to the extent that there is interest in democratic decision-making, algorithmic monopolies are something antitrust authorities should watch. Right now Uber is wringing a lot of inefficiency out of the taxi industry. But eventually it will have so much power that it will introduce problems of its own.

Steve Wright‘s comments on an article about Uber’s market pricing algorithm:

“From the attached article:

“Uber controls all of the information in this so-called ‘market’.

One of the premises of a market is relatively balanced information on the part of both the buyer and the seller. But Uber is neither a buyer or seller, it’s a broker. And as a broker, it shows the buyer and seller only what it wants to. Its algorithm is not regulated nor is it transparent, so neither the buyer or the seller has any credible information. This isn’t a market, it’s a monopoly. It’s a special type of monopoly, an algorithmic monopoly. It may mimic market-style pricing, or it may not. That’s up to Uber.”

From the description at the P2P Foundation website (http://p2pfoundation.net/Uber):

“Uber drivers run a companion version of the smartphone app that Uber customers use. This app allows them to bid on pickups, but *does not* reveal the location of any of the limousines around them, competing for the same business. Uber’s drivers have less information than Uber’s customers. As a consequence, limousines tend to cluster, because drivers don’t know that they’re all converging on the same small – and presumably lucrative – area.”

Without clear definitions of the value provided and the values guiding the movement, the sharing economy will go the way of rapaciousness. Certainly transparency needs to be a non-negotiable aspect, right? The whole idea of technology injected in to sharing is that something akin to barter can occur across distance and time. Uber was given as a prime example of the sharing economy just two days ago on Shareable.net (http://www.shareable.net/blog/big-brands-on-the-rise-in-the-collaborative-economy) on On October 4th at the Collaborative Consumption site (http://www.collaborativeconsumption.com/2013/10/04/collaborative-pioneer-an-inside-interview-with-ed-casabian-at-uber/). But Uber is intentionally opaque to the ones who are sharing/collaborating. Uber seems to be a deeply disruptive company and it is disrupting an ancient and flawed business model with a very smart strategy and technology. But there is a HUGE so what. As far as I can see it is only a company. There is nothing about Uber’s business model that guarantees or even makes more likely a sharing/collaborative economy. Again, Uber is intentionally NOT sharing as an essential aspect of their profit motive.
The criticisms in this article are just like those that have been levied at AirBnB. Again, brilliant and disruptive business model.

The interesting thing about AirBnB is that there were actual home sharing businesses in place already and I have used several of them. My all time favorite is VRBO. Talk to renters on these two platforms and you will find that they like VRBO and don’t like AirBnB with the exception that AirBnB seems to get them more attention but at a greater cost. And what about my favorite – house swapping! We are going to Ecuador for a month this summer because some one in Ecuador wanted to come here. I pay a yearly fee to the house swapping service and they provide some technology to facilitate the connection. That’s sharing! Add in the fact that we paid for the plane tickets with and alternative currency (airline miles), we have an extremely valuable opportunity and a radically reasonable price.

Interesting to note that the language of the movement is moving from “sharing economy” to “collaborative economy”. What it comes down to for me is, how do we know – by what measure, by what logical framework – how do we know that this disruption is not just email disrupting snail mail but is the disruption it is touted to be. Their must be measures or logical frameworks that demonstrate not just greater net value to the sharer/collaborator but greater agency leading to greater equity for participants in the collaborative economy. This is not a new criticism but the current examples of collaborative economy success are really not very interesting – great companies, maybe even well run etc – but not disruptive to our wealth maximizing rapacious capitalist economy.

I’m probably wrong about all of this, or asking too much, but I am some one who tries very hard to pay close attention and I’m generally a bit of a fan boy about this stuff. My impression is the old stuff (VRBO, House Swap, Transition Network, Barter, love…) was better than this shinny new techno-stuff.”

Here is an extended excerpt of the original article: How Ubers Algorithmic Monopoly is Destroying Open Cab Markets

Matt Stoller writes:

“It’s important to recognize just what Uber actually represents. Uber started out named UberCab, and ‘uber’ is a German word which means ‘over’ or ‘better than’ or ‘the ultimate’. So UberCab meant, the ultimate cab. At the core of Uber’s strategy has been lobbying and advocacy to make sure that it can get into regulated cab markets. And this is so Uber can ‘disrupt’ and destroy them.
A healthy cab ecosystem relies on expectations of a market (with price-fixing by political authorities, mostly taxi commissions). There have to be people trying to hail cabs, and cabs driving around to find customers. As more people use Uber, there will be fewer people trying to hail cabs, and fewer cabs picking up people, which will lead to reduced expectations cabs will be available, and so on and so forth. Gradually the ‘open cab market’ will be displaced by a closed Uber service. I’ve already noticed it’s harder to hail cabs where I live, capacity is often taken up by Uber riders.

Open cab markets aren’t gone, but they will die eventually. They will go the way of open cattle, pig, and chicken markets, which mostly don’t exist anymore due to concentration in the meat market (read The Meat Racket for a great understanding of what happens when markets are captured by big business).

Uber’s ascendance hasn’t come without controversy. A lot of people are focused on the company’s use of surge pricing, which is when the company charges more money to customers because there is ostensibly high demand, such as during snowstorms or during New Year’s eve. It’s a controversial practice, to say the least.

The CEO of Uber, Travis Kalanick, has responded by basically saying ‘deal with it, it’s market-pricing.’ His argument is that higher pricing brings more drivers into the market, matching supply with demand. It is the optimal way to get as many people home as possible.

His argument, though, is phrased somewhat oddly. Kalanick notes “we are not setting the price, the market is setting the price.” But then, non-ironically, immediately adds “we have algorithms to determine what that market is.” In other words, the prices his company sets in the markets that his company controls are somehow, well, natural. So complaining about this is like complaining about the rain.

This is, of course, absurd. Uber is aiming for an algorithmic monopoly, control of a market through contract pricing. That the contract pricing is done with a complicated algorithm doesn’t make it a market, it just makes it complicated. Standard Oil would love this rationale.

There are three big issues with Uber’s model.

One, Uber controls all of the information in this so-called ‘market’. One of the premises of a market is relatively balanced information on the part of both the buyer and the seller. But Uber is neither a buyer or seller, it’s a broker. And as a broker, it shows the buyer and seller only what it wants to. Its algorithm is not regulated nor is it transparent, so neither the buyer or the seller has any credible information. This isn’t a market, it’s a monopoly. It’s a special type of monopoly, an algorithmic monopoly. It may mimic market-style pricing, or it may not. That’s up to Uber.

We’ve already seen that Uber withholds supply to drive up prices, as illustrated by a text message encouraging drivers to stay home so pricing would surge. Uber denies doing this, but even the denial proves the point that Uber absolutely controls all aspects of the ‘market’.

…

“The company wanted to reward new drivers….” But wait, how is ‘rewarding drivers’ consistent with market pricing? Markets don’t reward anyone, they simply clear at a price. So the answer is, it’s not a market, it’s contract-pricing controlled by Uber.
Right now, the only competitive force working to constrain Uber is the open cab market (well there’s politics, but that’s being swept away effectively). As this disappears, will Uber’s algorithms, aka the magical market, adjust as well? I think we can count on it. Uber believes in supply and demand, and when Uber is the only supply, well…

The second problem is simpler to explain. Cab drivers have a history of discrimination, whether it’s not picking up African-Americans or refusing to go to certain neighborhoods. Uber solves this problem, as Latoya Peterson explains in Racialicious. Here’s a sample comment.

A good example of race, class, and gender intersecting and the cost of racism and sexism. As a black woman I don’t get discriminated with Uber and feel safer than hailing a cab since my ride is tracked but if I couldn’t afford Uber, oh well. I take Uber all the time and have never been sexually harassed or treated rudely like I have the many times I’ve taken cabs in DC over the past 10 yrs.
Getting rid of racism is a good thing. But in eliminating one problem, this service introduces another. You have to have a smartphone and credit to use Uber. As Uber displaces the regular cab market, racism as a screen for cab drivers will decline. But the new screen, which will be contained in the magic market, aka Uber’s algorithm, will be whether you have a credit card and a smartphone. That means you can’t give someone twenty dollars for cab fare. It means that an entire slice of the population simply can’t get into Uber’s magic market.

And three, Uber is quietly gaining enormous power, almost feudal power, over its drivers. Remember, Uber wanted to ‘reward’ drivers with a great paycheck. This works both ways. Are you an Uber driver who is complaining too much about Uber stealing your tips? Well, gosh, it seems like the magic algorithm keeps giving you bad customers. Or no customers. Or think a few years down the road, when there is nothing but Uber in certain localities. Then Uber can raise prices on consumers, who may have other options and can squeal. But it can also lower prices paid to drivers, and these drivers are dependent on Uber for their livelihood. In fact, Uber is even starting a financing program for its drivers, so they can get loans for cars.

Remember, the customer doesn’t even pay a driver, the payment goes through Uber. What are these drivers going to do when Uber totally controls the market? Sue? Ha, not if they want the algorithm, I mean the market pricing, to ‘reward’ them. And let’s be clear, when a company offers low cost financing for capital investment for independent contractors and controls all aspects of the transaction and customer relationship, these are no longer independent contractors. They are employees. Only in this case, they are employees who have taken on debt to work for Uber. Uber has figured out that it is cheaper to trick people into thinking they are independent contractors and get them to risk their capital. Then Uber can happily take the profits. I guarantee you, if Uber thought its capital would be best used to run a fleet of cars, it would simply hire people straight out to be drivers. That it’s not doing that suggests something.

Uber is a fascinating and convenience-inducing shift in urban logistics, for now. I’ve used it. But what the company is really doing is supplying a governing service, replacing taxi commissions, and taking a fee for doing that. This means no input from the public, and since the public seems to hate politicians these days, maybe that’s what people want. But still, to the extent that there is interest in democratic decision-making, algorithmic monopolies are something antitrust authorities should watch. Right now Uber is wringing a lot of inefficiency out of the taxi industry. But eventually it will have so much power that it will introduce problems of its own.”