UBERs, Tickets, and Econ 101
11/1/18
Over the summer, Toyota made an investment into UBER that valued the company at over $70B. A couple of weeks ago, the most updated valuation for UBER climbed to $120B. It’s really not our nature to quibble over small potatoes like $50B here or there, but it does highlight for us how the marketplace rewards the disrupters.
In New York City, UBER took advantage of a bizarre anomaly: The number of yellow cabs has been virtually fixed since 1937, and the fares were set by the government at rates below what the laws of supply and demand dictated. And so, UBER did the exact opposite. It let prices float based on marketplace rates and had the supply of vehicles also rise or fall based on “marketplace” conditions.
Economists love the “purity” of the UBER model, but as we know, it’s had lots of repercussions for medallion taxi owners and drivers, calling into question the entire nature of employment and work. Still, it can be argued that interventions in market economics—in this case, both supply and pricing of the taxi market—can have surprising outcomes, especially when new technologies arise.
There is an interesting parallel that can be drawn with theatre tickets. The supply is fixed (there are the same number of seats in any particular Broadway theatre for any given performance for a flop as for the biggest hit), and prices don’t necessarily float up or down frictionlessly based solely on “marketplace conditions.”
Many of us believe that our intervention in the markets is a clear community virtue: affordability, ensuring that live theatre will thrive long-term, beyond simply the most well-heeled current audiences.
But it’s important to be mindful of how our actions (or non-actions) can have unintended consequences. Ever try to get a taxi after a show on a rainy night? When you think of how much surge pricing you’d be willing to pay, maybe $120B for UBER isn't so crazy after all.
For more information on The Shubert Organization, visit www.shubert.nyc.
In New York City, UBER took advantage of a bizarre anomaly: The number of yellow cabs has been virtually fixed since 1937, and the fares were set by the government at rates below what the laws of supply and demand dictated. And so, UBER did the exact opposite. It let prices float based on marketplace rates and had the supply of vehicles also rise or fall based on “marketplace” conditions.
Economists love the “purity” of the UBER model, but as we know, it’s had lots of repercussions for medallion taxi owners and drivers, calling into question the entire nature of employment and work. Still, it can be argued that interventions in market economics—in this case, both supply and pricing of the taxi market—can have surprising outcomes, especially when new technologies arise.
There is an interesting parallel that can be drawn with theatre tickets. The supply is fixed (there are the same number of seats in any particular Broadway theatre for any given performance for a flop as for the biggest hit), and prices don’t necessarily float up or down frictionlessly based solely on “marketplace conditions.”
Many of us believe that our intervention in the markets is a clear community virtue: affordability, ensuring that live theatre will thrive long-term, beyond simply the most well-heeled current audiences.
But it’s important to be mindful of how our actions (or non-actions) can have unintended consequences. Ever try to get a taxi after a show on a rainy night? When you think of how much surge pricing you’d be willing to pay, maybe $120B for UBER isn't so crazy after all.
For more information on The Shubert Organization, visit www.shubert.nyc.
Originally published in Broadway Briefing.