Overtime yellow cabs have become an icon of transportation in big cities across the United States. In recent years however, an independent taxi service, Uber, has begun to capture a portion of these medallion taxi services’ market share. Uber has been able to differentiate themselves in the market by developing a strategy that better aligns with customers’ preferences. By eliminating the delay to find a ride and the wait time to pay for the service, Uber has effectively differentiated themselves by decreasing the customers’ overall travel time.
In order to gain a better perspective of how accurate recent claims that Uber is acting as a substitute for taxis and not simply a complementary good, I am going to focus purely on the market in New York City. While it is often stated that Uber is simply profiting from a under-served market, there is strong evidence that would support they are acting as a substitute good within the market.
First, there is evidence of a sharp 16% decline in taxi rides since June 2013 and a total of eight medallion certified taxi companies experienced foreclosure in 2014. In How Uber Is Actually Killing the Value of a New York City Taxi Medallion, James Hickman, notes that these foreclosures and the decrease in demand do not align with past trends of taxi rides during a time of economic expansion.
Furthermore, the convenience of Uber has driven an even more drastic drop in demand during the hours of 11 pm to 5 am. This 22% decline in demand for taxi rides is most likely driven by a customers ability to wait safely inside while awaiting a ride home, versus attempting to hail a taxi during these late hours of the night.
However, it is worth noting that Uber may only be directly acting as a substitute within Manhattan and not throughout New York City as a whole. During April-June in 2014 to 2015, there is evidence that taxis only showed a significant loss in rides within Manhattan. While the number of rides in some areas, such as the Bronx or Staten Island, did not grow as significantly as Uber, the number of total taxi rides given were still not significantly affected. In other areas, such as Brooklyn and Queens, Uber acted more as a complementary good to taxis, as both companies experienced significant growth within these regions.
Can one conclude that Uber is acting as a substitute for taxis within large cities? It is too soon to say. While it is clear that Uber is experiencing a large amount of growth in recent years, I think there is room for both services in these large cities. However, it will be interesting to see if the market will follow recent trends and ultimately be divided by which service controls the market based of the time of day and pickup locations.