Uber, Capitalism, Price Gouging

This weekend, Uber, the venture-funded startup that connects riders with private drivers, used surge pricing to gouge riders while it snowed outside. Co-founder Travis Kalanick said the higher prices were to entice more drivers on the road to pick up customers. Sam Biddle noted that “people were disgusted by the exorbitant 8x pricing, and no one beyond those for whom money is no object could afford to use the service at all,” while Nick Bilton pointed out that wild changes in prices make it difficult to trust a company. In Wired, Uber’s founder says that his two options were either to hijack prices, or risk upsetting customers with more demand than supply:

The gamble Uber is taking with surge pricing seems to boil down to a choice between ticking off customers because prices go up or ticking off customers because rides don’t come. Uber is betting that cars not showing up is worse. If Uber is doing its math right, surge pricing might not make everyone happy all of the time. But according to Kalanick, it keeps cars full.

“There’s a harsh reality to situations where demand outstrips supply,” he says. “As much as I’d love to give everybody a really cheap option, it’s just simply not possible in certain sorts of extreme events. … I guarantee that our strategy on surge pricing is the optimal way to get as many people home as possible.”

In the iconography of class tensions between the tech industry and everyone else, Uber has become a symbol almost as fraught as the Google Bus. It’s often portrayed as the preferred ride of the haves, out of reach of the have-nots. Surge pricing is Exhibit A.

So if you’re going to upset your customers, you might as well make some money off of it? This reminds me of a Calvin and Hobbes strip.

Photo: CarlaCarlaCarla

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5 Comments / Post A Comment

guenna77 (#856)

In DC, where many people and a whole local news investigation have demonstrated that cabs will ignore minorities and people who are coming from or going to less desirable parts of town, uber is often the only ride home that actually serves many of the ‘have nots.’ it really doesn’t matter how affordable a cab ride is if it won’t pick you up in the first place

katethegreat (#2,545)

I rode in an Uber Taxi last week (which, legally, cannot charge you more than the city-approved rates except a $1.50 “booking fee” plus 20% tip, unlike the black cars which can charge whatever they want). The driver was complaining that he has no ability to change prices–drop them when demand is low to entice fares or raise them when demand is high to maximize his time on the road–and that, because of it, he was going to give up his taxi license and start driving a black car for Uber. Seems like that’s just the market at work.

A definition of ‘surge pricing’ would have been a great intro to this article

szajic (#1,811)

Another version of this story runs every winter when the snow starts falling: economics reporters interview hardware store owners and ask them why they don’t jack up prices on shovels and salt when there’s a huge blizzard coming. They inevitably answer that they keep prices unchanged out of fairness (i.e. accessibility to all, first-come first-served) and to preserve their relationships with their customers.

We’ll see if Uber is smarter than all of those hardware store owners, but I doubt it.

jason (#1,335)

@szajic Playing devil’s advocate here, the difference between Uber and a hardware store is that the hardware store owners have only a certain number of shovels to sell, and can’t increase their supply by manipulating the prices. One of the claimed purposes of Uber’s price surge is to entice more drivers out on to the road, which hypothetically enables them to provide more rides over all.

Of course, they are also making a boat load of extra money in the meantime, so everybody wins?

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