Uber's Disruption: Economic Consequences & Solutions for Taxi Industry

This report examines Uber as a disruptive technology within the taxi industry, analyzing its economic consequences and impact on various stakeholders. It explores how Uber's innovative approach has challenged traditional taxi services, leading to debates over market regulation and economic efficiency. The report discusses the positive impacts, such as increased consumer satisfaction and potential economic growth measured by Solow Residual, alongside negative impacts like job losses and inflation. It also considers the perspectives of taxi drivers, government administrators, taxi firms, customers, and Uber drivers, highlighting the benefits of flexibility for Uber drivers and the concerns over safety and fair competition. Potential solutions for traditional taxi companies to cope with this disruption are proposed, including adopting technology, forming associations, and lobbying for fair regulations. The report concludes that while Uber has significantly disrupted the taxi industry, traditional companies can adapt and regain market share through strategic improvements and innovation. Desklib provides access to similar reports and solved assignments for students.

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UBER AS A DISRUPTIVE TECHNOLOGY 2
Introduction
In this era where self-employment has dominated the labor market, traditional labour
markets have been shaken to their core. Specifically, some jobs have become exceptionally
empowering in the past few years, whereas others have completely lost their prominence and
their appeal due to the changes which have been engineered by the technology. Being a taxi
driver has become more difficult, especially, with technology like Uber disrupting the industry
and how employees operate. This is one among the many examples depicting the way
technology and innovations have facilitated changes in different industries (Laurell &
Sandström, 2016).
A disruptive technology is any enhanced or a totally new technology replacing or
disrupting an existing technology, making it outdated. It is aimed at succeeding a similar
technology that has been in use before (Christensen, Raynor & McDonald, 2015). Because it’s a
new technology, it certainly has advantages, improvements and enhanced functionalities that
place it over the competitors. For instance, Uber has recently emerged as a disruptive technology
in the tax industry. It has been slowly adopted in the industry with an objective of replacing the
traditional Cabs. This report aims at scrutinizing Uber as one of the disruptive technology in the
Tax industry, how it has impacted the economy based on this industry, how it has impacted the
stakeholders in this industry and the potential solutions to counter the interruption.
The Taxi industry

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The Taxi industry is a very important part of travel and business sector in most countries
today. The industry has been relying on the advancement of Taxis across the streets. Therefore,
much as the history of this industry is keenly looked at, the initial taxi cabs can’t be ignored.
Although this industry has been traced back as early as 1630, when the vehicles drawn by horses
dominated the industry in Pars, the industry emerged officially in many countries late in 1800s
and by 1880, vehicles gained popularity within the industry and became more prevalent on the
urban areas. It came as no surprise to the horse drawn carts when business opportunists began to
hire the vehicles instead of the horse drawn carriages. Since then, the industry has undergone
many changes, molding it to what it has become today (Cramer & Krueger, 2016). The Taxi
companies have enjoyed in this industry for long due lacking competition. Until recently, this
industry has faced a major challenge from the current technological innovation based on ride-
sharing application. The Ridesharing companies, mainly Uber and the Lyft, have changed the
traditional operation of Taxicabs by the introduction of smartphone apps to match customers
who request rides with the drivers to take them to their destinations. Since its launch in 2009,
Uber has registered a significant market share in the industry worldwide (Uber, 2016).
Economic consequences
Economic debates on whether sharing economy companies like Uber and Airhub should
be permitted to continue with their operations of disrupting current suppliers in their respective
markets or not have persisted for long. Although the debate has gone extremely with each party
leaning on its point of interest, basing the debate on an economic point of view the response has
remained “Yes, of course”, and this is in consideration to the fact that consumers are able to get
more satisfied with the new technology compared to the case before. If passengers used to take a

UBER AS A DISRUPTIVE TECHNOLOGY 4
lot of time lining up in order to take rides and book cabs then why should anyone who wishes to
make this process easy and simple be stopped? (Coppola, Kaminska & Worstall, 2014)
In major cities, taxi industry has been regulated and still uses the basic technology which
was developed late1940s. The Ride sharing services like those offered by Uber and Lyft and
which are using internet-based technology to link passengers with drivers have posed a stiff
competition to the traditional taxis (Coppola, Kaminska & Worstall, 2014).
According to Coppola, Kaminska and Worstall in their paper whose main aim was to
examine the efficiency of the ride sharing services in taxi industry by comparing their capacity
utilization rate with the traditional taxis in five major cities, they concluded that UberX drivers
devote a considerably high time, and drive significantly longer distances with their passengers
than taxi drivers can do. And that is seen as an increase in Solow Residual and which depicts an
increase in the economic growth. Solow residual is a term used to describe an empirical
productivity economy growth from one year to another and a decade to another. Uber services
have increased the Solow Residual. Which is a purely increase in GDP (Coppola, Kaminska &
Worstall, 2014).
The second consequence which has resulted from the entrance of Uber into the Taxi
industry has to do with inflation. This is a consequence which has begun to take its course just
recently after the technology begun to deeply dominate the industry. On its introduction, this
consequence could not be felt as the traditional taxi cabs were still in place as before. On its
domination, getting a taxi has become extremely expensive especially for Uber drivers who have
monopolized the industry (Coppola, Kaminska & Worstall, 2014).

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On the employment sector, Uber has led to loss of jobs generally. Statistics based on a
study by Coppola, Kaminska and Worstall indicated that one Uber driver can serve customers
who could be initially served by three traditional taxi cabs. This is an implication that one Uber
driver has replaced three taxi cabs. Considering this ratio of job loss and the current number of
Uber cabs in operation is a clear indication that this technology has brought about a decline in
employment rates (Coppola, Kaminska & Worstall, 2014).
Stakeholders
For the tax drivers, Uber has presented a golden opportunity for them to break from
bureaucracy of the taxi companies as well as local authorities, which has greatly reduced the
costs of operation. Meaning more money goes into the drivers pockets (Wagner, 2017).
For the government administrators as well as taxi firms entrenched in the cities, Uber has
presented a real threat. It has poached both their drivers and the customers, and will keep on the
trend until it’s legislatively stopped, or when the incumbents will come up with services that
challenge Uber in experience (Denning, 2016).
For the customers, Uber has extended a consistent and attractive taxi deals, although with
some issues as Uber drivers have been exposed in some major outrages, including the attempts of
kidnapping as well as tragic hit-and-run cases. Despite the safety measures that that have been
put in place by Uber, they can’t compare with the checks undergone by traditional taxi drivers
(Laurell & Sandström, 2016).

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For Uber drivers, one of the major benefits they have scooped from this technology is
flexibility in the line of work. This is considering the number of jobs which can let a person
choose his or her own hours to work whether it is two hours per day or ten hours per day. As an
Uber driver, one is entitled to choose the number of hours he or she wishes to work and the time
you to be at work. As an Uber driver, one is always his own boss, a coincidence with the
flexibility factor. Nobody follows after the drivers to ask them why they are not at work at any
moment. It’s upon the driver to choose when to work and where to work too (Uber, 2016).
The tax drivers have been protesting against Uber due to what they consider as unfairness
on the manner in which they are treated by legislations. This is because Uber drivers are usually
not subject to vehicle inspections and not required to obtain the chauffeur licenses. They are
therefore able to adjust their fares as per the market demands. This issue of fare adjustment has
been the difference between the normal taxi cabs with Uber. Although their price increments
have become notorious to some extents, they compensate with special offers and promotions to
their customers. Normal taxis don’t have such an option (Laurell & Sandström, 2016).
Potential solutions
In an attempt to regain the revenue lost through ridesharing, the taxi owners have filed
lawsuits against the Uber from time to time, pointing at the ride-sharing application
specifically. It has been a valid complaint, considering the fact that Uber rides have been up
surging while cab pickups plummeting; technically, the taxi industry is declining faster than
how Uber is ensuing. Potential solutions to cope with this disrupting technology in the taxi

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industry include but not limited to maintaining safety regulations and making fares flexible.
Though that, some consumers are likely to be prefer Taxi cabs instead of Uber which has
always been expensive for the consumers (Posen, 2015)
Traditional taxis have been hit hard by this technology because of letting it dominate
the industry without taking any actions. For instance, if the traditional taxi cabs could form an
association and come up with their own app which could facilitate the connection between
their customers and drivers, they could stand a better chance of compete with Uber fairly. The
stakeholders in this case who are the traditional taxi drivers are likely to oppose this change as
most of them are not conversant with the emerging technology. However, with a bit of training
they are likely to adapt.
The traditional taxi drivers association should also bargain for a reduction in the vehicle
inspection costs and license chauffeurs for them to be able to compete fairly with the Uber
drivers who are usually not subject to vehicle inspections and not required to obtain the
chauffeur licenses. This will make it possible for them to adjust their fares as per the market
demands just like the Uber drivers. This issue of fare adjustment has been the difference
between the normal taxi cabs with Uber and dealing with it could create a room for fair
competition when it comes to fare rates (Laurell & Sandström, 2016). This solution is likely to
face opposition from the stakeholders who are the Uber drivers, they will be on front line to file
petitions against this proposal by the traditional taxi drivers as it will be a threat to their
profitability rates in the industry.
Recommendations

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All factors considered, taxi industry has not been overwhelmed, nor should it act so.
Customers are aware of the advantages of riding in regulated and monitored environments.
Besides, Uber usually increases their prices during peak hours, making their prices less
competitive. The Taxi companies should therefore take the advantage of such an inherent
competitive brink and set favorable prices, and make improvements on their service levels in
order to regain their market share. To ensure effective competition with Uber and similar
companies, the taxi companies must incorporate apps for hiring taxis, invest in training programs
to equip their drivers and maintain their cars. Through this approach, Taxi cabs will regain their
lost glory in the industry and create more jobs. Also, the competition will create room for more
innovations and inventions in the industry to open more chances and facilitate economic growth.
Conclusion
In summary, Uber has proved to be a disrupting technology in the Taxi industry as it has
been outlined above. This is due to its capability of hitting the traditional taxi cabs hard and
posing a very severe competitive environment in this industry. However, with some efforts, the
traditional taxi cabs can still regain their pride in the industry. To achieve effective competition
with Uber and similar companies, the taxi companies must incorporate apps for hiring taxis,
invest in training programs to equip their drivers and maintain their cars
References

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Coppola, Kaminska & Worstall. (2014). Technological change, bargaining power, and wages.
Christensen, C. M., Raynor, M. E., & McDonald, R. (2015). What is disruptive
innovation. Harvard Business Review, 93(12), 44-53.
Laurell, C., & Sandström, C. (2016). Analysing Uber in social media—disruptive technology or
institutional disruption?. International Journal of Innovation Management, 20(05),
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Cramer, J., & Krueger, A. B. (2016). Disruptive change in the taxi business: The case of
Uber. American Economic Review, 106(5), 177-82.
Isaac, E. (2014). Disruptive innovation: Risk-shifting and precarity in the age of Uber. Berkeley
Roundtable on the International Economy,[University of California, Berkeley].
Cearley, D. W., Burke, B., & Walker, M. J. (2016). Top 10 Strategic Technology Trends for.
Cannon, S., & Summers, L. H. (2014). How Uber and the sharing economy can win over
regulators. Harvard business review, 13(10), 24-28.
Glöss, M., McGregor, M., & Brown, B. (2016, May). Designing for labour: Uber and the on-
demand mobile workforce. In Proceedings of the 2016 CHI conference on human factors
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Wagner, M. P. (2017). inn Rubber Technology, uber Technology. Manufacture York.
Denning, S. (2016). Christensen updates disruption theory. Strategy & Leadership, 44(2), 10-
16.Posen,
H. A. (2015). Ridesharing in the Sharing Economy: Should Regulators Impose Uber
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Uber. (2016). Retrieved March 27, 2016, from https://www.uber.com/