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Sunday, December 11, 2016

Why Uber Is an Economist’s Dream

Why Uber Is an Economist’s Dream - Freakonomics Freakonomics

"LEVITT: I love New York because it has amazing Pokémon Go stops and great creatures everywhere... Yeah, I love Pokémon Go.

DUBNER: Tell me why you love it so much.

LEVITT: I like it because it’s a lot like fishing, but then you don’t actually have to kill any animals and take the hook out after you catch them...

Economists don’t mind [the raising of prices before a hurricane] at all. Because what actually happens when a hurricane is coming is the hardware stores run out of batteries and flashlights, because they’re not allowed to raise prices, there is a run on the stores, people buy lots of flashlights and batteries, and then there are none left. And that, to an economist, is a failure, because what markets are supposed to do is to use prices to allocate things like flashlights and batteries to the people who are willing to pay the most for the flashlights and batteries.

So what happens in disaster situations, where there is a limited supply and no real way to get extra flashlights and batteries is that I go to the store and I buy way more flashlights and way more batteries than I really want or need just to be on a safe side. But then you, Dubner, you show up an hour later and they’re all gone. And you really need that first flashlight and you really need the batteries and they aren’t there for you. So that’s a breakdown of markets.

The other reason that you want prices to rise when there is lots of demand, let’s say a hurricane is coming. And it’s conceivable, that you and I, Dubner, as entrepreneurs and knowing that hurricane is coming, could start in New York, fill up our car with flashlights and batteries and we would drive to New Orleans with the hope that we could sell our flashlights and our batteries at a higher price. That’s great because the flashlights and the batteries are worth a lot more in New Orleans right before the hurricane than they are in New York. And if we were willing to take that trouble, it would be great for the people of New Orleans, even though they’d have to pay a higher price...

One of my economist friends Judd Cramer has written a paper, and using pretty simple economics, his conclusion is that the taxi cab drivers really haven’t been helped or hurt very much, which makes a lot of sense because essentially, there’s always been free entry to be a taxi cab driver. And with Uber, now there is another option for a taxicab driver. That if they have their own car or want to rent a car, they can drive Uber.

But the people who, without a doubt, are being absolutely crushed by Uber are the people who own the taxicab medallions. And there is just no way to get around that. They are the losers and that is the nature of a market economy is that when a new technology comes in that turns out to be a lot better for matching customers to vehicles to drive them around and that breaks the monopoly, that those people will lose and they will lose badly. And of course they will be very loud. Nobody likes to be the one who loses, but I think in this case, it’s really inevitable. It’s very hard to see any other future path other than medallions not being worth very much."
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