Uber Case Study: Exploring the Economics of the Sharing Economy

This case study explores Uber's role within the sharing economy, highlighting its impact on resource allocation and economic efficiency. It argues that the sharing economy, exemplified by Uber, reduces transaction costs and fosters a more competitive market environment by connecting buyers and sellers more effectively. From a macroeconomic perspective, it suggests that the sharing economy reduces the need for capital goods and promotes sustainable development by optimizing resource utilization. The analysis uses a production possibility frontier model to illustrate how increased efficiency in sectors like transportation can lead to a shift towards producing more goods and services with fewer resources, ultimately benefiting consumers and reducing carbon emissions. The study concludes that the social benefits of a sharing economy are significant.

Understanding the Sharing Economy: Case Study of Uber
Uber is a ride hailing computer application that connects those offering taxi services to those
who demand taxt services. Uber, is a part of what Is known as a sharing economy, an economy
that tis this based on connecting those who are in need of products and services to those who are
demand a product. A sharing economy cannot be defined since it encompasses a whole spectrum
of activities. (Rinne, 2017) .
In the past, the transaction costs of connecting the supply and demand side were prohibitive.
(Furchtgott-Roth, 2016) For example, a boutique would require an investment in real estate to
showcase products by designers to consumers. However, due to the advent of easy access to
internet, the need for a retail space is foregone. The cost of downloading an app, offering
services on an app is negligible in most cases. Applications such as Uber have simply connected
more buyers and sellers in a virtual world that is not limited by space constraints or geographical
constraints. As a result the cost per capita has decreased. Owing to the lack of prohibitive factors
such as geography, high transaction costs, lack of information, buyers have access to more
sellers and sellers have access to more buyers. Thus, a sharing economy helps build an economy
that is closer to the perfect competition and helps more efficient allocation of resources. (Oxera
Consulting LLP, 2015)
From a macro-economic perspective, access to a sharing economy instead of having to secure
outright ownership of any good or service would reduce the need for capital goods and “hastens
the amortization of the ownership costs of those still sold”. (Anonymous, 2017) This implies that
the pay off of the capital goods is simply better in a sharing economy.
A sharing economy may also, be important from the point of view of sustainable development.
The total number of resources required would be lower, if goods are shared. For example, Uber
reduces the need to own a car. (Press Trust of India, 2015) Hence, once car is shared by several
users instead of being used privately by a family of two. The resources required to build up cars
could be used to produce other goods and services. If the natural resources available to humans
are limited, then the increased efficiency will simply allow for more goods and services to be
produced and consumed at lower costs.

Figure 1: Production Possibility Frontier
Prepared by Author . Adapted from (Samuelson & Nordhaus, 2006)
Let’s say, capital goods require the usage of Good A the most. Hence, the increase in efficiency
of goods like cars will lead to a reduction in the usage of good A and more goods will ne
produced using the same materials. The increased access will lead to the production Possibility
frontier to the right. As a result, consumers will be able to choose a higher level if goods and
services. The combined indifference curve for consumers will move from IC1 to IC2 and
Equilibrium E will be attained. This is the point where consumption (demand from consumers)
and supply is equal.
The reduction in the production of capital goods implies that the total sum of resources required
to produce these capital goods will be reduced. Hence, savings in the form of reduced carbon
emissions will be accrued. Overall, the social benefits of a sharing economy are high. (Wu &
Zhi, 2016)
References

Anonymous. (2017). The Sharing Economy. Retrieved from Living Economics:
http://livingeconomics.org/article.asp?docId=456
Furchtgott-Roth, H. (2016, June 9). The Myth Of 'Sharing' In A Sharing Economy. Retrieved from Forbes:
https://www.forbes.com/sites/haroldfurchtgottroth/2016/06/09/the-myth-of-the-sharing-
economy/#277ac9aa59bf
Oxera Consulting LLP. (2015, December). A fair share? The economics of the sharing economy. Retrieved
from Oxera: https://www.oxera.com/Latest-Thinking/Agenda/2015/A-fair-share-The-
economics-of-the-sharing-economy.aspx
Press Trust of India. (2015, September 15). Uber, Ola eating into auto sales, says Anand Mahindra.
Retrieved from DNA: http://www.dnaindia.com/business/report-uber-ola-eating-into-auto-
sales-says-anand-mahindra-2124080
Rinne, A. (2017, December 13). What exactly is the sharing economy? Retrieved from World Economic
Forum: https://www.weforum.org/agenda/2017/12/when-is-sharing-not-really-sharing/
Samuelson, P. A., & Nordhaus, W. D. (2006). Economics (18th International Edition). New delhi: Tata
McGraw Hill.
Wu, X., & Zhi, Q. (2016). Impact of Shared Economy on Urban Sustainability: From the Perspective of
Social, Economic, and Environmental Sustainability. Energy Procedia (104), 191-196.