In economics, capacity utilization is jargon for how much of your available resources are being used at any given time. For taxi drivers, that means how often you have a passenger in your backseat. And when it comes to this metric, taxi-rival Uber Technologies Inc. is winning.
The ride-sharing company's driver-passenger matching technology, flexible labor supply and exemption from licensing regulations that hurt efficiency are giving it a leg up when it comes to securing customers and keeping the meters ticking, according to a new National Bureau of Economic Research paper.
Measuring either the amount of time drivers have a passenger in the car, or the share of miles they drive with a rider — which were the two sets of data available in the five cities surveyed — Princeton University researchers Judd Cramer and Alan B. Krueger found that the capacity utilization rate is on average 38 percent higher for Uber drivers than for cabbies.
In Los Angeles, traditional taxi drivers have a passenger in the car for 40.7 percent of the miles they drive. By contrast, Uber drivers have a passenger in the car for 64.2 percent of their miles, or a 58 percent higher capacity utilization rate. In Seattle, the other city surveyed with mileage data, Uber drivers were 41 percent more productive.
When measured by time, Uber drivers in Boston, San Francisco and New York on average have a passenger in their car about half the time their smartphone app is turned on. That compares to a range of 32 percent of the shift for taxi drivers in Boston to 49.5 percent for cabbies in New York.
The service's use of internet-based mobile technology to connect passengers and drivers certainly contributes to its efficiency, according to the report. It makes sense: tapping your smartphone screen a few minutes before you need a ride is often easier than waiting on a street corner and hoping an empty cab drives past.
Meanwhile Uber allows drivers to set their own shifts, and when combined with their use of so-called surge pricing that increases fares during times of increased ridership, supply and demand are more smoothly matched. Uber drivers are also exempt from regulations that prevent taxi drivers who drop off a passenger in a jurisdiction outside the one that granted their occupational license from picking up another customer in the same location.
Given their 38 percent advantage, Uber drivers could charge 28 percent less than traditional taxis and still earn the same amount per hour under certain assumptions, including ignoring fixed costs, according to Cramer and Krueger.