73 Pages Posted: 10 Apr 2017 Last revised: 21 Nov 2017

Date Written: September 14, 2017

Abstract

The urban car service firm Uber is currently the most highly valued private startup company in the world, with a venture capital valuation of over $68 billion based on direct investment of over $13 billion from numerous prominent Silicon Valley investors. Uber’s investors are not merely seeking a share of a still-competitive urban car service industry, but are openly pursuing global industry dominance and its huge valuation is based on expectations that it will be successful. The business media that ignored this industry for over a century now tracks Uber’s every move. The overwhelming majority of media and tech industry coverage presume that Uber’s powerful innovations make industry dominance inevitable and could produce financial returns similar to those achieved by Amazon, Facebook and other recent Silicon Valley backed startups.

None of these media and industry expectations are based on objective analysis of Uber’s actual competitive economics, and they are inconsistent with Uber’s actual financial results. No one can explain how Uber could earn billions for its investors in an industry that historically has had razor-thin margins producing a commodity product. No one has been able to explain why an industry that has been competitively fragmented and structurally stable for a hundred years should suddenly consolidate into a global monopoly. No one can demonstrate a clear link between specific Uber product features and its meteoric growth, explain why no one else had ever recognized these opportunities, or document how they are powerful enough to allow Uber to rapidly drive all incumbent taxi and limo companies out of business. No one has attempted to explain how a company with such an allegedly powerful business model is still losing billions of dollars a year in its seventh year of operation, and why these losses are still increasing. No one has conducted an independent investigation of whether an unregulated dominant Uber would actually produce long-term improvements in the quality of urban transport.

This paper lays out the economic evidence showing that Uber has no ability — now or in the foreseeable future — to earn sustainable profits in a competitive marketplace. Uber’s investors cannot earn returns on the $13 billion they have invested without achieving levels of market dominance that would allow them to exploit anti-competitive market power. The growth of Uber is entirely explained by massive predatory subsidies that have totally undermined the normal workings of both capital and labor markets. Capital has shifted from more productive to less productive uses, the price signals that allow drivers and customers to make welfare maximizing decisions have been deliberately distorted, and the laws and regulations that protect the public’s interest in competition and efficient urban transport have been seriously undermined. Absolutely nothing in the “narrative” Uber has used to explain its growth is supported by objective, verifiable evidence of its actual competitive economics.