The end of the beginning of the gig economy? Uber, Lyft and California AB5

 The San Francisco Chronicle has the latest news on the most concrete step yet to require Uber and Lyft to shift from a contractor-driver business model to one of driver employees...

Judge says California Uber, Lyft drivers should be employees

by Carolyn Said 

"A San Francisco Superior Court judge on Monday granted California’s request for a preliminary injunction to make the state’s Uber and Lyft drivers into employees. The 34-page order was scathing about the ride-hailing companies’ “prolonged and brazen refusal to comply with California law,” namely AB5, the new gig-work law that makes it harder for companies to claim that workers are independent contractors.

...

"However, it is likely to have little immediate impact.

"Judge Ethan Schulman stayed his injunction for 10 days. The companies will appeal it and seek a longer stay before the 10 days are up. An appeals court likely would hear their emergency motion quickly. Uber said it expects to be granted the longer-term delay and does not anticipate any near-term changes to its business. No matter what, it could not hire tens of thousands of drivers in a matter of days, it said.

...

"AB5 established an ABC test that says workers are employees unless A) they are free from a hiring entity’s control, B) perform work outside the hiring entity’s usual business, and C) have an independent business doing that kind of work.

...

"Along with other gig companies, Uber and Lyft are pursuing a $110 million November ballot measure, Proposition 22, asking California voters to keep drivers as freelancers who are entitled to some earnings guarantees and benefits. DoorDash, Instacart and Postmates, the other Prop. 22 backers, are not named in the California lawsuit but presumably would be affected by whatever precedent it sets. (Uber has purchased Postmates in a deal that will close next year.)"

Price versus waiting time in a ride sharing market

Here's an interesting paper on ride sharing, with estimates of the tradeoffs that individuals make between price and waiting time. The data come from the Uber-like ride sharing service Liftago in the Czech Republic, which however offers passengers a tradeoff between price and waiting time.

THE VALUE OF TIME: EVIDENCE FROM AUCTIONED CAB RIDES
Nicholas Buchholz, Laura Doval, Jakub Kastl, Filip Matějka, Tobias Salz
Working Paper 27087  http://www.nber.org/papers/w27087

ABSTRACT: We estimate valuations of time using detailed consumer choice data from a large European ride hail platform, where drivers bid on trips and consumers choose between a set of potential rides with different prices and waiting times. We estimate consumer demand as a function of prices and waiting times. While demand is responsive to both, price elasticities are on average four times higher than waiting-time elasticities. We show how these estimates can be mapped into values of time that vary by place, person, and time of day. Regarding variation within a day, the value of time during non-work hours is 16% lower than during work hours. Regarding the spatial dimension, our value of time measures are highly correlated both with real estate prices and urban GPS travel flows. A variance decomposition reveals that most of the substantial heterogeneity in the value of time is explained by individual differences as opposed to place or time of day. In contrast with other studies that focus on long run choices we do not find evidence of spatial sorting. We apply our measures to quantify the opportunity cost of traffic congestion in Prague, which we estimate at $483,000 per day.

In the body of the paper they say:

"We use detailed consumer choice data from Liftago, a large European ride-hailing application. This platform uses a unique mechanism to allocate each ride through a rapid auction process in which nearby drivers bid on ride requests and requesting consumers choose between bids based on various characteristics. Most importantly, bids often involve tradeoffs between price and waiting time, or the time it would take the taxi to pick up the customer. Contrast this with platforms like Uber and Lyft that employ “surge” pricing to equilibrate demand and supply so that consumers do not get to directly express their preferences over prices and waiting times within the platform. We are able to observe both consumers’ individual choice sets as well as their ultimate selection for 1.9 million ride requests and 5.2 million bids.

"The first contribution of this paper is to provide a direct and clean measurement of consumers’ willingness-to-pay to reduce waiting times. We use the variation in choice sets and choices to estimate a demand system that depends both on prices and waiting times. Such measures are of first-order importance for the provision of public transportation infrastructure as well as for the ride hail industry where price and waiting time are the two key variables on which firms compete. Our setting allows us to overcome some of the empirical challenges in measuring preferences over both prices and waiting-time.

"Our second contribution, building on the work of Small (1982), is to provide a conceptual  framework to interpret the disutility of waiting and to demonstrate how the willingness-to-pay for waiting-time reductions can be used to recover the value of time. When consumers choose a shorter wait time over a lower price, they reveal that the value of their time at a particular destination and time-of-day is greater than the value at the original location. Intuitively, the willingness to pay for lower wait times is simply the difference between the value of time at the destination and the value of time at the origin. "

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I think the first contribution mentioned above is quite an accomplishment, since I don't know of any equally good measure of consumer preferences for waiting time versus price.

I have some reservations about the value of shorter waiting time being a measure of the value of time at the destination minus the value of time at the origin. That seems to me to be a bit complicated. If I'm at work, ready to go home, and I expect waiting time to be not too long, I might go out of my building before calling a car (and now my value of time where I am is quite low). If I thought the waiting time would be longer, I might call the car from my office, where my value of time could be pretty high.  So the value of time "where I am" depends on whether I'm working or just waiting...and that depends on how long I think I'll have to wait.

PBS on Uber's economists

Paul Solman interviews Uber economists (John Hall and others) and other economists (Susan Athey and Paul Oyer) on what economists do at Uber:

Quartz writes about Uber and other tech firms that hire economists

Here's the story, which prominently features Uber's Jonathan Hall:

Uber’s secret weapon is its team of economists
By Alison Griswold, October 14, 2018

"Uber is so fond of economists that it employs more than a dozen PhDs from top programs at its San Francisco headquarters. The group acts as an in-house think tank for Uber, gathering facts from quants and data scientists and synthesizing them to arm the lobbyists and policy folks who fight some of Uber’s biggest battles. Officially, this team is known as “Research and Economics.” Internally, it’s also been called Ubernomics.
...
"The Krueger paper was the launch pad Ubernomics needed. Over the next few years, the company landed unpaid collaborations with academics at top US universities, including MIT, NYU, and Yale. Hall started to receive dozens of requests a week from academics about working with Uber’s data. Earlier this year, Richard Thaler, winner of the 2017 Nobel Prize in economic sciences, approached Uber about a possible collaboration. Uber turned him down."

Uber's difficulties in London (and in general)

Here's an illuminating article on the difficulties Uber is having in London. It's hard to extract a few representative sentences, but the whole (longish) article is well worth reading.

Understanding Uber: It’s Not About The App

Ben Edelman calls out Uber

Ben has been following Uber for some time, and he's calling them out for their law-breaking business model:

Uber Can’t Be Fixed — It’s Time for Regulators to Shut It Down

June 21, 2017 - Permalink

From many passengers' perspective, Uber is a godsend — lower fares than taxis, clean vehicles, courteous drivers, easy electronic payments. Yet the company’s mounting scandals reveal something seriously amiss, culminating in last week’s stern report from former U.S. Attorney General Eric Holder.

Some people attribute the company’s missteps to the personal failings of founder-CEO Travis Kalanick. These have certainly contributed to the company’s problems, and his resignation is probably appropriate. Kalanick and other top executives signal by example what is and is not acceptable behavior, and they are clearly responsible for the company’s ethically and legally questionable decisions and practices.

But I suggest that the problem at Uber goes beyond a culture created by toxic leadership. The company’s cultural dysfunction, it seems to me, stems from the very nature of the company’s competitive advantage: Uber’s business model is predicated on lawbreaking. And having grown through intentional illegality, Uber can’t easily pivot toward following the rules.

Continued at hbr.org.

Racial discrimination in Uber and Lyft

Here's an NBER paper that investigates, in connection with Uber and Lyft, some of the issues that crop up in other distributed decision making marketplaces:

Racial and Gender Discrimination in Transportation Network Companies 
Yanbo Ge, Christopher R. Knittel, Don MacKenzie, and Stephen Zoepf
NBER Working Paper No. 22776 October 2016

ABSTRACT Passengers have faced a history of discrimination in transportation systems. Peer transportation companies such as Uber and Lyft present the opportunity to rectify long-standing discrimination or worsen it. We sent passengers in Seattle, WA and Boston, MA to hail nearly 1,500 rides on controlled routes and recorded key performance metrics. Results indicated a pattern of discrimination, which we observed in Seattle through longer waiting times for African American passengers—as much as a 35 percent increase. In Boston, we observed discrimination by Uber drivers via more frequent cancellations against passengers when they used African Americansounding names. Across all trips, the cancellation rate for African American sounding names was more than twice as frequent compared to white sounding names. Male passengers requesting a ride in low-density areas were more than three times as likely to have their trip canceled when they used a African American-sounding name than when they used a white-sounding name. We also find evidence that drivers took female passengers for longer, more expensive, rides in Boston. We observe that removing names from trip booking may alleviate the immediate problem but could introduce other pathways for unequal treatment of passengers.

Yanbo Ge University of Washington Department of Civil and Environmental Engineering yanboge@uw.edu
Christopher R. Knittel MIT Sloan School of Management 100 Main Street, E62-513 Cambridge, MA 02142 and NBER knittel@mit.edu
Don MacKenzie University of Washington Department of Civil and Environmental Engineering dwhm@uw.edu
Stephen Zoepf Stanford University Center for Automotive Research at Stanford (CARS) szoepf@stanford.edu
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See these posts for a related problem of peer to peer discrimination faced by Airbnb:

Airbnb consider market design changes to reduce discrimination

Airbnb and racial discrimination by hosts

Mergers of taxi-hailing services in Europe, and China

Europe is preparing to defend itself against Uber. Bloomberg has the story:
Daimler Targets Uber by Merging Mytaxi With U.K.’s Hailo

"Daimler AG will challenge Uber Technologies Inc.’s ride-hailing dominance by merging its Mytaxi unit with one of the U.K.’s most popular cab-calling services, Hailo, to create Europe’s biggest taxi app.
The combined company will operate under the Mytaxi brand, with 100,000 registered drivers in more than 50 cities across nine countries, and be headquartered in Hamburg, the companies announced
...
"Car manufacturers have been investing heavily in apps to keep pace with changing consumer habits that have seen ride-sharing companies such as Uber and Lyft Inc. proliferate. General Motors Co. has invested $500 million in Lyft, Volkswagen AG put $300 million into Israel-based Gett Inc., and Toyota Motor Corp. backed Uber for an undisclosed amount. Uber has raised at least $12.5 billion in funding to date.
Daimler, the maker of Mercedes-Benz cars, also owns the Car2Go car-sharing service and purchased Mytaxi in September 2014. It bought U.S. ride-booking service RideScout LLC at the same time. "
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China appears to have been too much for Uber to swallow. The NY Times has the story: Uber to Sell to Rival Didi Chuxing and Create New Business in China

"In a stark signal of how difficult it is for American technology companies to thrive in China, Uber China said it was selling itself to Didi Chuxing, its fiercest rival there.

The sale, which would create a new company worth about $35 billion, would end the great ride-hailing battle of China. A person with knowledge of the deal said Uber investors had been pushing for such a transaction.

The companies have been fighting relentlessly for market share in mainland China for two years, spending tens of millions of dollars every month to attract riders and drivers. The merger would end that competition and create significant scale, but it would also be a repudiation of Uber’s ambitions to take on local Chinese competitors in their huge home market."

and this:

"...Mr. Kalanick helped Uber overcome the biggest obstacle in China: the Communist Party. By traveling frequently to China, meeting with officials and speaking in language often used by party cadres, Mr. Kalanick helped the company avoid the regulatory tripwire that has led many companies to stumble in the market. Last week, Chinese officials said ride-hailing apps were legal and laid out a framework to license drivers.

"But entry is just the first obstacle to the Chinese internet market. Competition is fierce, and the focus is less on the product than on big spending to lure customers or on tricks to harm competitors. Fraudsters and opportunists also abound.

"Uber’s engineers, operating from San Francisco, had to deal with drivers who simulated or faked rides to get commissions. At the same time, the company was blocked from marketing on China’s biggest social network, WeChat, because the internet giant Tencent was an early investor in Didi. All of that made it much harder to compete with a company that already had an advantage in scale, not to mention the backing of Tencent, Alibaba and Apple. When it raised $7 billion in June, Didi made it clear it was willing to continue the fight for a long time."

Acquiring the first thousand customers in a two-sided market

HBS Working Knowledge has a nice piece about a case study by Professor Thales Teixeira,

How Uber, Airbnb, and Etsy Attracted Their First 1,000 Customers

On Airbnb:
"founders Brian Chesky and Joe Gebbia thought like customers themselves, trying to figure out where they would go if Airbnb didn’t exist. It didn’t take them long to figure out the answer: Craigslist. The entrepreneurs figured they could do a better job of making apartments appealing than the online classified site, but first they had to siphon away its customers. To do that, Chesky and Gebbia created software to hack Craigslist to extract the contact info of property owners, then sent them a pitch to list on Airbnb as well.

The strategy worked. With nothing to lose, property owners doubled their chances of finding a potential renter, and Airbnb had a ready supply of homes with which it could attract customers."

Uber, surge pricing, and how much battery life is left in your phone (they know)

The Telegraph has the (scary) story, after chatting with Keith Chen: Uber knows customers with dying batteries are more likely to accept surge pricing

"The car-hailing service Uber can detect when a user’s smartphone is low on battery, and therefore willing to pay more to book a ride.

Uber, which has faced the ire of London’s tax drivers since launching in the capital in 2012, can tell when its app is preparing to go into power-saving mode, although the firm says it does not use this information to pump up the price.

Keith Chen, head of economic research at Uber, told NPR that users are willing to accept a “surge price” up to 9.9 times the normal rate, particularly if their phone is about to die.

“One of the strongest predictors of whether or not you’re going to be sensitive to surge… is how much battery you have left on your cellphone,” he said.

“We absolutely don’t use that to push you a higher surge price, but it’s an interesting psychological fact of human behaviour.”
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Here's a paper by Chen and Sheldon: Dynamic Pricing in a Labor Market: Surge Pricing and Flexible Work on the Uber Platform

Uber competes with rental cars too, not just taxis

From Bloomberg: Uber Overtakes Rental Cars Among Business Travelers

Market making and law breaking: Ben Edelman considers Uber et al.

Ben Edelman considers the many efficiencies that Transportation Network Companies (TNCs) like Uber provide, but also notes that they may be shifting costs to the public as they disregard laws and regulations regarding commercial drivers:
Whither Uber?: Competitive Dynamics in Transportation Networks
Benjamin Edelman — November 2015, forthcoming, Competition Policy International

"But what about the myriad other requirements the legal system imposes on commercial drivers?
Consider: In most jurisdictions, a “for hire” livery driver needs a commercial driver’s license, a background check and criminal records check, and a vehicle with commercial plates, which often means a more detailed and/or more frequent inspection. Using ordinary drivers in noncommercial vehicles, TNCs skip most of these requirements, and where they take such steps (such as some efforts towards a background check), they do importantly less than what is required for other commercial drivers (as discussed further below). One might reasonably ask whether the standard commercial requirements in fact increase safety or advance other important policy objectives. On one hand, detailed and frequent vehicle inspections seem bound to help, and seem reasonable for vehicles in more frequent use. TNCs typically counter that such requirements are unduly burdensome, especially for casual drivers who may provide just a few hours of commercial activity per month. Nonetheless, applicable legal rules offer no “de minimis” exception and little support for TNCs’ position."
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See also
Efficiencies and Regulatory Shortcuts: How Should We Regulate Companies like Airbnb and Uber?
by Benjamin G. Edelman and Damien Geradin
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I was recently in Toronto, when taxi drivers blocked some intersections to protest what they saw as lack of law enforcement regarding Uber, and earlier I was in Vancouver, where Uber was no longer operating, after a brief foray into that market.

On the other hand, it's clear that Uber is providing services that are being eagerly consumed by a public that hasn't been adequately served by existing taxis and delivery services. (In Toronto, one colleague told me that when he goes to the business school cafeteria and sees a long line, he can order lunch from UberEATS and walk out to the street to pick it up faster than if he waited on the cafeteria line...)

Similarly for Airbnb (see this earlier post): while some hosts may be in violation of local laws, Airbnb is serving (and creating) a big market.

So, things are in flux: we'll see new regulations, that will presumably reach a compromise between serving these new markets while constraining and shaping them.

If you teach in a Business school, how should you advise your entrepreneurial students about market making and law breaking?

When I was recently in Russia, I gave a talk that touched on some of this, about markets as a source of sometimes disorderly growth, called "Markets, businesses, and governments: a complicated triangle."

How do Uber drivers get home at the end of the day?

Uber's matching algorithm takes drivers' destinations into account at the end of their working day: here's Uber's announcement of the change in their matching algorithm (published in November).  Helping Drivers Reach Their Destinations

"For our partners, driving with Uber means having the freedom to set their own schedules. The reasons people drive are as diverse as the individuals themselves. Some drive to supplement existing income, others drive to save up for a vacation or to pay off a student loan–-and when and where drivers choose to log onto to the Uber platform varies just as much.

"That’s why we’re introducing a new feature that enables drivers to tell Uber where they’re heading so that we can find trips on their way.

"Starting this week in the Bay Area, drivers will be able to set their destination twice a day when they want to be matched only with riders traveling in a similar direction. Whether it’s commuting to the areas where rides are needed most, driving back home at the end of the day, or running errands around town, drivers can set their destination to earn fares that are along their route."