A new study by Judd Cramer and Alan Krueger at Princeton found that only 40% of the miles that taxis drive in Los Angeles and Seattle are spent carrying a passenger someplace the person wants to go. By contrast, for UberX the numbers are 64% and 55% for the two cities, respectively. In terms of hours worked, taxi drivers in San Francisco spend only 38% of their work hours with a passenger on board. For UberX, that number is 55%.
Why should this be the case? One possibility that comes to me is the different economic model. My guess is that taxi companies make much of their money by renting to taxi drivers the vehicles and the taxi licenses. Maximizing the number of rides is not such an issue for them. But Uber gets a share of money on every ride, and that is where their revenue comes from, so they have no choice but to put a lot of effort into maximizing the number of rides.
But the taxi company still wants to make its rentals as valuable as possible, right? So I think they still have an incentive to maximize drivers’ revenue.
[And how many of you misread the title of the post as “why as taxes inefficient?”]
Taxi’s don’t locate their new rides via smartphone. That’s less efficient. Easy.
that and taxis cant really just turn themselves off if pickings are slim.
I agree that taxi drivers experience various frictions that Uber and Lyft drivers do not – working hours, incentive alignment, technology.
I think a lot of this falls under the framework of Coasean bargaining.
Although taxi drivers are not legally employees of taxi companies and medallion owners (at least I don’t think they are), they are much more closely tied to these business partners and that means more coordination and less efficiency.
Uber and Lyft drivers are more independent from their platform companies, which means they have to coordinate less and can better maximize their earnings.
“Taxi’s don’t locate their new rides via smartphone”
For an empty taxi to get matched with a fare, it needs to weave around a densely populated area until it randomly finds itself within ~100 feet of a person actively waving a ride. Once the match is made, post-match driving to get to the actual fare is de minimis (<100 feet), but the random pre-match weaving in search of a fare accounts for a lot of empty cab miles.
By contrast, an uber driver can be matched with a fare even if stationary. Pre-match, an empty uber might drive toward a population center and/or away from other empty ubers, thereby increasing its chances of getting matched, but there is no random weaving required. Once matched, the empty uber may be a mile or so from the fare, so post-match miles for empty ubers is certainly higher than for empty cabs. But this doesn't outweigh the massive advantage for uber is terms of minimizing pre-match miles.
There are constraints on cabs which don’t apply to Uber. For instance: Valley Cab in LA’s San Fernando Valley region can pick up fares in the valley and take them anywhere in the metropolitan area, but can’t take phone requests for a cab at arbitrary locations (the law does allow for picking up arm waving humans, however),
Drivers can’t take a fare from Encino to San Pedro, and then take a fare from San Pedro to Downey, and one From Downey to Huntington Beach. They’re supposed to drop off their passenger in San Pedro and make their way back to the Valley (about 70 miles) while empty. Uber doesn’t do this. Valley Cab drivers can’t go park at LAX in the hopes of picking up a fare. Etc.
There are other aspects. LA cabs generally carry passengers, period, and there don’t seem to be too many of them. It’s traditional to blame this on LA being a city with a “car culture”. In NYC, on the other hand, it is or was a common thing for businesses to send packages via cabs. Which led to much higher numbers of cabs on the street, which made it practical for New Yorkers to look for and flag down empty passing cabs. In LA, hoping an empty cab will pass by is not a winning proposition.
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There are two sides to this coin, principal and agent. Since the cab company is paid per time, it doesn’t care about fare efficiency. However, the cabbie making the decisions absolutely cares about maximizing fares to offset the fixed lease costs.
Likewise, the Uber driver shouldn’t care much about squeezing the max fared per unit time, even if his boss does.
I talked to an Uber driver (actually I think it was Lyft) who used to be a taxi driver. He said it was a big improvement. If he waited more than 5 minutes to get a new fare it was a long time. In his taxi, he would sometimes drive around for as much as two hours before getting a fare. Big difference. Of course while he was doing that, there were fares in other places bemoaning that no taxis drove by. The matching is just a lot more efficient.
Here in San Francisco, the way I understand it to work is that the cab companies have zones. Each zone has a specific number of cabs, and they aren’t allowed to overlap. So even if there is someone trying to get a ride two blocks from you, and you haven’t had a fare all day, if it is in a different zone than you aren’t allowed to pick them up. In addition, the number of cabs per zone has to maintain a specific number, so even if a sporting event is letting out with thousands of people looking for a ride, there will still be cabs driving around a residential area looking for nonexistent customers. Uber and Lyft don’t have that problem.
Using software to dispatch drivers *should* be much more efficient than hailing cabs on the street. Uber has far better software than taxi companies because their company is built with a model that can recruit top-tier software engineers. This is just another case of “software eating the world” and becoming the critical part in an industry that was not previously software-driven.
Bull pucky. You’ve missed the point completely. It’s not that *SOFTWARE* suddenly let Uber and Lyft do things previously undreamt of so they took over the old fuddy-duddy cab business. It was a power play.
If one of the standard cab companies had wanted to operate like Uber, the city administration which licenses cabs would have shut them down immediately. Because “That isn’t how cab companies operate” and to hell with your fancy software and lineup of venture capitalists. But Uber never tried to operate as a cab company. It just merrily put up ads and flyers and signed up drivers and was happily ferrying passengers hither and yon while the established cab companies were trying to get somebody in city government to answer the damned phone and listen to a complaint. By the time the typical city bureaucracy reacts to the existence of Uber, it’s generally gotten itself established in most users’ minds as old and legitimate, and very few cities have the … anatomical features …. needed to clamp down. So Uber prevails.
And this is Capitalism in the 21st century. Not exactly the sort of thing Hayek and von Mises and Ayn Rand talked about, more like the way Jenghiz Khan operated in the 13th, but ….