Final answer:
The Uber business model is a sharing-economy-based platform connecting drivers with riders, leveraging network effects to increase value with more participants. The model benefits from economies of scale as it grows, unlike traditional taxicab industries which may be limited by regulations and scalability challenges.
Step-by-step explanation:
The Uber business model is built on the premise of the sharing economy where it connects drivers, who offer their personal vehicles for transportation services, with users who need rides. This model takes advantage of digital platforms and mobile apps to facilitate these transactions, allowing for a convenient, cashless, and often cost-effective traveling experience for users.
Network effects are pivotal for Uber's model as they create a self-reinforcing system where the value of the service increases as more drivers and passengers join the network. This is crucial for maintaining a balance between supply (drivers) and demand (riders). For Uber, network effects ensure that there are enough drivers to meet customer needs, which improves service availability and reduces wait times, while simultaneously attracting more customers due to the reliability and convenience offered. As the platform grows, it can potentially lower prices due to the savings from economies of scale, further strengthening its competitive position against traditional taxicab services.
In contrast, when considering the taxicab industry in large cities and economies of scale, it's expected that the industry would benefit somewhat due to the high demand. However, traditional taxicab services face constraints such as limited licenses and meters, making scalability more challenging compared to platforms like Uber that can easily add more drivers without significant additional costs.