• Uber and Lyft are playing chicken with each other.
  • Both companies need to raise prices and wean customers off the coupons that helped grow market share in years past if they ever want to turn a profit.
  • Lyft said last week that it tried to cut back on coupons, but didn't see it matched by Uber, leading it to change course.
  • Analysts agree that rationalization is coming to the ride-hailing industry. But someone has to lead that charge, and so far, neither company seems to want to go first.
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The day of reckoning is coming.

Uber, and later Lyft, got consumers around the world hooked on ride-hailing with heavily subsidized rides. (You can thank Softbank, Saudi Arabia, and plenty of other venture-capital investors for that).

But things are different now. Following lackluster initial public offerings this year, both companies are under tremendous pressure from investors to turn a profit. The only way to get there — besides big job cuts — is convincing the public to pay what these rides actually cost to provide.

That's the hard part.

"We took a little bit of risk for the first time and led the market in two small, modest pricing increases over the last couple of quarters," Logan Green, Lyft's chief executive, said at a conference hosted by Credit Suisse last week.

For the most part, those were matched by the competition, he said without naming names (but heavily implying Uber). But when it came to ending the coupons that hit customers' inboxes and apps on a seemingly weekly basis in some markets, things were different.

"We sort of attempted to do the same thing in terms of couponing and lead in creating a more rational market," Green said. "We have not seen that matched. So we're going to change our stance, and we'll sort of revert to a match and follow position."

That shocked markets, sending Lyft's shares plunging as much as 6% in trading from the remarks through the end of the week.

It all comes down to what industry watchers call rationalization. In short, the oft-quoted word — as it relates to ride-hailing — simply means a switch away from heavily subsidized rides into a sustainable business model that can survive a recession and appease anxious investors.

Until then, it's the world's strangest game of chicken.

Even Wall Street analysts don't know who might do it first, but agree that rationalization has to happen at some point.

"The US ride-hailing market is essentially a duopoly, and we believe both companies are highly motivated to behave rationally as both have publicly stated a timeline to profitability," Brent Thill, an analyst at Jefferies, said in a note to clients on Friday.

By his data, Uber has done more couponing than Lyft over the past few weeks, but has pulled back recently.

"Although we should continue to see occasional promotions, we believe the market's overall direction will be rational and reflect economic realities" Thill said. "We think permanent, heavy discounting is unsustainable and not the likely scenario."

Uber, for its part, hasn't publicly discussed couponing much (the company did not respond to a request for comment for this story). However, rationalization has increasingly been a topic of conversation by executives.

Nelson Chai, Uber's chief financial officer, said in November it's thanks to Lyft specifically that "the rationalization here has happened faster," than previously assumed.

"They're bogey in the sand," he said at the conference hosted by RBC in London.

In the meantime, market share levels appear to have leveled by some measures, giving analysts confidence that rationality could come next.

"Uber and Lyft appear to have settled into a ~60/40% share split, which we expect should be supportive of near-term margin improvement as driven by moderating driver bonuses and rider subsidies to the benefit of take-rates," Benjamin Black, an analyst at Evercore ISI, said in a note to clients last month.

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