>because their customers are extremely price sensitive
The proposal suggests to me that they think their customers are not extremely price sensitive but they're also not loyal to a specific supplier. In other words, they'll take almost as many rides even if the price goes up but they'll still go with whoever is cheapest.
I’ve read somewhere ride share companies make more total revenue when prices are cheaper, and people use it less when its more expensive. Since these companies make more money with more total revenue, i’m guessing its in their interest to make it cheap.
It makes sense, if something is cheaper, you use more of it. If its more expensive, you start using substitutes, as the benefits of rideshare gets dwarfed by its extra cost. It’s literal econ 101
It depends on what the price elasticity of demand is. At least in the simple case, there is some price point at which revenue is maximized. Higher prices drive demand down faster than they drive revenue up. Lower prices drive revenue down faster than greater demand drives them up.
They may in fact think their customers are price sensitive (the majority of customers are for any mass service; we already know that most of Uber's customers are price sensitive), while their aim is to capture their customers in a regulatory manner so that they have no or few alternatives.
If they can establish a regulatory framework that favors them (Uber), they can raise prices as competition is further restricted, to more than offset the $21 / hour. Their ideal has to be to establish that favorable competition environment, enabling considerable price increases that get them closer to profitability (ie exceeds the wage cost increase by a large margin). In the current situation, Uber is facing a bankruptcy scenario with their low sales growth, extreme burn rate and with a competitive market where they can't freely increase prices. That tells you what their goal has to be.
If they were certain their customers were not price sensitive, Uber would have already spiked their pricing far higher to push toward profitability.
>If they were certain their customers were not price sensitive, Uber would have already spiked their pricing far higher to push toward profitability.
Many/most Uber customers would use a materially cheaper equivalent service if available because the switching costs are low.
However, that's not the same as price elasticity (of demand) which is what the term usually refers to. Price elasticity is about how much less they'd use any price-competitive service as the price increases.
I'm honestly not sure what that curve looks like. Within reason, pricing wouldn't affect my usage much at all. But I'm a light user of these services and use them almost entirely for business. Certainly I'm a very different profile from a young urban professional who doesn't own a car.
ADDED: Between surge pricing and other pricing experiments I'm sure they conduct, I would imagine that Uber has a pretty good idea of what demand and driver supply curves look like.
The proposal suggests to me that they think their customers are not extremely price sensitive but they're also not loyal to a specific supplier. In other words, they'll take almost as many rides even if the price goes up but they'll still go with whoever is cheapest.