Britain does not need this new wave of Brexit uncertainty Posted by David Smith at David Smith's other articles My regular column is available to subscribers on www.
For more background on how the Washington Post smeared Naked Capitalism along with other established, well-regarded independent news sites, and why this is such a dangerous development, see this article by Ben Norton and Greenwald and this piece by Matt Taibbi.
Our post gives more detail on how we plan to fight back. By virtue of steamrolling local taxi operations in cities all over the world, combined with cultivating cheerleaders in the business press and among Silicon Valley libertarians, Uber has managed to create an image of inevitability and invincibility.
How much is hype and how much is real? As transportation industry expert Hubert Horan will demonstrate in his four-part series, Uber has greatly oversold its case. There are no grounds for believing that Uber will ever be profitable, let alone justify its lofty valuation, absent perhaps the widespread implementation of driverless cars.
Lambert has started digging into that issue, and his posts on that topic have consistently found that the technology would be vastly more difficult to develop and implement that its boosters acknowledge, would require substantial upgrading in roads, may never be viable in adverse weather conditions snow and rain and is least likely to be implemented in cities, which present far more daunting design demands that long-distance transport on highways.
The Economics question ride company provided pages of verbiage, but would not provide its net income or even annual revenues. By Hubert Horan, who has 40 years of experience in the management and regulation of transportation companies primarily airlines.
Horan has no financial links with any urban car service industry competitors, investors or regulators, or any firms that work on behalf of industry participants. Economics question is currently the most highly valued private company in the world.
Uber hopes to earn billions in returns for those investors out of an urban car service industry that historically had razor-thin margins producing a commodity product. For Uber or any other radical industry restructuring to be welfare enhancing, it would have to clearly demonstrate: Unlike most startups, Uber did not enter the industry in pursuit of a significant market share, but was explicitly working to drive incumbents out of business and achieve global industry dominance.
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While most media coverage focused on isolated Uber product attributes, or its corporate style and image, this series will focus on the overall economics of Uber, using the approaches that outsiders examining industry competitive dynamics or investment opportunities typically would.
The vast majority of media coverage presumes Uber is following the path of prominent digitally-based startups whose large initial losses transformed into strong profits within a few years.
It is also contradicted by the fact that Uber lacks the major scale and network economies that allowed digitally-based startups to achieve rapid margin improvement. The financial tables below are based on private financial statements that Uber shared with investors that were published in the financial press on three separate occasions.
The first set included data forand the first half ofalthough only EBITAR before interest, taxes, depreciation and amortization contribution was shown, not the true GAAP profit that publically traded companies report. Exhibit 1 summarizes data from through the first half of Exhibit 2 shows the GAAP results for the full year ending September based on the published numbers and an estimated quarterly split of published 2nd half results.
Exhibit 3 compares first half results to results. If rapid growth could not drive major margin improvements between andthere is no reason to believe that Uber will suddenly find billions in scale economies going forward.
Fundamentally digital companies like Amazon, EBay, Google and Facebook had massive operating scale economies because the marginal cost of expanded operations was close to zero. Aggressive pricing fueled the growth that drove major margin improvements and also created major consumer welfare benefits.
By contrast, in the hundred years since the first motorized taxi, there has been no evidence of significant scale economies in the urban car service industry.
That explains why successful operators never expanded to other cities and why there was no natural tendency towards concentration in individual markets. None of these costs decline significantly as companies grow. Uber China may have lost a lot of money but those losses are not included in or are not material to the losses discussed here.
Uber China did not begin operating until and operated under a separate ownership structure prior to its sale to Didi Chuxing . Uber Global only had a minority shareholding. The press has reported numerous unsubstantiated assertions that Uber was on the verge of profitability, or that operations in individual markets were profitable.
There have been hundreds of articles claiming that Uber has produced wonderful benefits, but none of these benefits increase consumer welfare because they depended on billions in subsidies. Uber is currently a staggeringly unprofitable company.
But this financial evidence, while highly suggestive, cannot completely answer the question of how an Uber-dominated industry would impact overall economic welfare. The next articles in this series will examine the critical questions of cost competitiveness and industry dynamics.
Could Uber ever produce urban car services as efficiently as the incumbent operators it has been driving out of business? Do the billions that the capital markets have invested in Uber and similar companies reflect a reallocation of resources from less productive to more productive uses?Related links.
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Until the early s, India was a closed economy: average tariffs exceeded %, quotas on imports were extensive and there were restrictions on foreign investment.