Uber, a transportation service company that started in 2009, revolutionized the black-car and taxi industries with the release of “UberX” in July 2012.
Uber, a transportation service company that started in 2009, revolutionized the black-car and taxi industries with the release of “UberX” in July 2012. Until the release of UberX, Uber operated by allowing customers to contact a black-car service through its app. UberX operates by allowing people to by-pass the middle man and use their own car to drive for Uber in exchange for a portion of the fee. UberX, which immediately decreased the cost of black car service by 35%, was met with immediate success. In 2014, Uber reached over 160,000 active drivers and 91% of the market share for ride-sharing services in the US and 52% of all paid for ground transportation, which includes taxis and shuttles. In the wake of Uber’s US success, the company turned its sights towards the global market. Shortly after UberX’s debut, several competing ride-share applications began to enter the market. Lyft, Uber’s most successful competitor, released in San Francisco in August 2012 and by the end of 2014, Lyft had expanded its services to over 60 US cities with roughly 10% of the national market share. On average, Uber and Lyft receive a 25% commission based on the total fee received by the driver.
At the start of 2015, Lyft released a service known as “Lyft Line” in several major US cities. Lyft Line provides a similar service to the one offered by UberX; however, it allows customers to pay lower fares in exchange for carpooling with other customers. Uber responded quickly with UberPOOL—its own carpooling service. In order to gain acceptance over UberPOOL, Lyft offered each user a 50% discount on its first 10 uses of its Line service in several major cities, making its cost a fraction of the cost of an UberPOOL in those cities. In addition, Lyft adjusted “Prime Time,” its proprietary surge pricing algorithm used to multiply the fare charged by drivers during busy periods, to increase its prevalence and effectively increase the minimum fare that these Lyft drivers receive for their trips.
By July 2017, Lyft had increased its share of the US market to 25%, with Uber dropping to 71% and the remaining 4% split among several smaller competitors. In San Francisco alone, Lyft has managed to increase its market share to 40%. In an attempt to regain its lost market share, Uber initiated several new programs. First, in markets where Lyft has made the largest gains in market share, Uber has decreased its share of the driver’s fare from 25% to 10% as a way to incentivize drivers to do most of their work through Uber. Second, after securing an exclusive deal with Toyota, Uber offered a program whereby it would finance the purchase of a Certified Pre-Owned Toyota for the driver. Hoping to incentivize drivers to use its service, Uber offered a loyalty program through which it agreed to pay off the car loan if the driver elected to repay only through its Uber fares.
Q2: You are an attorney working for the DOJ. Your supervisor requests that you draft a concise memo regarding whether this situation has given rise to any possible antitrust claims, in particular:
Evaluate the legality of Lyft’s actions.
Evaluate the legality of Uber’s strategy to regain market share against Lyft.
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