Now we know why car-hailing app Uber raised a whopping $US1.2 billion in funding — It’s starting a price war with its rivals.
It announced in a blog post Monday it will cut the prices of its UberX service in New York City by 20% — but it’s only for “a limited time.” Uber says this makes it cheaper to use UberX than taking a taxi.
It provided a comparison chart to show how much cheaper UberX will be for drivers commuting to various parts of New York City.
UberX, which is Uber’s cheaper service usually hosted by regular people driving basic sedans rather than fancy black cars, also cut its rates by 25% last week in the Bay Area, including San Francisco, San Jose and Oakland. As a result of that announcement, Uber said its service was effectively “45% cheaper than a taxi.”
Consumers like Uber’s aggressive pricing strategy, but its competitors — and even some of its own drivers — are not as happy. Uber drivers have complained about price cuts, arguing they actually work for less than minimum wage since. They have also said Uber’s rating system is inherently flawed and unfair, since drivers that receive bad ratings from their passengers — with any reason, or none at all — can get booted from the service without warning.
Even though the price cuts are temporary, one wonders what would happen if Uber tried price cuts again in the future since the drivers are the ones who suffer from lower costs. It’s an interesting model, but its sustainability remains a big question mark for the disruptive car service.
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