It has been a big year for Uber and Lyft as both companies broke into new cities, raised new capital, and continued to attract media attention for disrupting the black car and taxi market. The year also brought about large price drops for both companies. Between January and February of this year, Uber rolled out a 15-34% price drop for its UberX service in cities across the United States and Canada. Lyft responded in April with a 20% price cut after raising a new $250M fund. Such significant drops have sent the media into a frenzy – they can’t stop reporting about this “intense war”.
I’m going to argue the opposite: Uber and Lyft are more likely working in unison rather than against one another. The “price war” is an illusion to fool one into thinking that the competition is hot, when in fact, Uber and Lyft are working hard to create their own ideal market. To better understand why this is the case, we need to look at basic game theory models.