Abstract
Because of their novelty, the rise of large platform companies, such as Uber, pose a genuine challenge to our attempts to classify and understand economic activities. This article utilises a broad view of cultural economics and subjectivist economic analysis to provide some clarity. We see how economic analysis is capable of dealing with companies that provide information based services, and why such industries are increasingly common. Goods, product categories and consumption rituals are all considered as social constructs, and subject to cultural interpretation. The main implication of this approach is how the prevention of exclusion and the elimination of entry barriers are both related and relevant to the well-functioning of market orders.
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Notes
See “Rules for fools”, The Economist, 14 May 2011.
Klamer (2016) provides a “value-based approach to cultural economics”, but in doing so demonstrates how stepping outside traditional economic subject matter remains speculative and hard to operationalise.
For example, Douglas and Isherwood (1979) point out that there are economies of scale from household production, for example specialisation, the proficiency from repeated tasks, bulk ordering, lower financial costs, and the network effects that result from reciprocity; not to mention the external economies of scale that result from better transport links (e.g. p.117).
I appreciate an anonymous reviewer for drawing this link.
In other words, a main part of the value of a taxi journey derives from being transported from one location to another. The taxi itself, is just a physical desideratum of the service being provided. Uber’s business model, compared to a traditional taxi company, makes it even clearer that this service is intangible, but is not any less meaningful due to the fact that they are not directly providing consumers with the use of a vehicle. The ownership of the vehicle is of minor economic significance, because the vehicle itself is not what is generating utility.
For Hayek (1945), prices are information. For Mary Douglas, goods are information.
An interesting application of this point is that for niche products the quality of a review matters greatly. But for mass market products the quantity (i.e. scope) of reviews (whether positive or negative) matters more. In some cases, the fact that a product has been widely reviewed (regardless of how critical) provides the validation that it is the type of product that the consumer is interested in. Also see Zuckerman and Kim (2003).
Of course, this wasn’t the only convenience that Uber, and other ride sharing apps have provided. They also dispensed with the need to establish the price, make a payment, and work out an appropriate tip.
See https://finance.yahoo.com/quote/UBER?p=UBER. Accessed October 11th 2021.
For a full list see https://www.uber.com/global/en/cities/. Accessed October 11th 2021.
This is in contrast to regulatory arbitrage which attempts to take advantage of discrepancies between existing laws, or lobbyists who attempt to protect the business plan from regulatory constraints. On the contrary, regulatory entrepreneurs “pursue lines of business knowing that changing the legal environment is crucially important for the business’s growth, or even it’s legality, and with the intention of effecting that change. Changing the law is not a side project, it is a material part of the business plan” (Pollman & Barry, 2017, p.393).
Regulatory entrepreneurship does not imply that such activities are a core part of the stated business plan. Garud et al. (2022) find “no mention of regulations in Uber’s initial pitch deck” (p. 454).
Indeed, Pollman and Barry (2017) contend that “the most successful regulatory entrepreneur’s chief source of political power is their army of activated users” (p. 448).
This quote is from a 2014 Vanity Fair profile of Uber co-founder and then CEO, Travis Kalanick, by Kara Swisher. See Swisher, 2014.
I appreciate the suggestion of an anonymous reviewer to draw this link.
Lyft are a similar ride sharing platform to Uber.
This would include things like minimum wage legislation or overtime regulations.
See Wright et al. (2019) for a discussion of an international framework that clarifies employee relations in the gig economy.
In employment law a “right to control” test establishes whether the hiring party can control the manner in which work is performed, an “economic realities” test establishes whether the worker is reliant on the hirer to earn their living, and an “entrepreneurial opportunity” test establishes whether the worker is able to earn extra money from taking risk and exercising their own entrepreneurial judgment. These are common ways to determine whether someone is a contractor (i.e. not controlled, not financially dependent on a single client, and able to exploit their own profit opportunities) rather than an employee (whose working practices are determined by management, are financially dependent, and earn more through longer hours rather than taking on extra risk).
This isn’t to say that there may be other reasons why governments wish to regulate markets. Our assumption here is that their aim is improving choice and quality for the benefit of consumers. If the goal of public policy is to protect jobs, to preserve traditional ways of working, or to reward and enrich specific groups then enacting barriers to entry would be good.
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Evans, A.J. Information, classification and contestability: a cultural economics approach to Uber’s entry into the taxi industry. Rev Austrian Econ (2023). https://doi.org/10.1007/s11138-023-00624-0
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DOI: https://doi.org/10.1007/s11138-023-00624-0