Ubernomics: How ridesharing can impact the German economy (part 2)

Language: German | English

Welcome to Part II of our recap about the study conducted by the respected economist Prof Dr Justus Haucap, Director of the Düsseldorfer Institut für Wettbewerbsökonomie (DICE) and former Chairman of the German Monopolies Commission, and DIW Econ, the consulting arm of the German Institute of Economic Research (DIW).

Yesterday, we showed how an increase in trips can lead to lower ETAs and increased utilisation. Today, we’ll use that as a foundation for a discussion about the potential impact of uberPOP on overall consumer benefit in Germany, if ridesharing platforms were able to operate within the regulated framework.

First, we’ll revisit some Econ 101 basics…

We calculated the overall consumer benefit (aka savings) to be the difference between the price a consumer is willing to pay for a service and the actual price for that service. For example, if you are willing to buy a ride for €10 and the actual price is €7, then your benefit (or saving) is €3.

Here’s an illustration of theoretical consumer benefit:

Bildschirmfoto 2015-03-17 um 14.06.45


Lower prices mean more trips for riders and more earnings for drivers

When looking at the German context, we first examined uberPOP prices compared with taxi prices. In Frankfurt and Munich, average fares are nearly half of those for taxi.

Bildschirmfoto 2015-03-17 um 14.07.55

 

Lower fares are good for both consumers and drivers because of proven significant price elasticity in ridesharing. In other words, when prices go down, people ride significantly more. This means that while drivers’ earnings per individual trip may be less, they ultimately earn more on aggregate because they complete more trips.

Berlin could see possible annual consumer benefit of up to €48M

So what does this mean in terms of consumer benefit in Germany? If the transportation sector allowed for ridesharing platforms like uberPOP, Haucap and his team anticipate annual total consumer savings of up to €48 million in Berlin alone. The chart below shows the potential total annual benefit to consumers in the five German cities where Uber is currently operating.

This is without taking into consideration an overall increase of the mobility market due to more choice and lower prices.

Bildschirmfoto 2015-03-17 um 14.14.34

 

To achieve this benefit, Germany needs updated regulations that fit with today’s times

This consumer benefit can only be realised in an environment that embraces the kinds of ubiquitous digital technologies that are helping to make traditionally offline businesses safer, more affordable, more efficient and more transparent. Unfortunately, Germany’s regulations, created in the 1960s for an analog society, are currently preventing citizens from benefitting from an open, fair market, in which they could make significant personal savings.

Requirements such as the return-to-garage rule for for-hire vehicles, artificial absolute limits on available taxi and for-hire licenses, and minimum capital for new entrepreneurs who are opening transportation companies are not just irrelevant in today’s times, but they are also restrictive to fair competition and economic growth.

 

“The current taxi regulatory framework hinders new transportation alternatives, thereby harming consumers, drivers, and the community.” – Dr Justus Haucap, Director of the Düsseldorf Institute for Competition Economics and former Chairman of the German Monopolies Commission.

 

In 290+ cities in 55+ countries around the world, ridesharing with Uber plays a key role as one of many options for moving around town. Together with taxis, public transportation, and carsharing, this wide variety of options – spanning different price points and levels of convenience – provides consumers a great degree of choice regarding how they can move around their cities.

Following regulations for ridesharing that are being adopted across the globe, Europe is well on its way to adopting innovative solutions for unique urban mobility challenges. The City of Brussels has introduced a draft legislation to regulate ridesharing. In addition, the Finnish Government has been supportive in pioneering a holistic transportation model that unites both public and private transportation providers to create a consumer-driven mobility network that will have profound impact on traffic congestion and the efficient use of resources.

As our CEO mentioned during his recent visit to the DLD Conference in Munich, we look forward to continuing to partner with cities across Europe to collaboratively research, analyse and address some of today’s most pressing urban mobility challenges.

To this end, through studies like this, we are excited to continue our constructive discussions with German policymakers, regulators, and citizens on how platforms like uberPOP can contribute to German cities’ robust transportation networks.

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