The Upstarts: How Uber, Airbnb, and the Killer Companies of the New Silicon Valley Are Changing the World

by Brad Stone

a second move helped to spark demand and was just as controversial. In early 2014, hoping to improve business during the annual winter slowdown, when people curtailed their nights out, Kalanick cut UberX fares by up to 30 percent in U.S. markets like Atlanta, Baltimore, Chicago, and Seattle.7 The theory was that if prices went down, customers would use the service more and bypass rental cars, public buses, and subways. With more passengers, drivers would spend less time idling between rides, replacing the lost income from the fare cuts by completing more rides. While the plan made sense, subsequent fare cuts would create unrest among drivers, and Uber would eventually have to reverse them in cities where lower prices didn’t spark higher demand. But it also accelerated the growth of UberX and, perhaps just as important, forced the less highly capitalized Lyft to introduce its own fare and commission cuts.8 Uber had discovered what startup gurus like to call the virtuous circle, the links between various parts of its business. Lower prices led to more customers and more frequent usage, which led to a larger supply of cars and busier drivers, which enabled Uber to further cut prices and put more pressure on competitors.

Uber cutting fares to undercut transit