Is Uber Exploitative? And What Does It Say About the Sharing Economy?

Sometimes it looks like Uber has become the world’s favorite punching bag, from taxi drivers across Europe complaining that Uber is “not playing by the rules” to American customers annoyed with the company’s surge pricing tactics.

One of the latest punches came from Andrew Leonard, a staff writer at Salon, who compared Uber to John D. Rockefeller.

Why? Leonard didn’t like the fact that Uber significantly reduced the prices of UberX rides in New York and other cities, making them cheaper now than taxi rides. He suggested that Uber’s deep pockets (it just raised $1.2 billion) could enable the company to lose money on every ride, claiming this is an “anti-competitive market behavior.”

And the connection to Rockefeller? “The founder of Standard Oil built his monopoly by exploiting size to leverage discounted access to railroad transport. Such economies supported price cuts his competitors couldn’t match,” Leonard writes. He’s afraid that we’re about to witness a somewhat similar scenario in the taxi industry, where Uber will use its funds to drive taxis out of business, and then will increase prices, making its investors rich at the expense of the public.

Leonard, as well as others sharing similar concerns, questions the legitimacy or fairness of Uber’s business tactics, especially given the fact that it operates in many places within a "grey area" of the law. Yet, behind these arguments lie even more fundamental questions: Is Uber still considered part of the sharing economy? Is it exploitative? And if you answer ‘yes’ to both questions, what does it say about the sharing economy?

Let’s try to look at these questions one by one.

To answer the first question, we might need to look at what the 'sharing economy' actually means.  Rachel Botsman, co-author of “What’s Mine Is Yours: How Collaborative Consumption is Changing the Way We Live,” divides the ‘sharing space’ into four parts: collaborative economy, collaborative consumption, sharing economy and peer economy. In her analysis, she includes UberX as an example of the fourth part -- peer economy, which she defines as: “Person-to-person marketplaces that facilitate the sharing and direct trade of assets built on peer trust.”

In a report published last year, “The Sharing Economy: Accessibility Based Business Models for Peer-to-Peer Markets” the authors write: “Due to the lack of scientific publications on 'the sharing economy' we confine its definition to companies that deploy accessibility based business models for peer-to-peer markets and its user communities. This type of business model … can, in theory, act as a broker between consumers, for any consumer owned product or service.”

Finally, Cameron Tonkinwise, the director of design studies at the School of Design at Carnegie Mellon University, approaches the definition in his paper “Sharing you can believe in” from a sustainability point of view: “If a system affords people a way of not having to own things in under-utilized ways in individual households, I am going to call it sharing … If a ‘sharing economy’ service creates a new practice that does not replace another practice that depends on owned goods, then it does not meet this aspect of my definition,” he writes.

So, as you can see, the answer to the first question is: Sometimes. UberX can definitely be considered an example of a peer-to-peer market (unlike Uber Black or Uber SUV, it’s not operated by commercially licensed taxi and black car drivers), and if it’s been used as an alternative to buying a second car, for example, it can even be considered sustainable. In all other cases, Uber is neither a sharing nor a sustainable service.

The answer to the second question about the exploitative nature of Uber is not simple either. One way to look at Uber, Glenn Fleishman suggested last month on BoingBoing, is as “an upstart technology company [that] optimizes an inefficient market in a way that all participants benefit: passengers are safer and can more reliably get a ride with a low likelihood of fare cheating; drivers are safer and don't have people skip on fares.” At the same time, Fleishman warns it can all change if Uber reaches a dominant position in the industry, as the company could become then “both a virtual monopoly and a monopsony.”

Others are more blunt. Economist Michael Munger of Duke University compared Uber’s model to buying cartons of cigarettes cheaply in Virginia and selling them from the back of your truck in New York, where the price of cigarettes in stores is far more expensive. Consumers will love it, Munger says, but this creates an unfair competition for those trying to follow the rules.

Yet, both Fleishman and Munger agree that Uber and other car-sharing services challenge an industry that is inefficient, relatively expensive and has very little incentive to improve due to regulation providing it with an artificial monopoly power. In other words,  it might be that not just Uber, but also the incumbents in the taxi industry that fiercely fight it could be perceived as exploitative to some degree.

However, I wouldn’t like to run away from the question. In my opinion, the fact that Uber finds ways to get around the law as Munger puts it, or reduces prices, utilizing a loss leader pricing strategy, could be characterized in different ways (illegal, unfair competition, a threat to property rights, a bully, etc.) -- but not as exploitative. At least for now.

What will happen in the future? Will Uber one day transform into a ruthless monopoly taking advantage of its drivers and charging unreasonable prices for rides? Maybe, but I doubt that this will be the case. Not that I count too much on Uber’s morality or the regulators as much as I count on the power of the market. If Uber fails to fulfill its promise to provide a better service, it can go down as fast as it went up.

So, finally, what does it all say about the sharing economy? One way to look at it is that the story of Uber reminds us that we’re going through a process of mainstreaming the sharing economy. This, as Clay Shirky suggests, includes five stages that the sharing economy will have to go through: technical possibility, social adoption, regulatory reaction, civil disobedience and negotiated settlement.

Another way to look at it is that we’re seeing a movement in transition. Rachel Botsman describes it as something that is still a child, and when asked how she sees it when it’s grown up, she jokingly replied “pimply.”  Well, it might be that Uber is just a sign of the sharing economy’s a pimply adolescence, for better or worse.

Image credit: Adam Fagen, Flickr Creative Commons

Raz Godelnik is an Assistant Professor of Strategic Design and Management at Parsons The New School of Design. You can follow Raz on Twitter.