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Comment by erispoe | Hacker News Reader

Network effects don't accumulate to a natural monopoly in this case. Yes you need a fleet large enough to get to a sweet price / waiting time optimum, but each new car in your fleet has a diminishing marginal effect.

You could say exactly the same for airlines: there's network effect. Each new plane allows your to fly more rotations, have more frequent lines, open new routes... The reality is that most people take decisions based on price.

We know most people are pretty bad at valuing their time, and even so, waiting a minute more for a cheaper service is something people will do for sure. As long as you're below an acceptable waiting time for your car, you can compete on price.

I'm curious about how Uber will avoid being a commodity just like airlines are.

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Each new car in your fleet has diminishing marginal effect to a passenger, and has negative effect for the other drivers. And you need to compete for both drivers and passengers.

This is why Uber and Lyft end up in driver subsidy cost wars.

Interestingly, the negative effect part is wrong for carpools, but that is not Uber's primary business (I'm assuming carpool drivers would rather be passengers)

That inflection point happens after you have a _lot_ of cars on the road, much more any new entrant will commit. It's equivalent to saying the power company gets diminishing returns from additional supply after they've built enough capacity to meet current demand. No one but the natural monopoly actually gets to that point.

That's a possibility. I'm not sure it's true. Both Uber and Lyft have good waiting times right now. The hypothesis that they will replace privately owned cars supposes that the market will grow immensely.

Waiting time is a function of: number of cars, size of the city, number of customers (to ignore congestion for now...) To have a good start as a new entrant, it's just a property of the size of the city. Then, you need to grow your fleet with your number of customers to keep waiting time constant. That number of cars to start with, the barrier to entry, is a tiny portion of what you need to add to keep up with demand.

If you don't have to compete with drivers, with autonomous cars, it's not that hard to meet and start a price war.

Again, I don't see how Uber will avoid being squeezed out of their margins the way airlines are. It's not cheap to start an airline, yet many people have done it. And all you need is 3 competitors to drive prices, and margins, down.

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