Cheap fares fueled the rise of ride-hailing. But will rides stay cheap forever?
In the fight for more customers, drivers, and market share, ride-hailing companies have in recent years embraced a simple but powerful strategy: cheap rides.
Uber, Lyft and other firms have used their ample venture capital backing to subsidize drivers and lower fares, igniting a price war that has benefited passengers at a great cost to the companies themselves.
It’s a policy so common that customers have come to see heavy ride discounts as the norm, but it’s also now facing new questions after Uber opted this week to cede the Chinese ride-hailing market to fierce competitor Didi Chuxing.
If Uber, which is valued at $62.5 billion, is no longer sinking a billion dollars a year into artificially keeping fares low in China, will it redirect those funds back home to fend off competitors such as Lyft, Juno and Via with even more subsidies than before? Or is it a sign that fare subsidies are flat-out unsustainable, with Uber’s retreat from China serving as proof that the strategy doesn’t work?
“A company like Uber has to balance two things: gaining market share while also demonstrating to investors they can turn a profit,” said Arun Sundararajan, author of “The Sharing Economy: The End of Employment and the Rise of Crowd-Based Capitalism,” who noted that as the ride-hailing industry matures, the race to the bottom makes less and less sense.
latimes.com
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