When ride-sharing titans like Uber and Didi collude, it is the customer who loses out

PUBLISHED : Saturday, 17 March, 2018, 10:35pm
UPDATED : Saturday, 17 March, 2018, 10:35pm

So Uber’s planning to exit Southeast Asia and leave the ride-sharing markets there to Singapore-based Grab. Like its exit from China in 2016, it’s a win for the ride-sharing behemoths and a loss for the public.

That didn’t take long. Once SoftBank Group completed its investment in United States-based Uber, adding it to its stakes in Grab, China’s Didi Chuxing, and India’s Ola, it seemed only a matter of time before it calmed down the cutthroat competition in cities where they overlap.

One might have thought there were more subtle ways for the companies to talk about how to increase prices in their shared markets while still “competing”. Price wars were hurting them all. Uber burned through some US$2 billion trying to take on Didi before it quit in 2016.

But increasing prices while pretending to compete requires a business and some actual work, plus it’s illegal in most places, which is all a lot more hassle than just leaving the other guy to his monopoly and going home with a piece of his suddenly more valuable equity.

Who’s going to stop that?

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After Uber settled a US federal lawsuit brought by Alphabet subsidiary Waymo last month, Uber chief executive Dara Khosrowshahi “apologised”, saying: “As we change the way we operate and put integrity at the core of every decision we make, we look forward to the great race to build the future. We believe that race should be fair – and one whose ultimate winners are people, cities and our environment.”

He forgot motherhood and apple pie, but “the great race”? How’s it a race at all when you’re not running? If you’re No 2 or No 3 in most industries, you can still make money. But if you’re No 2 to Google, or Facebook, you’re dead. Who uses Bing to find MySpace?

Silicon Valley companies like Uber smother legal transgressions with smooth talk and keep going, as fast as they can, hoping they’ll kill the competition before the legal process catches up. What are a few fibs when you can be a billionaire?

But the winner of a winner-take-all platform needs switching costs to keep users on board. China put the rout to Uber’s strategy, where drivers often carried two phones and switched between Didi and Uber as they pleased.

Customers have no switching costs either. So it was hard to see a workable argument why a bunch of American tech bros were going to take a cut of fares paid by Chinese passengers to Chinese drivers in Chinese cars in China. Forever. Which the Chinese figured out quite quickly, as have other markets that have jettisoned Uber.

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That doesn’t mean markets are working, though. Local governments may have a hard time dealing with the global consumer protection challenge presented by SoftBank’s ride-sharing companies.

Common SoftBank ownership has the potential to create “winners” through negotiated exits from markets, not competition. Stopping this kind of coordinated suppression of competition across international borders raises the question of which government is watching out for which consumers. If Uber leaves Singapore or Manila tomorrow, what can the local governments do?

They can’t demand that Uber stay. And even if they regulate the remaining “winner” as a monopoly, consumers are still worse off than they were when multiple competitors were blowing billions trying to be the last one standing in a competition of foolish tech whizzes with flawed strategies but lots of cash. Some race.

Robert Boxwell is director of the consultancy Opera Advisors