U B E R ’s Price Surging Tactics
Picture the scene. You are in central London
on New Years Eve, anxious to get home as fast as possible. “Who ya gonna call?”
Uber! However, there are many other party dwellers around you requesting an
Uber, but there just aren’t enough drivers around. When demand exceeds
supply, Uber’s ‘price surge’ meter is turned on. Suddenly, you find your fare
being doubled, maybe even tripled. Typical isn’t it? Just when you want a taxi,
Uber exploits the situation. Unfair, isn’t it? Not as much as you may think…
Quite clearly, demand for Uber taxis is
outstripping the supply of Uber drivers. There aren’t enough Uber drivers in
close proximity to drive everyone who wants an Uber ride, either because the
drivers themselves are out or because they are ferrying other revellers home.
So, who should get the ride? The person who needs to ride the most would be
willing to pay the most, and so would get the ride.
What about the other customers? That’s the
beauty of price surging. Uber cabs in local neighbourhoods would be alerted of
the price surging and they would drive to the party dwellers, responding to the
incentive of a higher fare. Suddenly, there are more Uber cabs around,
increasing their supply. This thus reduces the fare back down, closer to the
standard price and ensures that almost everyone who wanted a ride can easily
catch one.
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| Figure 2: A chart provided by Uber to alert customers of the most popular times on New Year's Eve |
Was that price surging really necessary then?
Of course it was. People, (this includes Uber drivers), respond to incentives.
Without surge pricing, drivers in nearby neighbourhoods would not have deemed
the benefit of earning an extra ride’s worth to outweigh the cost of driving to
the new location. These costs include time taken to drive to the new location,
fuel costs, and the fact that if the driver waited perhaps a little longer at
their current destination they may receive a customer anyway. Thus, the party
dwellers would not all have received a ride home as quickly as they would with price
surging in place. Indeed, this is illustrated by the fact that in New York, on
the 1st January a couple of years ago, when the surge-o-meter was
not in operation, only 25% of Uber requests were fulfilled.
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| Figure 3: Uber's Surge Pricing Mechanism |
For those who maintain that this practice is
unethical because customers may not know that they are having to pay sometimes
even five times the price, (as the payement process is automated), their
argument is discredited by the fact that when price surging occurs, customers
have to type in the price to confirm that they are still willing to take a
ride.
Uber is a great example of the price
mechanism in practice; admittedly, through, it is an accelerated model.
However, it nonetheless highlights the hidden side of Economics. Uber is not as
‘unfair’ as people may moan; Uber is doing us all a favour.
