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Uber-poor Argument

Here’s a letter to the Washington Post:


Observing that the share-price performances of Uber and Lyft have so far been disappointing, and that “barriers to entry into the driving-people-around business are functionally nil,” Megan McArdle concludes that the provision of taxi services is unlikely to be sustained over the long-run unless suppliers possess government-granted monopoly privileges (“Caution, Uber and Lyft, wrecking taxis may turn out to be a multi-company pileup,” May 25).

Although usually sure-footed, Ms. McArdle here stumbles.

First, it’s too early to conclude that Uber’s and Lyft’s business models are failures. Remember that Amazon incurred annual losses for each its first nine years.

Second and more fundamentally, contrary to Ms. McArdle’s argument, it’s highly implausible that the willingness of large numbers of people to drive for ride-sharing companies even at low wages will obstruct these companies’ abilities to continue to serve paying customers. An abundant supply of drivers is no more an obstacle to the provision of ride-sharing services than would be an abundant supply of gasoline or of uncongested streets and bridges.

The large supply of drivers simply means that market-clearing wages for ride-sharing drivers will be low. And while competition will cause the lowness of these wages to be reflected in low fares for customers, there is no reason to suppose – as Ms. McArdle apparently supposes – that fares will fall to levels below those that enable competently run ride-sharing firms to earn enough profits to remain in business.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030


Of course, Uber, Lyft, and other ride-sharing companies can indeed be rendered permanently unprofitable by government regulations of how they compensate their drivers or of the fares they charge their customers.


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