Question

Lyft, Inc. is an American ridesharing platform that is a direct competitor of Uber Technologies, Inc. in the US market. Using Lyft as an example, explain the importance of network effects for business success in the presence of a competitor. Why did Lyft manage to successfully enter the US market for ridesharing and compete with Uber, i.e., why is ridesharing not a dominant firm industry? Explain by referring to concepts such as multi-homing costs, network effects and product differentiation.

Answer 1

In Lyft which is an American ridesharing platform that is a competitor of Uber technologies in US market, Lyft uses network effect for business success. The mean of network effect that it plays a major role in the success of the organization's marketplace business. It helps in increasing the customer base, markets share, and overall value proposition of product or service which helps in scaling the business and generating increment in profits.

It provides some benefits as if the network grow at a larger rate, the cost increases and the value of product or service grows faster, increase customer base, market shares and profit. By these benefits, if provide a better lead for an organization like Lyft from competitors like uber.

Lyft manages better than Uber by little higher fare in ridesharing than Uber that provide benefits for Lyft drivers, it provides better income compare to the Uber driver and increasing in taxi more customer attend Lyft cabs.

Ridesharing is not dominant for the film industry because in ridesharing stranger people meet each other and affected customer claims for money, it affects the profitability of the organization.

Multi-homing costs imply the cost of maintaining a presence on multiple platforms at the same time. Multi home costs in all markets as a social network, internet search. So not useful in revenue by ridesharing.

Network effect provides competitive advantages but decrease efficiency and hampered due to congestion leads to slow down and sometimes even decrease with relative value.

Product differentiation gives impact on ridesharing which is used to distinguish a product or service from similar products or service provider but in ridesharing, it is not dominant because revenue increases are not guaranteed, perceived value can decline or decreases, and strain resources of service.

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