This essay will analyse how the price mechanism operates in the South African Uber marketplace though considering the nature of interaction between suppliers and consumers, the pricing structure of Uber, how Uber addresses peak and off peak demand periods and the effect of substitutes and compliments in the Uber marker.
The price mechanism refers to the system whereby the forced of demand and supply determined the prices of goods and services, and the changes therein.
Nature of Interaction between Suppliers and Consumers
Uber operates through the Uber mobile application, which allows consumers (riders) with smartphone devices to request a trip through the application. Once a request is sent from the rider’s device, the nearest Uber driver receives an instant notification of the rider’s location, and is dispatched to their service.
The Pricing Structure of Uber and Addressing peak and off-peak demand periods
As discussed by Marshall in his influential work “Principles of Economics” (CEE, 2008), “demand” represents the relationship between the price of a product/service and the quantity which consumers are willing and able to purchase at that given price. Graphically, as shown in Figure 1, the demand curve is depicted by a negative slope from left to …show more content…
The most significant innovation of Uber, is the way it prices its services. Through the employment of a dynamic pricing model and surge pricing, Uber is able to ensure that their supply of drivers meets the demand of riders, therefore assuring dependability and efficiency. The effects of price surging is efficient in temporarily reducing the demand and simultaneously increasing the supply, and hereby restoring a balance to the Uber marketplace. The functions of the increased price model is to increase supply and to provisionally and intentionally reduce demand. Through this implementation, Uber is able