The growth of ride-sharing services such as Uber and Lyft has generated much discussion in the...

The growth of ride-sharing services such as Uber and Lyft has generated much discussion in the news. Drivers operate as independent businesses, working as many hours as they choose and earning a portion of the fares set by the company. However, during periods of high demand, the market price increases (such as “surge” pricing by Uber). Which of the following is not a reason why ride-sharing companies share the characteristics of a perfectly competitive industry?

a. There are no barriers to entry.

b. Drivers do not have control of the prices.

c. The supply of drivers is determined by the marginal cost incurred by each driver.

d. Uber's supply curve is nonexistent because the supply curve for perfectly competitive firms does not exist.

Expert Solution

Uber seems to be satisfying all the conditions of the perfectly competitive market except the supply curve. Note that the supply curve of a perfectly competitive firm is that portion of its marginal cost curve that lies above the minimum of the average variable cost curve, however, Uber's supply of cabs at any point in time does not seem to be determined by the marginal cost curve that Uber faces. It is rather based on no. of drivers that are present in a certain area. Note that, unlike perfect competition, where everyone is producing, Uber drivers may not be available all the time, meaning supply is surely not dependent on marginal cost rather more dependent on individual driver's circumstances.

Thus, The reason why ride-sharing companies do not share the characteristics of a perfectly competitive industry is that the supply of drivers is determined by the marginal cost incurred by each driver.

Option C is the correct answer

Rahul Sunny answered 2 years ago

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