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Game theory shows why Lyft had to beat Uber to an IPO filing

Lyft, the closest competition for Uber, has just recently announced its decision to go public and arrive on the stock market. Both Lyft and Uber have been private companies. However, Uber has long been the shining star above all its arrivals, having a valuation about 5 times greater than that of Lyft’s. Lyft’s decision to go public will give the company a chance to finally “chip away at Uber’s last valuation” and eventually level the playing field.

Below I have created the payoff matrix for Lyft’s decision to go on the stock market. Before the announcement, Uber had been the leading company against Lyft, and I’ve shown that with the payoffs (0,1) for Lyft and Uber respectively under the decision that Lyft stays private (as Uber does as well). If Lyft were to benefit greatly from arriving on a stock exchange by filing an IPO (initial public offering, or stock market launch), it would level the ground between itself and Uber – hence the (1,1) payoffs. On the flip side, Uber would also be increasing its valuation if it were to also go public as shown. The Nash Equilibrium for the matrix is (1,2), where both Lyft and Uber choose to go public. Although in this case Uber’s valuation would still be greater than that of Lyft’s, choosing to file an IPO is still Lyft’s best response to Uber. Lyft, therefore, could only benefit from this decision to beat Uber to an IPO filing.

IPO Private
Lyft IPO 1,2 1,1
Private 0,2 0,1


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