And Uber itself only got to keep about $1 billion.
Of course, none of this makes Uber immune to criticism for the way they operate as a company. And there are sufficiently many alternatives that, even without Uber, society is likely to continue reaping benefits from ride-sharing as a technology.
I believe most consumer industries have consumer surplus, since different customers are willing to pay different prices but the companies can only charge one price. This includes the taxi companies that Uber displaced. From reading the abstract, this paper does not calculate the additional consumer surplus generated by Uber beyond taxis.
Note that it doesn't follow that Uber would make more money simply by raising prices -- consumer surplus measures the amount Uber could make by charging each user their "true" value, but if Uber simply raised prices, then they would lose demand.
However, Uber is actually starting to use price discrimination (i.e., charge different users different prices based on their characteristics), which would eliminate consumer surplus [1].
They probably felt comfortable taking a loss while they expanded more on these subsidized prices. As long as they don't get involved in harassment claims and theft of a competitors IP they should be in a strong position to start raising prices....
I would conclude that Uber is spending extra money to expand the market just as Amazon took losses to expand their market. They don't need to raise prices, but eventually reduce overhead per ride.
They really don't. Uber represents itself as profitable for Uber drivers, but this is only true in the short-term. When you factor in car maintenance and depreciation etc, the "profits" that Uber shows you essentially go out the window. It's equivalent to selling a tiny bit of your car's value.
If Uber raised their prices, the average real value would drop from its current real value of $2/hr, to...
See: http://freakonomics.com/podcast/uber-economists-dream/ or http://www.nber.org/papers/w22627.
> So we found that in 2015, if you extrapolate to the whole U.S., we found that the overall consumer surplus added up to almost $7 billion. So people spent about $4 billion on Ubers, but they actually would have been willing to spend about $11 billion. So for every dollar people spent on Uber, they got about $1.50 worth of extra joy that they would have been willing to pay on average above and beyond what they did pay. And to put it in a context just how big this consumer surplus is, the total amount of money that went to what Uber calls the driver partners, the people who are driving the cars, was something like $2.5 billion. So the consumers got more than twice the benefit of all the money that went to the drivers. And Uber itself only got to keep about $1 billion.
Of course, none of this makes Uber immune to criticism for the way they operate as a company. And there are sufficiently many alternatives that, even without Uber, society is likely to continue reaping benefits from ride-sharing as a technology.