Are ride-hailing firms an oligopoly?



Are ride-hailing firms an oligopoly?

Uber and its peers have disrupted the traditional taxi business model. FILE PHOTO | NMG 

For any rider who uses Uber, Bolt (formerly Taxify) or Little Ride, you will notice that drivers from these three leading ride-hailing apps operate all these three apps.

These three-leading ride-hailing companies seem to have allowed their onboard drivers to also work with their rivals, basically they share the same of pool of drivers – a very curious phenomenon for any business economist.

Chat with the drivers and they confirm that it’s tough to survive in the ride-hailing business by sticking to one app only. The market seems segmented; every app has its own peak for business traffic, so having the three helps you balance your trips’ cost.

For example, one driver claimed that there are areas where one app is dominant, so you may pick a rider on Uber and make a drop-off but Uber isn’t dominant in that area so you switch on the other apps to find a rider who will give you business that will get you out of that area.

Away from the retail side moving to the corporate side, the market is dominated by Little Ride and according to the company’s general manager they controls 70 per cent market share, so for any ride-hailing driver you will need to be on board on Little Ride’s app so you are not left out of that lucrative market.

From an economic standpoint, this looks like a rising oligopoly (three companies control a market) which always limits or blocks competition from new entrants allowing the dominant companies control prices and the market itself. And any rising oligopoly always calls for counter regulation because of the danger of collusion.

So, I set out to understand the dynamics of this market, if indeed there is a rising oligopoly, and I looked for former country head of Taxify and Little Ride’s current general manager, Alex Mwaura.

For Alex, he holds the contrary view that there is no rising collusive oligopoly which was expected since he is one of the players in the oligopoly equation, though he shared some insights which were intriguing.

First, he is of the view that the three ride-hailing companies have just broken the ice of an untapped market for many entrants to come through that door and so far they have only tapped 10 percent of the potential.

There is a huge untapped market out there and so it would be pre-mature to say that there is a rising oligopoly.

This argument is contestable and only time will tell but the fact that the three leading companies sharing the same pool of drivers from a demand responsiveness perspective means that there is limited scale – riders/customers are not as many for companies to lock in drivers within their app only.

Second, the market is nascent and amorphous to make such conclusion. Uber came into Kenya in 2015 and were the only player, followed by Taxify which came in a year later and in one and a half years they were competing head-to-head with Uber.

Little Ride came in later and now has 70 percent markets hare of thecorporate sector. So, the market is still ripe and shaping to lay claim of a rising oligopoly.

Third is that price modelling differentiates them, though it mainly differentiates Little Ride from its competitors.

Price war is one of the main factors used in determining prices but for Little Ride it prices by estimating the cost of the trip pegged on the sustainability of the drivers returns.

At the entry level stage, ride-hailing companies price using cost of trip so as to satisfy drivers and have more on board then change the pricing model to earning per hour which is about pushing for more turnovers.

From my conversation with Alex, it many be pre-mature to make the conclusion of a rising collusive oligopoly but the threat the three leading companies pose to new entrants is real. A follow-up conversation with a new entrant will be appropriate to provide a better picture of the sector.


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