NEW competitors always ruffle a few feathers. The unique thing about Uber, a new taxi-market player, is that it seems to have annoyed some of its customers as much as the incumbent cabbies it threatens. The problem is its “surge pricing”, which can make the cost of Uber rides jump to many times the normal fare at weekends and on holidays. Gouging customers like this, critics reckon, will eventually make them flee, denting Uber’s business. Microeconomics suggests that although Uber’s model does have a flaw, its dynamic pricing should be welcomed.Taxi markets have long needed a shake-up. In theory, entry should be easy—all that is needed is a car and a driving licence—with new drivers keeping cab fares close to costs. Yet in many cities, cabs are far from that competitive ideal. Decades of regulation conspire to keep entrants out. In New York a pair of taxi medallions sold at a 2013 auction for $2.5m; many other cities have similar schemes. In London “the knowledge”, a test of familiarity with the city’s streets which GPS has made redundant but drivers still have to pass, can take four years to complete. Taxi markets often end up suspiciously clubby, with cabs in short supply and fat...
from The Economist: Finance and economics http://ift.tt/OY6oXs
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