Uber has been upending the transportation business as we know it, upsetting traditional cab drivers all over the world. Now, in an effort to grow its business and market share, the smartphone-summoned car service is cutting prices 20% to 25% for its UberX service (for smaller cars), hoping to increase ridership.
New York Times economics correspondent Neil Irwin recently spoke with Uber CEO Travis Kalanic and tells Yahoo Finance that what Uber really wants is "a world where people use this kind of service rather than buying their own car.”
That will depend, of course, on Uber attracting and keeping drivers even after the price discounts, which it says are temporary. So Uber is making a bet that the number of trips per hour increase enough to make up for the discount. But the law of physics may interfere with that. There are limits as to how many trips a driver can make in a city in a day.
Says Irwin: “Right now they are able to cut their prices and that results in more people taking rides, and drivers staying busier. But at some point, you get to a point where you can’t go any further, some point traffic is bad enough, drivers are busy enough, that you can’t increase supply any more.”
In June, Uber was valued at $17 billion based on investments pouring into the company. Irwin says investors are taking the long view as Kalanick seeks to push Uber to the level of Amazon (AMZN) and Google (GOOG). He cites the company’s aggressive expansion plans and job postings on its website for cities that may be difficult to find on a map!
Milanee Kapadia is a freelance contributor to Yahoo Finance. Follow her on Twitter @MilaneeKapadia.
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