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Lyft, an on-demand transportation company. Not a common name in
Amsterdam, but a booming company in the United States. Car drivers with a Lyft
plate on their dashboard are driving through more and more cities in America.
You can order a ride whenever you need one, meanwhile Lyft’s slogan. In
November 2017 Bloomberg posted an article about their growing market share in
the United States: “Lyft Inc. has gained
significant ground on its rival, Uber Technologies Inc., and is expected to
grab more market share in the U.S., according to a private Lyft investor document
obtained by Bloomberg.”- (Bergen & Newcomer, 2018). The
article states that Lyft keeps expanding and that it could be a serious
competitor with Uber in the United States.

But as many other peer-to-peer start-ups,
Lyft faces some regulatory and legal issues. The most important criticism is
coming from the taxi industry. Due to the upcoming ridesharing start-ups which
offer rides that can be ordered by a mobile app, increasingly more people are
making use of this handiness at the expense of the regular cab (Orsi, 2013). American cities are being
deluged by network transportation companies. The famous yellow cabs in New York
will slightly disappear and make room for ordinary cars. That is the reason to
examine in this essay which role Lyft plays in the sharing economy and whether
it has influenced demand of the U.S. taxi market. In this essay, the definition
of the sharing economy will be used that is discussed in “An App for That: Local Governments and the Rise of the Sharing Economy”
(Bond, 2015): the sharing
economy is a microeconomic system built around the utilization of unused human
and physical resources. For example, in this case, the average car is only used
eight percent of the time. This unused resource creates an opportunity for the
sharing economy. Due to the rise of digitalization and upcoming mobile phone
applications, it is possible to connect these untapped resources with
consumers. At this way, ride-hailing companies such as Lyft are making use of
the sharing economy to provide consumers with their services.

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At the end of this essay, the reader will
have an answer to the following question: To what extent has the transportation
company Lyft caused a change in demand for the taxi market in the United
States?  This is a very present topic in
our vibrant society, because of the fact that every day more capital is
invested in this company and taxi drivers around the country are noticing a
changing street view.

To answer the central question of this
essay the chosen methodology was to make use of a literature review. Scientific
articles that have been read will be elucidated briefly, followed by
conclusions from the articles in relationship to my central question. The main
topic of this essay is particularly chosen to look further into the relationship
between the use of the sharing economy and in what way it can affect an
industry, in this case, the taxi industry

To start with, the reader will be provided
with general background information in which, among other things, there is
going to be an explanation about how the booking process of Lyft works and how
their business model looks like. In the second section, there is a global
sketch regarding the situation of the taxi market before Lyft was established
and how Lyft after 2012 influenced the taxi market with the use of academic and
empirical papers. A few big cities will
be targeted to show the impact on Lyft on the taxi market in the United States.
At the end of the second section, there will be given a hypothesis. In the last
part of this essay, the reader will be given a joint conclusion from all the
discussed articles and by that an answer to the central question.

 

     
I.        
Theoretical
framework

 

General Background

Lyft is based in San Francisco, California. Since its establishment in
2012 Lyft has now been operating in more than 300 cities in the United States.
In 2016 Lyft recorded a total of 160 million rides and it provides since the
summer of 2017 one million rides a day. The market share in the United States
of Lyft is approximately 25% with Uber as their biggest competitor. The
founders of Lyft are Logan Green and John Zimmer. They started in 2007 a
ride-sharing company called Zimride, focussing on college campuses. In may 2013
they changed the name to Lyft and their focus shifted to ride-hailing within
cities.

Lyft is a transportation company which
offers customers a ride from point A to point B. Lyft is matching supply and
demand for taxi rides on a digital platform. Drivers and customers are using
the same mobile app to make use of the services of Lyft. Via this matching
system, Lyft is contributing to the sharing economy. The main idea is to
connect the driver with the consumer in order to fulfil each other’s needs; the
drivers want to earn money and the passengers wish to go toward their
destination. When opening the app, the driver selects in the top right corner
the steering wheel icon. In this way, he activates the driver mode. At the moment
the driver receives a request, he only gets fifteen seconds to accept this
before another Lyft-driver will be given the passenger. Next, when the
chauffeur picks up a customer he has to select the ‘Tap to Arrive’ button and
from now on the passengers’ ride and bill timer start. After the ride is
finished, the Lyft app gives the driver and passenger the option to rate each other
on a 1 to 5-star basis. The rating system is an important tool in Lyft’s
business model because this gives the company a clear view of the people who
are working for them.

            The ride-hailing
service charges a 20 percent commission fee on the drivers’ earnings. The
additional 80 percent goes directly to the driver. Drivers of Lyft are getting
paid on a minute and mile basis and customers can tip them if they want. There
is a choice between a $1, $2 or $5 tip. The company also makes use of a bonus
system. During peak hours, drivers can earn an extra bonus if they finish a
streak of rides within a certain amount of hours (Lyft Inc., 2017)

Lyft has been one of the fastest growing
companies of the United States and is valued at $5,5 billion. To accomplish
this, they have a solid business plan. To become a driver at Lyft you must be
21 years old and at least have been in possession of a driver license for one
year. Besides that, you have to own an IPhone or Android phone to make use of
Lyft’s mobile app. The driver will undergo a criminal background check and a
driving record check. When it seems that drivers do not meet the standards of
Lyft, they can be declined to become a driver.
            When
drivers have delivered a passenger, their money will be transferred to the
driver’s Lyft-account. The chauffeurs are getting paid weekly, in favour of the
fact that the drivers do not have to wait a whole month to receive their money
from the services they provided.

            Lyft offers three ways
of travelling: Lyft, Lyft Plus and Lyft Line. The first category is the basic
form of travelling by a five-seater car, this is the most popular request according
to Lyft. When a consumer wants to order a ride with a bigger group it is
possible to request a ride with Lyft Plus. This is most of the time a
seven-seater car. The last type of transportation is Lyft Line. Lyft Line is
the cheapest option of travelling with Lyft. It matches passengers that are
going to the same destination on a pre-specified route. It resembles public
transport, but the difference is that the ride will be realised by Lyft.

Besides that, Lyft is making use of
dynamic pricing. This is in contrast with the fixed pricing in the traditional
taxi industry, based only on time and distance. Lyft is working with a base
rate price system, but when quantity demanded exceeds quantity supplied it can
happen that prices will rise. This will be determined by the mobile app’s algorithm (Horpedahl, 2015). This
system provides a stimulus for both drivers and customers. Because for drivers
it is attractive to drive during those peak hours or to go the specific busy
neighbourhoods (Hall, Kendrick & Nosko, 2015). On the contrary, for customers, it is an incentive
to avoid travelling during the peak hours. Another aspect of dynamic pricing is
the fact that drivers and customers don’t need to know why the price increase
is happening, but the system causes them to act in a way that is socially
beneficial accepted. This resembles the theory of Hayek (1945) in “The Use of Knowledge in Society”, where he describes the
fact that we don’t need to have access to all knowledge
to make the right decisions; the price is sufficient since it gives us exactly
the information that we need.

 

Discussion
In
this part of the essay, academic papers will be discussed to examine the
influence of Lyft on the demand of the taxi market in the United States.

In the beginning of the twentieth century, the
New York Taxicab Company started to buy taxicabs from France with a gasoline
engine. They imported around six hundred cars, but this could still not make a
big difference in the streets of the city. After twenty years the taximeter was
introduced in the cabs. From that point, it was possible to charge the miles
travelled and the time that had passed by. The taxi industry was thriving, but
at that time it was especially something for the wealthier people due to the
high price per mile. During the “Roaring Twenties” in America, the famous black
and yellow taxicabs appeared on the streets. Due to the rising popularity of
the taxi, it led to negative results as well. Cab drivers suffered from
unethical employment practices and customers were conned by unauthorized
drivers. To avoid such practices, the municipality of New York insisted to
paint all taxi’s yellow in order to recognize the officially declared taxi
drivers from the unauthorized drivers (Bond, 2015).

            The
taxi industry has experienced a massive growth since its introduction in
America at the end of the nineteenth century. Research of Bond (2015) shows
that just in New York City there are more than 40,000 drivers and a total of
12,187 taxis. More than 200 million passengers are being transported over
almost 800 million miles per year. With an annual revenue of more than $11
billion dollars, the taxi industry is a vital element in the American society (Isaac,
2015). The status quo of the industry remained unchanged until, in 2009, a
transportation company named Uber changed it all. Followed after Lyft’s
entrance in 2012, the taxi industry was switching to a new era with full
completion of the digital market.

            The
cab drivers in New York are working with a medallion system. Medallions are
permits for cab drivers to have the right to pick up passengers. Without such
permit, it is illegal to pick up passengers. In 2010, the price of one
medallion cost around 1 million U.S. dollars. But due to the upcoming on-demand
ride services, the prices of those medallions fell. The demand in the taxi
industry happens to be lower than a few years before, because seven years
later, in March 2017, a taxi permit was sold for $300,000; a price fall of 70%.

In San
Francisco, the birthplace of Lyft, the taxi industry has experienced a great
impact on this new ride-hailing company. Hara Associate Inc. (2014) claims
that the Municipal Transportation Company of San Francisco recorded in 2014 an
average of 504 taxi rides per month, in contrast to 1,424 trips per month in
2012. The San Francisco taxicab industry underwent a 65% drop in usage in just
two years.

In contrast to
New York City and San Francisco the capital of the United States has experienced
a less severe impact on their taxi market (Cramer & Krueger, 2016).
Washington, D.C. took a relatively free approach to embrace ride sourcing
companies like Lyft. The cab industry in this city is not regulated via de
medallion system as dealt with in New York. According to an article in the
Washington Post (Badger, 2014), the District of Columbia seems to have
the freest transportation market in the country. When the city’s council
approved the Vehicle-for-Hire Innovation Act four years ago the council
encountered a lot of criticism from taxi drivers. The Act allows free play for
the digital transportation companies, whereupon the cab drivers found that
those firms would gain an unfair competitive advantage. The drivers fear that
Lyft can charge cheaper tariffs since they are not obliged to follow the same
regulations and rules as cab drivers.

A study (Rayle,
Shaheen, Chan, Dai & Cervero, 2014) showed that Lyft and other on-demand taxi services
are seizing the opportunities with the upcoming digital generation. The
passengers of ride-hailing services turned out to be younger than users of
regular taxi’s. Waiting-lines were considerably shorter and more consistent as
well. In addition to this, the big controversy between this current digital
platform and the relatively old-fashioned taxi industry is the fact that
drivers of Lyft do not require a medallion or any other sort of authorization
to pick up passengers, because of the fact that they are not employees of the
company but independent workers. The biggest advantage when having independent
contractors is the fact that it will save the company a lot of money. For
example, when hiring an employee, it happens that the company will have to
train him to master a certain skill, but in the case of an independent
contractor those costs are eliminated.

The reason why
Lyft has succeeded to become such a transportation network company in the
sharing economy and successfully is competing with the taxicab industry is a
result of multiple factors (Isaac, 2015). One of the most interesting aspects
is that the company attracts workers that are found in a depressed labour
market. Arne Kalleberg (2000) describes the people who currently don’t have a job and are willing to raise their wage
by trying something different than before. She illustrates the transition from
the ‘age of security’ to the ‘age of flexibility’. The point is that
not only ex-cab drivers are willing to work for Lyft, but research (Friedman,
2014) shows that most of the independent contractors have lost their job in
the crisis several years before and are now ready for a new type of work area.
So, this has made possible the substantial growth of Lyft and their ability to
compete with the cab industry and other ride-hailing services.

Hypothesis
So far, based on
papers on similar platforms we can conclude that the ride-hailing company Lyft
has influenced the taxi market in the United States. Research based on
different academic resources has shown to the provisional answer to the central
question in this essay that the upcoming digital era with app-based on-demand
taxi services has caused a decline in taxi usage. As a result of this, taxi
drivers expressed a lot of criticism towards those digital firms. But to tell
specifically to what extent the taxi industry has been influenced this
literature review showed some limitations.
            One
of the biggest restraints in this literature review is the fact that the
available collected data about Lyft was very limited. Due to the competition
with Uber, it was very hard to find academic resources that were only based on
Lyft. Consequently, it occurred that a part of this literature review is based
on similar transportation companies. Besides, several academic papers discussed
the problem how disruptive those ride-hailing companies could be, but the goal
of this essay was not to find out that particular aspect. In order to get a
full-detailed research about is Lyft it is necessary to collect more data about
this specific transportation company. To emphasize the relationship between
Lyft and the taxi industry it is better to use a greater time span since the
establishment of Lyft was just five years ago. Another aspect is the scope of
the research question. The focus laid on the taxi market in the United States of
America, but to get a sufficient provisional answer to this there was chosen to
target on three big cities in the country which reflected the image of the
impact of Lyft.        
            Suggestions
for further research in order to get a specific answer to the central question
on Lyft in the U.S. taxi market could be to analyse more big cities where Lyft
has been introduced with more collected data than available at the current
moment. This will lead to a sufficient answer to the question whether the ride-hailing
service has influenced the taxi demand. Therefore, to give a possible outcome
on this new analysis a valid hypothesis will be that Lyft has caused a decline
in taxi usage in the U.S. taxi market.

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