Government-Business Relations - Bay Area Companies, Airbnb, and Uber - Case Study Example

GOVERNMENT- BUSINESS RELATIONS Name Course Tutor Date The negative and positive implication of the sharing economy has been debated by many people and researched with the focus of a deeper analysis. Sharing economy refers to a situation where individuals interact with each other directly but online for the purpose of exchanging goods and services1. The center of the argument has been whether the new business model is bringing more wages or whether it has the adverse effect of displacing all the secure traditional jobs. The two companies responsible for this effect are Bay Area companies, Airbnb, and Uber, who are causing a political heat by laying the conflict between monopolization and a free economy. This analysis seeks to understand which business is more destructive to the traditional markets. Uber This company has been considered by many as polarizing over the past years. Although most capital firms still prefer to do business with Uber primarily reflected in their $40 billion valuations, the company still has the determination to alienate the key players in the same industry. This is evident where the majority of the taxi drivers have cast it as an unsafe mode of transportation leading to most lawmakers to shut down their operations in other parts of the market. The public debate about Uber has only generated more heat that has failed to reveal little about this company and its net impact on the paramount public values and goods. The first part of this essay will focus on Uber’s alteration of the car-hire sector. Uber’s Effect on the Car-Hire Services This company is introducing two major transformations in this business. The first aspect of it is that it is striving to eliminate the transaction cost that over the years has crowded the car-hire business. This is evident especially when we consider the search costs involved. Their action has created an extraordinary set towards an efficient car-hire business. Their primary goal is to ensure that people push burtons to get their rides within minutes to eliminate the wait time2. The second paramount milestone is that they have been able to produce both horizontal and vertical integration of the car-hire sector which in many countries and cities is fragmented. This is evident in San Francisco where the Taxi drivers are forced to accept credit cards and have the exclusive rights to pick up passengers at the airport3. Creative Work Destruction Their business model can be considered as simple. Their smartphone app directly connects their drivers offering rides with the customers. Their passengers pay their fee using a mileage-based system through their credit cards. The company then takes a certain percentage of the fare to pay the drivers. Although this company refers to this business as ride-sharing, in the real sense nothing is shared. Although their business statement is often based on aggression towards their competitors and disregard of the law where there is a loophole, their success cannot only be based on the regulatory arbitrage. Their business also cannot be based on facts that seem to suggest that they are striving to topple an ancient system of the taxi business. Rather, their key innovation squarely lies in the reduction of costs that has in many years affected the sector negatively by providing justification for their regulation that can only be termed as extensive. Uber has managed to eradicate or reduce the search costs in the taxi business. The conventional methods of calling a cab and waiting for it on the streets has been replaced by the users calling the taxi and waiting for it to pull over next to their location. The other important fact is that the taxi drivers cannot poach one another their customers. This act is stressing to clients who hate to wait for long for their taxi or the act of uncertainty. The innovation of Uber has created a market that to most appeared to be impossible to control especially in this industry that heavily relies on the forces of demand and supply. Although this form of market is not free, Uber is acting as a critical price setter and sometimes keeps the prices low by compensating their drivers with the large capital reserves they have. The information they collect about the market conditions and their easy communication helps them adjust their pricing4. There have been calculations where Uber’s algorism for pricing is remarkable when we consider the wait time for their ride5. It can also be argued that once this company takes up the issue of safety very seriously, then the costs will raise at an extreme level. This will force the question of whether this form of market-clearing price paints an accurate picture. Integration of the Sector This type of business is of particular importance since they encourage both horizontal and vertical integration in the car-hire business considering that the taxi business is most cities is fragmented especially in both dimensions. The licensing systems by the cities are different, and if they do not mandate the taxi owner or the company operating the business, then this will encourage fragmentation that is vertical. Most of the taxi companies will be forced to lease rationally their cars to the drivers instead of employing them to avoid primarily the costs involved when hiring this driver. These costs include a possible unionization, unemployment and workers compensation, taxes, and laws associated with the minimum wage. Uber has been able to reduce this cost since they have a direct relationship that is contractual with their drivers. They are also engaged in the integration of the taxi business horizontally especially when they gain the market share in most cities. They are also directly involved in the collection and compilation of the database of the behavior of their riders and their drivers. The data will be paramount especially when it comes to market-making functions and the act of price-setting. The Social Costs and Benefits of Uber A better understanding of the business model of Uber and their transformation allows a better analysis of the benefits and the social costs of the rise of Uber. As a first advantage, they may enable a capital use that is very efficient, and that enhances the incentives of the customer. One of the fundamental examples is that they have been able to reduce the incentives of the client when it come to them purchasing automobiles. This has the effect of reduction of the environmental harm and the act of saving money. When the customers reduce their act of buying cars, it opens up the possibilities of the conversion of the parking spaces to those that are environmentally friendly to all the users. Their act also has a positive impact on reducing drunk driving and other significant and minor incidences of accidents on the road. Although Uber may be having some success stories, they also have some criticism that steams in six dimensions. First they are entering the taxi market by failing to comply with the regulation set aside by most cities especially when we consider the issue of fair schedule. To most people, this act makes them compete with other taxi drivers unfairly. The other aspect of their criticism is that they are aspiring to be a monopoly by using tactics to kick out smaller taxi business who are trying to make a living. They are also considered to be underinsured or unsafe by most people. The fifth part of the argument is that they are invading the privacy of the customers. The last dimension is that they are undermining the standards of work for most taxi drivers while they are compensating their drivers with rates that are poor. Regarding the first criticism, this company aim is to undermine the traditional service of the taxi since they are operating with other taxi drivers but are subjected to different rules which in a real sense are an unfair business practice. This is evident during the peak season when they flood the market with part-time drivers. Regarding the next criticism, their business models seem to aspire to be dominant. The company wants to become a leader in the logistics business. Their aspiration for an excessive control of the market can threaten the likelihood of a better welfare for the customers. Safety Cases, where Uber drivers have killed pedestrians due to the destructions caused by the app, is on the rise. Other cases reported are their drivers committing crimes such as assaulting their customers in their vehicles. Uber has to take complete responsibility since they handle the linking of the customers and the drivers. They also have the responsibility of insuring its drivers especially when they are carrying passengers in the car. They have the legal obligation of embracing all the legislation set aside by the cities as a key to a fruitful business model. Privacy Their use of the rider data has created a lot of concerns primarily from the users. There are also reports that their drive to collect data infringes on the privacy of the users. They have a primary responsibility to maintain the highest privacy level when it comes to the collection and use of data from their customers. All the data collected from the passengers should not be disclosed without their consent. Discrimination Uber’s ratings of their drivers are based on the assessment and review by the passengers. This has opened a loophole for discrimination where passengers who are not true to themselves take the opportunity to monitor the drivers racially by giving the drivers low score whether through explicit or implicit bias. This has forced some drivers not to pick up some passengers if they have the information that they are racial minorities. Labor Standards Finally, there is the issue of the labor standards by the company. It has been reported that the corporation sometimes acts towards their drivers in a unilateral way whereby they change the terms and conditions whenever they want. They have been subjected to lawsuits because of this policy since they have been known to mislead the drivers and the passengers. Their actions make their drivers lack any tie primarily a communal relationship that enables workers to organize. They lack a central meeting location, and most of them work on a part-time basis. Any driver who speaks out or attempts to strike is taking an enormous risk. Airbnb This is a website where visitors have the opportunity to rent out lodging from renters, and other homeowners by easily connecting them6. They define themselves as a social website that primarily connects most of the people who have the availability of space to share or space with those who are looking for a space or a place to live or stay. They allow the property owners or the landlords to list their desired property and later set their rate for a visit. They have enabled most individuals to primarily collaborate and make use of the under-utilized inventory through the sharing economy platform7. The main advantage about the sharing economy in the hotel industry is that they are thriving with some of the apartment dwellers using their distribution to rent their units to travelers who seek the alternatives as opposed to the traditional hotels8. Airbnb handles handling the billing of the credit card whereby they take a certain percentage of the rates and send it to the homeowners. The services provided by this company provide the means for the apartment dwellers and the owners to make money by renting their apartments and homes. Although homeowners love this form of the business idea because it helps them pay their costs of real estate, the hotel owners hate it. They have forced them to adapt or suffer in the current market9. They hate it because Airbnb is taking a massive cut in the revenue of their business. They also face a lack of favor from the government and the politicians because they seem to collect a lot of tax money specifically from the hotel business. However their primary argument has always been the fact that they help most people to deal with the issues of rising rents by primarily allowing them to provide the services of lodging from time to time for little money10. The Political Conflict The capitalism of free democratic market relies heavily on the process of the economy that is called the creative destruction. In this case, for any business to have that competitive advantage and be successful, they must be engaged in a process of constant innovation and improvement. However, this policy cannot be enforced in businesses that have old structures and designs. This opens up the opportunity for the bureaucracy to tilt the balance of power for this in power to remain or maintain their interest. This gives reasons for the government resentment towards this business model. Apart from making the government and the hotel owners angry, no major case can be raised against Airbnb. In conclusion, although these business ideas are smart and innovative, they do not have the potential to come up with solutions to some of the problems facing the economy. Although Uber and Airbnb represent part of the economy that favors innovation, their business model seems to be a destruction of the traditional form of enterprises. However, Uber, as illustrated in the analysis, appears to carry the burden of being more destructive than Airbnb. Bibliography Borison, Rebecca. "Here's Proof Airbnb Is Shaking Up the Global Hospitality Industry." The Street [New York City] 3 July 2015: 1. Print. Buckley, Sean. "The Uber effect: how San Francisco's cab use dropped 65-percent." engaged 17 Sept. 2014: 1. Web. 23 Oct. 2015. Edelman, Benjamin G., and Damien Geradin. "Efficiencies and Regulatory Shortcuts: How Should We Regulate Companies like Airbnb and Uber?" Harvard Business School (2015): 7. Web. 17 Oct. 2015. Gelinas, Nicole. "Airbnb Is a Problem for Cities Like New York and San Francisco." The New York Times [New Yotk] 16 June 2015: A1. Print. Hall, Jonathan. "The Effects of Uber’s Surge Pricing." Newsroom 17 Sept. 2015: 1. Web. 23 Oct. 2015. Hall, Jonathan, Cory Kendrick, and Chris Nosko. The Effects of Uber’s Surge Pricing: A Case Study. N.P., n.d Web. 23 Oct. 2015. Hotel News Now. The Impact of the Sharing Economy on Hotels. San Francisco N.P., 2014. Web. 23 Oct. 2015. Ingram, Mathew. "Airbnb, Coursera, and Uber: The Rise of the Disruption Economy." Bloomberg 25 Oct. 2012: n. pag. Web. 17 Oct. 2015. Zervas, George, and Davide J. Byers. The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry. Boston: Uoston University, 2015. Web. 23 Oct. 2015. Zrenner, Alexander. "The Ethics of Regulating the Sharing Economy." The Kenan Institute for Ethics (2015): n. pag. Web. 17 Oct. 2015. Read More