Reason behind Uber's popularity: Consumers benefit the most, says US study
| Sunday, September 18, 2016 - 13:38
New York: A study suggests that online transportation firm Uber's consumers not the company or the drivers are the largest beneficiary.
According to The Verge, Uber has nearly 450,000 registered drivers in the US and it offers its services in more than 198 cities in the country.
Economists at the University of Chicago and University of Oxford working with researchers at Uber found that the company's main service generated $6.8 billion in consumer surplus in the US last year.
The economic measure of consumer benefit outpaced both the revenue of Uber drivers and the company.
"I was expecting to find a big number for consumer surplus because when you talk to people about Uber, they really like the service and see it as a cheap option," said Steven Levitt, the William B. Ogden Distinguished Service Professor of Economics at the University of Chicago.
"I think our findings should change the policy discussion. To date, the conversation has revolved around the idea that there are people who are hurt by the service, mainly taxicab medallion owners. There's little discussion of the benefit to consumers."
The findings, released as a National Bureau of Economic Research working paper, answers the question how much people paid for the service and how much more they would have been willing to pay.
Consumer surplus is calculated by examining the difference between how much people are willing to pay for a service and how much they actually pay.
In the case of Uber, researchers found for each dollar spent by consumers last year, about $1.60 in additional benefit was generated.
"While most Uber riders do not think in terms of consumer surplus, calculating the economic measure provides real insight into the benefit they are experiencing, helping to explain the company's explosion in popularity," said Robert Metcalfe, a research scholar at Chicago's Becker Friedman Institute.
For this study, Levitt and his fellow researchers focused on 50 million UberX consumer sessions through which customers request rides.
However, the researchers cautioned their findings do not fully capture what is happening as ride-sharing companies grow.