| That's what people mean when they say "the market sets the price". I know that that's what people mean. What I'm saying is that people are making a mistake by not looking at the mechanism of how "the market" works. Let us compare two worlds. World A is our world, where Uber sets the price for its drivers and passengers. World B is a world in which drivers and passengers place bids directly. Let's say that drivers' bids contain a basis price + per-km price as well as the range within which they are willing to travel, while passengers' bids contain start and end point and maximum price (perhaps with the possibility of saying "market price"). Uber then matches those bids when they cross in a manner similar to an exchange order book. What I understand from your comment is that you believe that the price for a ride in world A will be equal to the price for a ride in world B. That seems like a rather bold claim that requires an extraordinary argument to back it up. And no, the "if Uber sets prices too high/low in world A, passengers/drivers would move to competitors" argument is not sufficient, because nobody really knows what the "correct" price is exactly (what does it even mean for a price to be objectively correct? [0]). So there is a range of prices in which the loss of passengers or drivers would happen rather slowly or not at all. Where does the choice of the exact price within that range come from, and why should it be the same in both worlds? Why shouldn't Uber be able to exploit this uncertainty to increase their revenue by a few percent? Mind you, I don't know whether this would benefit drivers or passengers relative to a different world. The key point is the question of whether the worlds are the same or not - and if they're not, then it's problematic to claim that "the market" sets the price. [0] Yes, yes, it's the price where supply and demand are balanced. But how are supply and demand formed in the first place? Conceptually, people ought to have beliefs such as "a ride from A to B is worth X to me". But even if people have such beliefs, those beliefs are necessarily based on what the previously observed prices are. So at best, you get a feedback loop that goes like: observed prices -> people's beliefs about what prices should be -> supply and demand -> observed prices. They who control the mechanism that outputs the observed price are in a rather special situation to (attempt to) manipulate this feedback loop in their own interest. |