And why are highways, unlike so many other forms of investment, deserving of public support for their construction and maintenance?
Let’s start with why highways are publicly supported. Transportation links are different from most other forms of private investment because transportation links generate large spillover benefits(the technical term economists use is “positive externalities”) for the general public. Spillover benefits are essentially third party benefits. When you get a vaccination against a contagious disease, for example, the doctor gets a benefit(what you paid for the vaccination), and you get a benefit as well (a higher probability of staying in good health). But the rest of the general public gets a benefit as well. They also are more likely to stay in good health because of your being vaccinated, since if you don’t get sick they can’t catch the disease from you. However, the private market, which communicates via prices paid, doesn’t see external benefits to third parties. It only sees the benefits to the people who are actually paying and receiving the money changing hands. This means that the private market sees all the costs of vaccination(the doctor will incorporate those costs into the price of the vaccine) but only part of the benefits(the patient will not pay for the good health of others, only his own good health). So the private market underestimates the benefits of vaccination and how much vaccination is socially efficient. Highways also generate substantial third party benefits. What this means is that if the private market was left to it’s own devices it would underfund the highway system, making less investment in it than it should.
The spillover benefit of a highway system, or any transportation system for that matter, actually has a lot of different names among economists. Two of my college professors call it “market expansion”, others call it “competition support”, etc. But it might be best to illustrate just with another example.
Say there are two cities, each with one car manufacturer plant in them. There are no highways to travel between these two cities(though there must be roads within the cities that they use, or else there wouldn’t be a car manufacturer right?) Because there are no inter-city roads, each car manufacturer has a monopoly on car sales in their city. Each car costs $10,000 to make, including fair return on capital, and each customer in the city derives a benefit of $15,000 from their car. This means that the car manufacturers in each city are deriving $5,000 in monopoly profits on each car. They sell each car for the full $15,000 that a customer is willing to pay, because there is no competition to force them to charge a fair price closer to the actual cost of production.
What, you say, does any of this have to do with highways? Let’s say there are 50,000 cars sold in each city each year. Also say that a highway costs $20 million to build between the two cities and will last for 20 years. And finally, say it costs $100 to drive a car from one city to the other.
With a highway now built and a cost of $100 to move a car from one city to the other, prices start to fall. TWO car manufacturers are now competing with one another. They begin to offer lower prices hoping to win away customers from the other manufacturer. As each cuts prices, customers benefit. Eventually prices will fall to $10,100. Why? Because that is the cost of going to get your car in the other city if the car manufacturer is not offering you a good deal. $10,000 to build the car, plus $100 to ship it to the other city.
But wait a minute. Each car manufacturer has one last insight. “If my competitor CANNOT charge less than $10,100 without losing money, than I have an advantage in my own city. I don’t have to pay the $100 to ship the car on the highway when I am selling to customers in my own city. So I can charge $10,099 to customers in my own city and they will never buy a car from the other city, since it will always be cheaper to buy it here.” So the price drops to $10,099.
BUT, that means NO ONE is shipping cars on the highway. Those car buying customers are not contributing one dollar towards the highway that is saving them $5 million a year total in car costs.
Highways have large, uncompensated positive externalities because they increase the size of markets. They bring many smaller markets together to form one larger market with more competition and lower prices for consumers. But because what actually travels on the highway is only a small fraction of the goods that have seen their prices drop, highway builders are never fully compensated for this market effect. This persistent underfunding of transportation links is what necessitates public investment in the nation’s transportation infrastructure.
Wednesday, May 2, 2012
Friday, April 27, 2012
EPA Climate Change Report
http://epa.gov/climatechange/emissions/downloads11/US-GHG-Inventory-2011-Executive-Summary.pdf
The United States Environmental Protection Agency released its annual Greenhouse Gas Inventory, basically a compilation of all the data we have of all carbon emissions from all sources in the U.S. As we’ve discussed, Rideshare does not have the same impact on climate gases as it does on Local Pollutants, but as an environmentally responsible company we wanted to give a shout-out to the results anyway.
Power Plants continue to represent an ever larger share of total U.S. emissions, as high gas prices and tighter fuel efficiency regulations reduce U.S. emissions growth from the Transportation sector. Power plants now constitute 42% of all carbon emission in the United States, up from approximately 1/3 of emissions in the 2000 report. Transportation represents about 34%, about the same as a decade ago, although a smaller proportion than a few years ago. The other major sources are certain industrial production activities, including glass, cement, and steel production, as well as deforestation. Agriculture is also a major contributor to greenhouse gas emissions, both from deforestation and other land use pattern changes as well as the more intensive utilization of nitrates and other fertilizers to boost crop production per acre. Ironically, one of the things incentivizing farmers to use more climate changing nitrates is the high price of corn caused by the ethanol industry, which was originally supposed to reduce carbon emissions.
The United States Environmental Protection Agency released its annual Greenhouse Gas Inventory, basically a compilation of all the data we have of all carbon emissions from all sources in the U.S. As we’ve discussed, Rideshare does not have the same impact on climate gases as it does on Local Pollutants, but as an environmentally responsible company we wanted to give a shout-out to the results anyway.
Power Plants continue to represent an ever larger share of total U.S. emissions, as high gas prices and tighter fuel efficiency regulations reduce U.S. emissions growth from the Transportation sector. Power plants now constitute 42% of all carbon emission in the United States, up from approximately 1/3 of emissions in the 2000 report. Transportation represents about 34%, about the same as a decade ago, although a smaller proportion than a few years ago. The other major sources are certain industrial production activities, including glass, cement, and steel production, as well as deforestation. Agriculture is also a major contributor to greenhouse gas emissions, both from deforestation and other land use pattern changes as well as the more intensive utilization of nitrates and other fertilizers to boost crop production per acre. Ironically, one of the things incentivizing farmers to use more climate changing nitrates is the high price of corn caused by the ethanol industry, which was originally supposed to reduce carbon emissions.
Friday, April 20, 2012
Airport Shuttles
Although most corporate commutes involve traveling from home to the office, a substantial portion of our customer base is asked to travel for work from time to time. As such, Rideshare is interested in establishing routes not only from residential areas to commercial areas, but also from residential areas to airports. In order to give our members some idea of the savings that would be possible in such a scenario, we’re going to spend a little time breaking down the numbers.
Anyone traveling to the airport who doesn’t have a friend or relative to drop them off will incur either two cab fares or a gasoline bill and a parking bill(if they drive themselves). Since parking costs are paid by day and cab fares are flat rate, obviously the more days you are gone the more sense it makes to take a cab instead of driving yourself. Conversely, the further away you live from the airport the less sense it makes to take a cab, since cabs charge per mile fares and your savings driving yourself over a cab go up the further away from the airport you live.
Whether you are commuting to the office or commuting to the airport to work in another city, Rideshare can help accommodate and help save the corporate commuter time and money.
Anyone traveling to the airport who doesn’t have a friend or relative to drop them off will incur either two cab fares or a gasoline bill and a parking bill(if they drive themselves). Since parking costs are paid by day and cab fares are flat rate, obviously the more days you are gone the more sense it makes to take a cab instead of driving yourself. Conversely, the further away you live from the airport the less sense it makes to take a cab, since cabs charge per mile fares and your savings driving yourself over a cab go up the further away from the airport you live.
Whether you are commuting to the office or commuting to the airport to work in another city, Rideshare can help accommodate and help save the corporate commuter time and money.
Saturday, April 14, 2012
Atlanta Highway Comparison
With things getting closer to launch in Los Angeles I just thought we might talk a little bit about Rideshare’s plans for future growth outside of California. I also thought this might be a good time to take another systemic look at the whole issue of rush hour congestion and inefficient use of highway resources.
Atlanta is certainly a prime candidate for a service like ours. The December 10th, 2011 issue of The Economist weekly magazine ran an article detailing an upcoming vote in Atlanta on whether to spend an additional $6 billion building new highways, ramps, overhangs, and bridges to reduce congestion on highways. Atlanta could certainly use the extra capacity: its average rush hour commute is a staggering 127 minutes.
But there is still the question of whether this is the best way to add capacity. Just to reiterate, the proposed expansion will cost almost $6 billion, and it will have a substantial but less than revolutionary impact: only 800,000 people will see their commute cut to 45 minutes or less, roughly half the time of the current commute.
So how much would it cost Rideshare to achieve the same degree of savings?
It’s a little hard to convert minutes of commute into number of drivers, because of the synergistic effects we discussed earlier. Each additional driver you add to the highway slows down EVERY driver on the highway, which means still more drivers get added as people are on the highway longer, which adds still MORE drivers, and so on. Modeling this effect and writing a formula for it is very difficult.
Still, let’s take a crack at it. Remember that for a passenger on Rideshare’s service, one of the biggest benefits of the service is TIME. The passenger can spend the entire trip to and from the office working, sleeping, talking with family, streaming Netflix, or any other activity they desire. They are literally paying for time. Since time is the metric the article uses, let’s take that as our reference point.
Let’s assume a 1-1 driver passenger ratio. Cutting commuting times in half for 800,000 people is mathematically equivalent to eliminating “commute times”(i.e., time spent driving) for 400,000 people. A passenger in Rideshare’s service has essentially had their “commute time” cut to zero, since with modern laptops and smartphones they can work just as efficiently in the passenger seat of a car as they can in the office.
800,000 people using Rideshare’s service translates to taking 400,000 cars off the road and creating 400,000 time-enriched passengers, assuming a 1-1 driver-passenger ratio. Let’s assume right now that the people of Atlanta are making the same average commute as people in other cities, roughly 20 miles each way. Rideshare’s $0.55 per mile charge x 400,000 pairs = $44,000 per day. 250 commute-days per year translates into a yearly cost of $11 million.
The average service life of a road is somewhere between 30 and 100 years, according to the Department of Transportation. The wide range is due to the fact that in the United States many decrepit roads are left in service long after reaching the end of their useful life spans, which imposes other costs on drivers such as higher vehicle repair costs. Whether through maintenance costs on roads or vehicle repair costs on unmaintained roads, drivers pay for the roads. But never mind. Let’s be extremely conservative and give credit for the full 100 years to the road, AND let’s even assume NO maintenance or vehicle repair costs for that whole period(unlikely). $6 billion divided by 100 years STILL equals $60 million a year in current costs. That’s almost SIX TIMES Rideshare’s costs to achieve the same reductions.
The actual number is of course even higher. There WILL be maintenance costs, and vehicle repair costs, and we haven’t even counted Rideshare’s pollution, climate change, gas savings, parking savings, or other benefits yet. Atlanta, like every other major city in America, is prime real estate for Rideshare.
Atlanta is certainly a prime candidate for a service like ours. The December 10th, 2011 issue of The Economist weekly magazine ran an article detailing an upcoming vote in Atlanta on whether to spend an additional $6 billion building new highways, ramps, overhangs, and bridges to reduce congestion on highways. Atlanta could certainly use the extra capacity: its average rush hour commute is a staggering 127 minutes.
But there is still the question of whether this is the best way to add capacity. Just to reiterate, the proposed expansion will cost almost $6 billion, and it will have a substantial but less than revolutionary impact: only 800,000 people will see their commute cut to 45 minutes or less, roughly half the time of the current commute.
So how much would it cost Rideshare to achieve the same degree of savings?
It’s a little hard to convert minutes of commute into number of drivers, because of the synergistic effects we discussed earlier. Each additional driver you add to the highway slows down EVERY driver on the highway, which means still more drivers get added as people are on the highway longer, which adds still MORE drivers, and so on. Modeling this effect and writing a formula for it is very difficult.
Still, let’s take a crack at it. Remember that for a passenger on Rideshare’s service, one of the biggest benefits of the service is TIME. The passenger can spend the entire trip to and from the office working, sleeping, talking with family, streaming Netflix, or any other activity they desire. They are literally paying for time. Since time is the metric the article uses, let’s take that as our reference point.
Let’s assume a 1-1 driver passenger ratio. Cutting commuting times in half for 800,000 people is mathematically equivalent to eliminating “commute times”(i.e., time spent driving) for 400,000 people. A passenger in Rideshare’s service has essentially had their “commute time” cut to zero, since with modern laptops and smartphones they can work just as efficiently in the passenger seat of a car as they can in the office.
800,000 people using Rideshare’s service translates to taking 400,000 cars off the road and creating 400,000 time-enriched passengers, assuming a 1-1 driver-passenger ratio. Let’s assume right now that the people of Atlanta are making the same average commute as people in other cities, roughly 20 miles each way. Rideshare’s $0.55 per mile charge x 400,000 pairs = $44,000 per day. 250 commute-days per year translates into a yearly cost of $11 million.
The average service life of a road is somewhere between 30 and 100 years, according to the Department of Transportation. The wide range is due to the fact that in the United States many decrepit roads are left in service long after reaching the end of their useful life spans, which imposes other costs on drivers such as higher vehicle repair costs. Whether through maintenance costs on roads or vehicle repair costs on unmaintained roads, drivers pay for the roads. But never mind. Let’s be extremely conservative and give credit for the full 100 years to the road, AND let’s even assume NO maintenance or vehicle repair costs for that whole period(unlikely). $6 billion divided by 100 years STILL equals $60 million a year in current costs. That’s almost SIX TIMES Rideshare’s costs to achieve the same reductions.
The actual number is of course even higher. There WILL be maintenance costs, and vehicle repair costs, and we haven’t even counted Rideshare’s pollution, climate change, gas savings, parking savings, or other benefits yet. Atlanta, like every other major city in America, is prime real estate for Rideshare.
Wednesday, April 4, 2012
Buses, Vans, and Cabs Oh My!
Okay, so I know I take my artistic license a little far sometimes. So to make up for it, today my topic is going to be the law, which is about as far from art as you can get.
Your service sounds like it could be a winner, but is what you do…..you know…..legal? Do you have a license?
That was actually my dad talking, not a potential Rideshare customer as he lives out of state. And no, we don’t exactly have a license. But we don’t exactly need one.
Most industries today are regulated in one form or another, and ours is no different. Indeed, since Rideshare is trying to bring together several previously separate industries(public transportation, carpooling), we have to be familiar with the regulations for each of them. Today we want to talk a little bit about how those regulations impact our business plan, and what we plan to do to stay on the right side of them.
The regulatory world we find ourselves in does limit our options somewhat. Specifically, the taxi licensing regulations. Although taxi regulation is a state and local matter, thus making it hard to make general statements that are true throughout the United States, a few general principles hold true throughout.
Point 2 is what makes our business viable. Point 1 is what might make our business harder to operate, and Point 3 is how we plan to avoid any regulatory troubles.
Because of the regulations governing taxi services, Rideshare does not and will never employ professional drivers who are paid to convey people from place to place. We are a peer-to-peer network that coordinate the activities of members who already intend to travel to a specified location. As such, we are NOT a taxi service, and do not require a license to operate our app. What we do is no different than what thousands of friends, family members, and coworkers do every day. Except that we bring all those small carpools together into one larger service, affording everyone more flexibility and reliability in their carpool.
Public transportation is not so much regulated as it is exclusive. By definition, only the government can provide “public” transportation. But, there is no law saying that other companies cannot provide alternative means of achieving the same ends as public transportation, as long as they don’t fraudulently claim to be a government agency, which of course we don’t. But just in case you somehow thought otherwise, here is an official disclaimer:
“Rideshare is not an official government agency. We are a private company providing a for-profit service in a socially responsible way."
Please remember that we are all stuck in traffic together. We all breathe the same polluted air from millions of vehicle emissions. If we use the fuel that drives us to be good, we can live socially and responsibly through collaborative consumption.
Your service sounds like it could be a winner, but is what you do…..you know…..legal? Do you have a license?
That was actually my dad talking, not a potential Rideshare customer as he lives out of state. And no, we don’t exactly have a license. But we don’t exactly need one.
Most industries today are regulated in one form or another, and ours is no different. Indeed, since Rideshare is trying to bring together several previously separate industries(public transportation, carpooling), we have to be familiar with the regulations for each of them. Today we want to talk a little bit about how those regulations impact our business plan, and what we plan to do to stay on the right side of them.
The regulatory world we find ourselves in does limit our options somewhat. Specifically, the taxi licensing regulations. Although taxi regulation is a state and local matter, thus making it hard to make general statements that are true throughout the United States, a few general principles hold true throughout.
- It is illegal to operate a taxi service, or the functional equivalent, without a state license.
- These licenses are far fewer in number than the market equilibrium would dictate, producing an acute shortage of point-to-point transportation services
- The difference between a carpool/vanpool service and a taxi service is generally defined as the difference between paying a driver to travel to a destination he otherwise would not visit, and one he was already planning to go to before he picked up his passenger.
Point 2 is what makes our business viable. Point 1 is what might make our business harder to operate, and Point 3 is how we plan to avoid any regulatory troubles.
Because of the regulations governing taxi services, Rideshare does not and will never employ professional drivers who are paid to convey people from place to place. We are a peer-to-peer network that coordinate the activities of members who already intend to travel to a specified location. As such, we are NOT a taxi service, and do not require a license to operate our app. What we do is no different than what thousands of friends, family members, and coworkers do every day. Except that we bring all those small carpools together into one larger service, affording everyone more flexibility and reliability in their carpool.
Public transportation is not so much regulated as it is exclusive. By definition, only the government can provide “public” transportation. But, there is no law saying that other companies cannot provide alternative means of achieving the same ends as public transportation, as long as they don’t fraudulently claim to be a government agency, which of course we don’t. But just in case you somehow thought otherwise, here is an official disclaimer:
“Rideshare is not an official government agency. We are a private company providing a for-profit service in a socially responsible way."
Please remember that we are all stuck in traffic together. We all breathe the same polluted air from millions of vehicle emissions. If we use the fuel that drives us to be good, we can live socially and responsibly through collaborative consumption.
Tuesday, March 27, 2012
Uber Dynamic Pricing
According to some old adage(I’ve no idea which one or where from), stupid men do not learn from their mistakes. Smart men do learn from their mistakes. And Wise Men learn from others mistakes.
Even as a business, we never take pleasure in the travails of a competitor. But I saw the above article today and couldn’t help but feel there is a powerful lesson in there for Rideshare and for all of us in this market.
Rideshare is not the first carpooling web-based service out there. Among the more established competitors we have are Zimride, Avego, Ridejoy, and last but not least, Uber.
Uber is a service very similar to ours, except for the fact that it does not have a set price per mile. Rather, it is more of a marketplace, where passengers bid on drivers services to try to get them to pick them up. The driver looks at the highest and closest bids and has the choice of either accepting it or just going home. And like any marketplace, prices fluctuate.
The rather extreme price fluctuations seen over the holidays, where prices as much as tripled, illustrates the emphasis that potential customers of services like ours place on reliability. Too much price volatility can turn customers away from our service as they never know how much they will be charged until they go to book the return trip, and by then they have already left their car at home and are dependent on our service to get them back home no matter the price. Customers will only put themselves in this position if they trust our service to deliver quality service at an affordable and predictable price.
Rideshare is committed to a fixed-price model that charges a flat per zone mileage similar to public transportation. This is an integral part of our brand, and a big part of the value proposition we offer to our customers. We are committed to maintaining this pricing model moving forward. We believe our Rideshare commuters are fueled by good and our fixed rate parallels our “fare” share model philosophy.
Monday, March 19, 2012
National Security
There was an interesting article today about the energy balance of trade in the United States. After two decades of ever increasing oil imports, the United States is becoming somewhat less addicted to foreign oil. Over the last five years, there has been a significant improvement in the oil deficit in the U.S. Oil imports, which constituted 61% of total oil consumption in 2005, fell to 49% of oil consumption in 2010. Even more significantly, imports from Canada and Mexico, already representing 30% of our imports in 2005, actually rose over this period, so that oil imports from overseas areas, in some of the more unstable parts of the world, have been cut almost in half over the last five years.
I bring this up because Rideshare has the potential to make another significant contribution to reducing our oil use. Maybe this belongs in our Meet Rideshare series, but we’ve already closed that so I’m just going to fire it up here. How much can Rideshare reduce oil imports?
The United States uses some 9 million barrels per day of gasoline, as well as 4 million barrels more per day of diesel fuel. It also uses 7 million barrels per day for other uses, including jet fuel for airplanes. As you may recall from our previous post, corporate commuting represents some 50% of the vehicle miles driven in a major city, or somewhere there abouts, but obviously much less in suburban or rural areas. On the other hand, some of the vehicle miles driven represent trucks using diesel fuel to ship goods. So corporate commuting actually represents substantially more than half of the gasoline consumption in a major city. Let’s ballpark it and say that corporate commuting accounts for half of the gasoline used in the United States every year, which is probably not a ludicrously out of line estimate. That is 4.5 million barrels per day. Or, more than we import from Canada and Mexico combined. Put another way, if those 4.5 million barrels per day were to somehow stop being used, the United States would ONLY need to import oil from Canada and Mexico, without relying on the Persian Gulf, Russia, or Venezuela at all.
Obviously, even if everyone started using Rideshare the number would not fall to zero. But this gives you an idea of what a large proportion of total oil use corporate commuting represents.
Rideshare is initially aiming for a 1-1 passenger-driver ratio in its carpools, though over time it hopes to bring this higher, and vanpools will have higher ratios right from the off. Transforming half of corporate commuters into passengers will cut the number of cars on the road in rush hour by half but cut oil use by considerably more than half, since drivers will spend much less time idling in traffic. Idling contributes about a third of total energy consumption in corporate commuting according to our calculations. So let’s assume that a 50% cut in drivers reduces idling by 75%(some idling is due to accidents, construction, etc.) This would mean that each percentage point of market penetration nationwide by Rideshare would reduce oil usage by 30,000 barrels per day, with a ceiling potential of 3 million barrels per day if we could somehow achieve 100% market penetration. Even 50% market penetration would reduce oil consumption by 1.5 million barrels per day, which is more than the United States imports from Saudi Arabia.
Rideshare is initially aiming for a 1-1 passenger-driver ratio in its carpools, though over time it hopes to bring this higher, and vanpools will have higher ratios right from the off. Transforming half of corporate commuters into passengers will cut the number of cars on the road in rush hour by half but cut oil use by considerably more than half, since drivers will spend much less time idling in traffic. Idling contributes about a third of total energy consumption in corporate commuting according to our calculations. So let’s assume that a 50% cut in drivers reduces idling by 75%(some idling is due to accidents, construction, etc.) This would mean that each percentage point of market penetration nationwide by Rideshare would reduce oil usage by 30,000 barrels per day, with a ceiling potential of 3 million barrels per day if we could somehow achieve 100% market penetration. Even 50% market penetration would reduce oil consumption by 1.5 million barrels per day, which is more than the United States imports from Saudi Arabia.
So, clearly, while it can’t do the whole job, Rideshare can make a substantial contribution to the U.S. national security by reducing our reliance on foreign oil considerably.
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