Why Uber’s Price Drop Could Actually Trigger Higher Prices
This article pertains to Uber, the taxi-like car service, and how they have dropped their prices by 15% within the New York City are. They also changed their minimum fee from eight dollars to seven. Uber made this change in prices because the demand for the service was decreasing, so they decided to lower rates causing for more demand. This service is now up to 20% cheaper than the fares of a regular taxi.
The downfalls to Uber lowering their prices is that it will cause for there to be more surge pricing. Surge pricing is when they raise the prices temporarily because of high demand at that certain time. The most popular time for surge pricing is rush hour, holidays, and bad weather. Uber slashing their prices seems like a plus for consumers, but all in all the surges will just become more frequent, so the customers aren’t really benefiting.
This price drop is also affecting the drivers at Uber because they aren’t getting paid as much. Also, by lowering the minimum drivers are practically giving customers a free ride. Also, taxi drivers are furious because Uber is taking all the business, and taxi drivers can’t decide their prices because it’s determined by the Taxi and Limousine Committee. Also, if both taxi’s and Uber decrease their prices to try and gain the most customers, they will both end up losing money in the end. Also, if Uber controls the market, the government may have to step in because they may think of it being a monopoly.
This article pertains to class because it shows the law of supply and demand. Since Uber is decreasing their price it means that there will be more demand. In other words, on a supply and demand curve, the supply curve will shift right, because of the price drop. And the demand curve will not shift, because it is just a price change, therefore quantity of demand will change. Or, and up and down movement along the demand line. Therefor the point of equilibrium changes.
This is the graph before the shift.
This is the graph after the shift.
Also, because of this the demand for taxis will decrease, causing for the demand curve to shift to the left. This happened because Uber and taxis are substitutes for each other. Also, because of Uber dropping the prices the demand for Subways will also decrease, shifting the curve to the left because they are also substitutes. For both of these it also changes the price of equilibrium, and the supply curve does not change.
Overall, Uber dropping their prices will cause a shift in supply, and increase in demand. While causing its substitutes to have a decrease in demand And, because of Uber dropping their prices, the employees are now making less, and also it will cause for more frequent surges in pricing.