Discuss about the Uber Loophole in Regulatory System.
The car rental industry in Australia has become very popular in recent years. The demand for this service is increasing rapidly & the increasing demand for the service is certainly going to affect the market equilibrium condition. There are various factors which affect the demand & supply of different goods & services in the existing market. Changes in the demand & supply of any good or service leads to the changes in the price structure of the respective market. A balance between the demand & supply helps in maintaining equilibrium in the market. If the equilibrium in the market is disturbed, the market automatically restores the equilibrium with the help of market process (Newbold et al., 2012). In case of Uber which is a car rental company, is also affected by different market forces in the market. Sometimes the intervention of the government is required to bring equilibrium in the market. Different market forces & the intervention of the government intervention in maintaining equilibrium in the market has been described in the present study.
The car rental market in Australia is growing rapidly in the last five years. In value terms the car rental has increased by 4% in the year 2015 in Australia. This value is 1% more in comparison to the previous year. If we compare the number of transactions in case of the rental car, it has increased by 2% in 2015, in comparison to past years. One of the main reasons behind the growth of the car rental industry is the inflow of large numbers of tourists from other countries (Lubian, 2015). The willingness of domestic people to travel within the country has also increased. Both these factors have contributed in the expansion of the car rental market. Beside the car rental service few tourists also avail the packaged services. This lowers the demand of the car rental services among tourists as well as other individuals. In case of Uber it is slightly different from other taxi services. It uses improved technologies in comparison to other companies. It is operated with the help of mobile app. This facilitates the transactions & reduces the time of travelling in case of customers. One of the important facts in this regard is that the average spending of a customer in a single journey in Uber is much less in comparison to the taxis. The main reason behind this is the innovation & various business strategies.
In case of a market, there are different factors which affect the market condition of various goods & services. Demand & supply are two main determinants of market price. Demand & supply of any particular good or service are also dependent on various factors . In case of demand, it is determined by the price of any product or service, the income of people, tastes & preferences of customers etc. On the other hand the market supply of any product is determined by the price of the product, technology attached to the production of goods or provision of service, prices of different intermediary products or services etc. Changes in market demand leads to the shift in the market demand curve. If any of the above mentioned factors which determine the demand of any product or service leads to the shift in the demand curve. Changes in the price of products or service keeping other factors constant lead to the movement along the demand curve. Change in other factors causes shifting of the demand curve. Similarly in case of the supply curve also changes in supply determinant factors leads to shift in the supply curve (Gruel & Piller, 2016). Increase in the demand of any good or service compared to supply causes increase in the price of the good or service.
In case of Uber there are different determinants of the demand of the ride sharing service. These are the price structure of own service, price structure of other service providers, income of the people, tastes & preferences of people. Any change in these factors leads to the change in the demand of the provided by Uber. With the increase in the demand of service, number of cars operating under Uber is also increasing (Mitchell, 2015). This is much needed to maintain equilibrium in the market. Recently the Australian government has taken the decision to bring all Uber drivers under Goods & Services Tax. Now every Uber drivers has to register for GST. According to ATO money earned by every Uber driver is considered as the income. Threshold of the GST income is $75,000. Every Uber driver has to register with ATO even if the income of the Uber driver is less than the threshold level. Hence, it is mandatory to pay the GST amount out of the whole income. This will seriously affect the service provision of Uber drivers. Since imposition of GST on the income earned by Uber drivers increases the cost of the service, hence this is surely going to affect the price structure of the Uber Company (MOON, 2015). If the cost of service increases, it will surely increase the price of the service. Hence, the market equilibrium will be disturbed. Demand for the Uber service will decline.
Here Q determines the number of Uber cars demanded by customers & P determines price charged by the Uber drivers to their customers. The impact of the change in market demand has been defined in the above diagram.
From the above study it can be concluded that different market factors are responsible for the determination of the market price of different goods & services. In case of Uber, various factors help in determining the price of the service. Increase in the price of service causes leads to the decrease in the demand. Australian government has forced every Uber drivers to register for the GST (Haider, 2015). This will increase the cost of the service & every Uber driver will try to shift the burden of the GST on customers.
Gruel, W., & Piller, F. (2016). A new vision for personal transportation. MIT Sloan Management Review, 57(2), 20-24.
Haider, M. (2015). To Uber or Not to Uber: That is the Question.
Lubian, F. (2015). Uber and the Law.
Mitchell, E. (2015). Uber's Loophole in the Regulatory System. HLRe: Off Rec., 6, 75.
MOON, Y. (2015). Uber: Changing the way the world moves. Harvard Business School, Case, (9-316), 101.
Newbold, P., Carlson, W., & Thorne, B. (2012). Statistics for business and economics. Pearson.