CKGSB Professor: Plenty of Room for Ride-hailing Firms Uber and Didi to Coexist

Ever since China has been introduced to the concept of ride-hailing, there has been fierce competition between firms. With the entry of US ride-hailing company Uber into China in 2014 – splitting off into a separate entity, Uber China, last year – the competition has ramped up even more. Despite their huge valuations, competing firms have been bleeding money through subsidies and other promotions in a bid to gain market share.

A recent article by Financial Times reporter Charles Clover claims that although Uber and Didi each have their own distinct strategy, they have both spent the bulk of their money on subsidies in an effort to lock up China’s most lucrative cities as markets, and plan to spend even more in the future. As Uber Chief Executive Travis Kalanick says, “We have lots of cities around the world that are profitable and look forward to investing those profits in China.”

But while both companies have a winner-takes-all approach to the market, experts say there may be room for both to coexist. The article cited a study conducted by Associate Professor of Strategy and Economics at CKGSB Brian Viard, which identified 24 Chinese cities with economies large enough to sustain two or more ride-hailing app companies. This is a topic he previously explored in this article for CKGSB Knowledge:

“If I am right, we should see [Uber] continue to work its way down the list of cities with the highest GDP until it reaches a market that is not attractive enough to support both it and Didi Kuaidi.”

There is no doubt that the competition between Uber and Didi will continue to burn white hot in the near future. However, the further development of Chinese cities may provide the possibility to sustain more ride-hailing app firms. It may not be a matter of life and death after all.

To read the original article in the Financial Times, please click here.