Opinion: Uber and Lyft are locked in a price war. There are only two ways out.
By Megan McArdle Megan McArdle Columnist Bio Follow Columnist April 30 at 5:47 PM The market for ride sharing is starting to look like a pieeating contest where the prize is . . . more pie.
Think about that: Collectively, those two companies lost nearly $4 billion in a single year ferrying people — and other stuff — hither and yon. What’s happening in the ride- sharing market is typical of industries with massive overcapacity. In those markets, whether airlines or steel, too much capacity means brutal price wars until some of the combatants are annihilated, and the victors gain enough pricing power to cover their production costs. To be sure, you don’t usually see this pattern in markets that are already dominated by only two competitors, as is the case for ride hailing in the United States.
Third, Uber and Lyft aren’t in competition with only each other; they’re competing with conventional taxis. And public transportation. And your personal automobile, not to mention your bicycle, moped or feet. Eventually, if the companies can make people dependent enough on ride hailing , they might be able to raise prices a bit and still retain most of their customer base. But “eventually” keeps receding over the horizon — and in the meantime, they’ve also got to undercut each other.
And even if they do stop sniping at each other, the bloodshed won’t necessarily cease. The assumption that there’s some profitable equilibrium, either a monopoly or a cartel, rests on the assumption that the capacity glut is caused by the presence of other ride-hailing firms.
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