ECO200: Economic Impact of Uber in Australia - A Detailed Analysis

This report provides a comprehensive economic analysis of Uber's impact on the Australian market. It begins with an introduction to the ridesharing industry and Uber's rapid growth, highlighting the changes it has brought to the taxi market and regulatory frameworks. The report then delves into the economic effects, including increased competition, illustrated with demand-supply diagrams, and the resulting price reductions. It examines the impact on allocative and productive efficiency, focusing on consumer and producer surplus. The analysis highlights the benefits to consumers, such as lower prices and improved service quality, and to producers, including flexible working hours and higher wages. The report also addresses criticisms and calls for regulation, concluding that the benefits of Uber outweigh the concerns. The report references key economic theories and provides supporting data from sources like Deloitte, offering a well-rounded assessment of Uber's influence on the Australian economy.

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Economics
Introduction
Ridesharing is relatively new to the point-to –point transport market in Australia. One of the
key players in the ridesharing industry is Uber which from a humble beginning in 2012 has
witnessed significant growth. Additionally, with the booming ridesharing industry, the taxi
market has undergone significant changes in terms of customer bookings and other aspects
related to pricing. Also, with the introduction of Uber and its growing popularity, there has
been an increase in the regulatory framework of the ridesharing industry. Uber since its
inception has brought about significant changes to the taxi and ridesharing ecosystem. The
objective of the given paper is to highlight the key economic effects that introduction of Uber
has led to in Australia with the aid of basic economic theories.
Impact on Price & Competition
With the introduction of Uber, there has been a clear increase in the competition. This is not
hard to understand considering that Uber operates in the point to point transport market where
there are traditional players in the form of existing taxis. Due to Uber’s introduction, the
supply of taxis has gone up without a proportional increase in demand and hence competition
has worsened. This can be captured with the aid of the following demand –supply diagram
(Arnold, 2016).
As represented above, owing to introduction of Uber in Australia, the supply of taxi services
has increased resulting in shift of the original curve from S to S1. Since the demand does not
alter immediately, hence the impact is in the form of increased quantity of rides along with
reduced prices being offered to the consumers (Mankiw, 2014).
An alternative reason for the increased competition besides lower price is that ridesharing
offers certain benefits to both producers and consumers which are not in place in the

Economics
traditional taxi system. One of these is the ease with which the consumer is able to find a ride
at the right place at the right time. The increased competition needs to be viewed along with
decreasing prices which is in line with economic principles considering that higher
competition leads to availability of more options and hence improves the bargaining position
of the consumers. Also, the price charged to the consumer by Uber is about 20% lower in
comparison to the traditional taxi which thereby offers people with a cheaper alternative
(Deloitte, 2016).
Impact on Allocative & Productive Efficiency
In a bid to ensure that the scarce resources are utilised in the most efficient manner, it is
imperative to consider the allocative & productive efficiency associated with a given
industry. These efficiencies are essentially based on the consumer and producer surplus that a
given industry structure tends to produce. In this context, it is noteworthy that higher
competition typically has a positive impact on efficiency as it tends to reduce the deadweight
loss and tends to maximise the cumulative sum of consumer and producer surplus. A case in
point is a perfectly competitive market which tends to have zero deadweight loss (Nicholson
and Snyder, 2011).
Benefit to Consumers
Owing to the lower transaction costs, ridesharing players such as Uber are able to offer their
services at a lower cost compared to the taxi industry. As a result, they are able to attract
those passengers which would have otherwise opted for an alternative means of
communication and thus they have been able to expand the point-to-point transport market
size. An analysis by Deloitte indicates that about 60% of the riders opting for Uber comprise
of those customers who were earlier not availing point-to-point transport. The consumer
benefit of Uber is not limited only to lower price but also a superior quality which also
attracts consumers. These quality benefits are outlined as indicated below (Deloitte, 2016).

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With the above benefits in mind, it is quite possible that ridesharing platforms such as Uber
can potentially lead to creation of consumer surplus. This is created when the consumers are
willing to pay a higher price than the current price in wake of the perceived benefits from
ridesharing. Taxi services in general also tend to have a high consumer surplus owing to the
lack of alternatives (Arnold, 2016). Uber in Australia tends to generate consumer surplus on
two counts namely lower fares and better services. According to a Deloitte report, the
estimated annual consumer surplus created by lower fares amounted to $ 31.5 million in
2015. The same report estimated the annual consumer surplus on account of differentiated
services at $49.6 million in 2015 (Deloitte, 2016). It is quite likely that currently this amount
would be significantly higher considering that the popularity and number of daily rides has
increased. Hence, based on the above discussion, it is apparent from the allocative efficiency
viewpoint, the introduction of Uber has been positive as it has contributed to enhancing
consumer surplus and expanded the overall market. As a result, the increase in consumer
surplus is not limited to declining consumer surplus of the traditional taxi industry (Mankiw,
2014).
Benefit to Producers
The traditional taxi market was highly regulated and in many regions in Australia, only a
fixed number of licenses were available leading to high costs related to licensing and

Economics
administration. Additionally, the bailment fees are quite high which also adds to the woes of
the taxi driver. This led to low real wages for the taxi drivers in the traditional setup.
However, the introduction of Uber has altered this significantly. Uber platform has attracted
additional workers owing to a lesser 20% fee for using the Uber platform coupled with
flexible hours. Ever since Uber emerged on the scenes, there has been an upwards shift in the
labour supply to the point-to-point industry market owing to incremental interest generated
by the company. As a result, the company is extending valuable social benefit in the form of
tackling unemployment at a time when the mining industry is suffering (Deloitte, 2016).
The flexibility benefit offered to taxi drivers is substantial. The average driver’s weekly hours
of work on UberX platform is about 19 hours as compared to 45 hours for traditional taxi
drivers. This indicates the Uber helps in fighting underemployment by providing a lucrative
second option to individuals besides their primary employment. Also, there is the tendency
for these drivers to be available at those times when the demand is high and hence earnings
can be maximised. Further, the drivers can also use the surge pricing prevalent at such times
which further enhances their earnings. Hence, the earnings per hour of drivers on UberX
platform is significantly higher than the taxi drivers (Deloitte, 2016).
The impact of Uber is not limited only those who are using UberX platform but it has had
positive effects even for the taxi industry. One of the most significant impact is in the form of
lower license costs which is evident in the following figure (Deloitte, 2016).

Economics
It is apparent that there has been a decline in the price of a taxi license ever since Uber started
offering services in 2012. Besides, the producers have also been benefitted on account of
various technological innovations such as goCatch, Ingogo which also provide additional
options for the drivers. It is apparent that introduction of Uber in Australia has led to
enhanced producer benefits in the form of flexible hours, higher wages and lower licensing
costs (Deloitte, 2016).
Criticism and call for regulation
Despite the above benefits to producers and consumers, there are been calls from certain
sections to regulate the taxi sharing industry owing to the safety and security concerns. Some
authors cite that customer rating presents a very light form of scrutiny and hence there could
be potential safety risks to the customers (Jericho, 2016). Also, it is cited that since for many
drivers on UberX platform, this is not a full time job, hence the stakes are comparatively
lower. Further, the upfront costs for a driver to offer services on UberX platform is quite
minimal which according to some lowers commitment to customers (Dimitriadis, 2016).
However, most of these concerns are unfounded and raised by the sympathizers of taxi
industry. Going forward, even if such concerns do arise, specific mechanisms can be put in
place to address the same (Deloitte, 2016). Therefore, it would be appropriate to conclude
that the criticism of Uber and similar players offering peer to peer services is largely
unfounded especially considering the benefits to both producers and consumers.
Conclusion
On the basis of the above discussion, it may be appropriate to conclude that introduction of
Uber in Australia has raised the competition level and led to reduction in prices. This
reduction in prices has generated significant savings for the Australian consumers. Also, the
differentiated services offered by Uber have implied that the point to point transport market
size has expanded as the preferences of customers have skewed towards taxi. Significant
consumer surplus has been generated as a result. The producers have also benefits owing to
flexible working hours, reducing underemployment, unemployment coupled with higher
wages. Also, the license costs have declined which is beneficial for the taxi industry. Owing
to the unpatrolled success, the sharing economy participants such as Uber have faced
criticism but it is mostly unfounded.

Economics
References
Arnold, A.R. (2016) Microeconomics, 9th ed. Sydney: Cengage Learning.
Deloitte (2016) Economic Effects of Ridesharing in Australia, [online] Available at
https://www2.deloitte.com/content/dam/Deloitte/au/Documents/Economics/deloitte-au-
economics-economic-effects-of-ridesharing-australia-150216.pdf [Accessed March 25, 2018]
Dimitriadis, K. (2016) You may love Uber, but why are we ignoring the government’s
treatment of taxis?, [online] Available at https://www.dailytelegraph.com.au/rendezview/you-
may-love-uber-but-why-are-we-ignoring-the-governments-treatment-of-taxis/news-story/
2f103905e9af15be2af8a6c5f4133fa3 [Accessed March 25, 2018]
Jericho, G. (2016) The dark side of Uber: why the sharing economy needs tougher rules,
[online] Available at https://www.theguardian.com/business/grogonomics/2016/apr/18/uber-
airbnb-sharing-economy-tougher-rules-australia [Accessed March 25, 2018]
Mankiw, G. (2014) Microeconomics, 6th ed. London: Worth Publishers.
Nicholson, W. and Snyder, C. (2011) Fundamentals of Microeconomics, 11th ed. New York:
Cengage Learning.