If Uber and Lyft prices go up 1.5x to 2x, that suddenly means that in cities, taxis undercut them.

I'll let someone chime in who understands the taxi business financials better. But in my observations, Uber and Lyft are only slightly cheaper than taxis. If prices go up, taxi companies will cut into their profits.

I'll also say we (as a society) are very lucky that Lyft emerged as a real competitor to Uber. If one of Lyft or Uber had failed a few years ago, we'd be in a total monopoly situation by now, and "Uber" would have similar meaning as "Kleenex" or "Scotch tape" -- that is, there's only one kind of smartphone ride hailing service and everyone uses it. Maybe that was the play of both Uber and Lyft all along -- stay alive long enough to force the other out and get to monopoly well before autonomous vehicles enter. And they failed. Both are still alive. There is no one firm with a monopoly.

>If Uber and Lyft prices go up 1.5x to 2x, that suddenly means that in cities, taxis undercut them.

I'm sure it varies. I don't use them much when I travel but my perception is that they're maybe 70% or so of the price of a taxi. So not a huge difference but enough that I usually default to Lyft if there's no reason not to.

I agree about the competition. Though that's US-specific. Uber may operate under more regulation generally in Europe but I don't have a lot of personal experience.

"Uber and Lyft are only slightly cheaper than taxis"

A taxi from my home to/from the airport is $50-$55 with tip. Uber is $20-$25 non surge (which is most of the time). Before Uber, on an outbound I would always have a friend take me or drop me at BART. On the return, since the taxi is right there, I would take it about half the time.

Now I take Uber/Lyft almost all the time. I'm not sure what I'll do when/if Uber goes up to $50.

> If Uber and Lyft prices go up 1.5x to 2x, that suddenly means that in cities, taxis undercut them.

Taxis can't undercut them. Even if Uber were 2x as expensive, that would be ok because Taxis are 4x worse.

> Taxis are 4x worse

It really depends. One city I travel to fairly regularly, I tend to take Lyft because it's cheaper but I'm really indifferent to taking a cab vs. taking a Lyft for any other reason. In fact, I sometimes take a cab from the airport if there's no line and cabs just sitting there because it saves a few minutes.

Yes, taxis are generally bad in quite a few cities but it's not universal.

Many of the advantages ride sharing apps have can be used by traditional taxi services now, and there are a lot of places where taxis are fine, or more reliable than ride sharing. Taxis have their own advantages because of scale though. Lower cost maintenance with only fleet vehicles and from centrally managing maintenance, group rates for insurance, negotiating power when purchasing a fleet of vehicles. Longer term it takes either VC money, or drivers not factoring in depreciation and maintenance to stay price competitive with taxis.

The usefulness of the service is dependent on the volume. If a 2x price increase cut the volume of passengers dramatically, the volume of drivers would correspondingly fall, and the likelihood of pushing a button on your phone to summon a driver already in your neighborhood likewise falls proportionally. Perhaps to the point where the service is literally valueless.

None of this is to argue against the sustainability of the model, just to point out that no one has any idea what would happen. Network effects matter.

It's not that they aren't a useful service at whatever price level would bring them profitability at current sales levels as much as that the demand curve may be such that if they were to raise prices theyd lose at least enough sales that it might not bring them to profitability at any price point.

I.e. while someone earning $200K might decode they can afford $20 rides rather than $10 ones, someone making $50K might think differently. The "who cares" when people go back to riding the bus is Uber.

That's true. But there's a clear existence proof that there is a market for people willing to pay what it costs to drive them around. It existed before Uber and Lyft and it still exists alongside them. Certainly there's a price sensitivity curve but there's no reason to believe a national on-demand service like Lyft or Uber couldn't operate profitability in the absence of being undercut by VCs burning money.