Lyft and Didi aim for highest payoff
This past Wednesday, San Francisco’s Lyft and China’s Didi joined forces, allowing users to access drivers from both countries via their respective apps. This move comes in direct action against major player Uber, who controls a large section of the mobile app transportation market across the United States. With this move, both Lyft and Didi aim to cut into Uber’s control on the market and expand their reach to other nations.
Looking at this similarly to the scenario of two companies choosing which product to bring into a market, both Lyft and Didi had to analyze the payouts from their potential strategies and determine which would increase their overall payouts. Ultimately, Lyft and Didi chose correctly with a strategy that will surely increase their payouts.
Specifically, Lyft and Didi had 3 choices each. First, they each could have chosen to continue the status quo, working independently and with the same products. This would have kept their profits near current levels (which is relatively low), but would ensure that they have some payout. However, this choice could reduce payout moving forward as bigger companies like Uber may force them out of the market. Second, they each could have chosen to work independently, but brought in a new product. This could have increased profits for both, but they ran the risk that the product would have been picked up by the other and ultimately profits would remain low or even go into the red. The final choice for these companies was to partner together and produce a product (in this case a service) that only they would be able to introduce (for now). By providing opportunities to use their respective apps in other countries, both companies join forces with another company with strong public exposure. This will increase their profits for sure while also taking market share from rival Uber, providing the highest payout for Lyft and Didi. At the same time, risk was the lowest for this final option, as the worst case scenario is that the partnership did not pan out, and both companies are left with the same payoff as option 1.
Source: http://www.wsj.com/articles/uber-rivals-form-international-alliance-1442429031