How Uber Bursted Its Way into the Rideshare Market (behavioural economics) – Nafi Anaan ECO004

A decade ago if we needed a ride to somewhere, we’d call a taxi. But today, Uber is undeniably the main go to, for a trip somewhere. How did this happen? And furthermore, how did Uber utilise behavioural economics to achieve the number 1 spot in the rideshare market?

Uber now not only facilitates for customer transportation but also the deliverance of food worldwide and a micro mobility service in the US only. Uber’s market capitalisation is at just under $50 million and when Uber was at its peak in 2018, it recorded a 42.1% increase in revenue from the same time 2017, as well as also bringing in $1 billion in net income and $11.3 billion in revenue in 2018 (Stats from Investopedia).

The rise of Uber was initiated by consumer sovereignty, with the founders of Uber realising that the rideshare market was a pot of gold, with taxis was not only being expensive but at times inconvenient. By creating Uber, the public were getting a nudge to take the ‘cheaper and more convenient’ choice, an external influence on decision making using marketing and framing.

Uber is also perfect for the idea of bounded rationality. Bounded rationality is when the consumer cannot always make the most rational decision due to the availability of info, the complexity of the decision, the brain’s cognitive limits and time constraints. By contradicting the traditional economic man, Uber knew that riders wanted good accessibility, low prices and reliable service. All short, snappy influences towards their app. The availability of information and the complexity of a decision was within the idea that people do not know all about the rideshare market so by just making their app seem more accessible, they were already one step ahead and the peoples time and brain constraints made their brand the perfect choice.

So after placing their brand into the market, Uber continued to build revenue and attract customers using the vividness bias, where a person is more likely to make a choice when they hear about it from an external opinion and by also using the herd behaviour bias where people are more likely to ‘hop in on the trend’ of using Uber. Also, by making their service reliable and just, they could now also lure the customers into the status quo bias where people don’t want to switch back to taxis or switch to new rideshare services entering the market.

This has led to Uber being able to expand their brand and build their economy further and more importantly becoming the number 1 option in the rideshare market.