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Why Didn't Sidecar's Flex Pricing Work?
I live in Seattle, and nobody I know here has significantly changed the way they think about getting around in the city, as a result of Uber or Lyft. Of course it's more convenient to open an app on your phone and press a button to summon a driver, than to call a taxi company and wait on hold until an operator picks up. And it's reassuring to see a little dot moving across a map on your phone screen showing you how far away your Uber driver is, instead of staring out the window and wondering when your cab is going to arrive. But on price, UberX and Lyft are about the same price as a taxi or less (UberX being the cheaper version of Uber), and sometimes more during "surge pricing" periods. It sounds hip to drop a reference to "taking an Uber" instead of taking a cab, but when cost-conscious people need to get somewhere, they still drive themselves or take a bus, just like they always have.
So I was noodling about writing an article suggesting that a ride-sharing company should try to grab all the market share by implementing a "set-your-own-price" model, which would allow drivers to name their own price for how much they would charge to take a rider from A to B. I even had a specific company in mind: Sidecar, sensitively referred to as the "forgotten stepsister" of Uber and Lyft, should up-end the came and challenge the titans by undercutting them on price. My reasoning was simply that if I want to travel from my house to a location 30 minutes away, a cab might cost $30. But if anybody close by (with a reasonably modern car and safe driving record) can compete on price to take me on that trip, I could probably find someone willing to do it for $10. And with Sidebar not being able to compete with Uber and Lyft on funding or marketing, what have they got to lose by trying a game-changer?
So, beginning of an article sketched out in my head, only to find... that Sidecar has been doing this since February. And nobody noticed. Well, apart from some guy named "Richard Branson", but he hasn't been getting the word out. (All right, be honest: If I hadn't told you that this was an idea backed by Richard Branson, and went with the original article saying it was just my suggestion, would you already be composing comments in your head about what another half-baked Bennett Haselton idea this was?)
So why didn't it change everything? Why do none of my friends talk about "grabbing a Sidecar" to downtown or to the airport?
Well, trivially because there are fewer Sidecar drivers than Uber or Lyft drivers, but that just begs the question: Once a preferable (cheaper) option existed in the form of Sidecar, why didn't more users start trying it out, which in turn draws in more drivers to serve those greater numbers of users? This is the standard textbook economic prediction of what should happen. And while the real world doesn't always follow textbook economic predictions, it's a little surprising to see the reality this far off in this case. A competitor offered a service 50% cheaper than the leading brands, and nobody noticed.
Driver-set pricing has another advantage, which is to blunt criticism of "price-gouging" during periods of high demand. Economists have long puzzled over why Apple and Microsoft don't charge more for their new gadgets, since as long as people are lining up to buy out the stock, sellers could raise the price and still be assured of selling out completely. Various theories abound, including that the act of raising prices would create too much resentment that would cost the company more in the long run. This seems to be the case with Uber, which has long been the target of sarcastic jibes about its "surge pricing", and which was charging four times its standard rate to transport people out of Sydney during a hostage crisis, before the company reversed course after an outcry and offered free rides to passengers trying to leave the city.
Now, most economists would say that raising prices during periods of high demand is what suppliers should do, for various reasons. First, you're going to be providing the good/service to somebody, so by providing it to the people willing to pay the most, you are at least making an effort to provide the service to the person who needs the most. Second, the widely publicized high prices will draw more suppliers into the marketplace to meet the demand, which helps bring prices back down (the standard "surge pricing" notification in the Uber app tries to make this point: "Rates have increased to get more Ubers on the road"). That means even if you're an altruist who planned on burning all the money that you got from driving during "surge pricing", you're still doing more good for the world by charging the highest rate the market will bear. (If you're still feeling guilty about all that extra money, you can donate it to charity rather than "donating" it to your customers by offering them below-market fares.) But I've never heard of a company successfully fighting off charges of price-gouging, by making the economic argument that they were doing the right thing. Usually they just don't engage in a discussion at all, or they cave like Uber did.
But with driver-set pricing, companies could say that they have nothing to do with the sudden price hikes. That's your driver gouging you! And then the driver could justify it to the rider by explaining -- truthfully, in at least some cases -- that they were in the middle of doing something else, when they suddenly got the alert that they could make extra money by providing rides, and it was only because of the high price point that they could justify interrupting their work to come out and drive. By putting it in these personal terms, the drivers would essentially be imparting to their riders the aforementioned economic lesson, the one that no company has ever tried to explain to its customers when it's the company itself jacking up the price. (Although, I expect this would create a new running joke about ride-share drivers: during surge pricing, everybody claims that they stopped whatever else they were doing and came out to "help meet demand", even though some of those drivers must be liars who were already out on the road when the surge hit.)
But in most cases, driver-set pricing would be cheaper than the standard fare set by Uber or Lyft. So why didn't the cheaper option take off? Maybe Sidecar underestimated the disadvantage of only being rolled out in 10 cities -- because Uber and Lyft are deployed in far more markets, they also get name-dropped in vastly more news stories and pop culture references, so even Seattleites won't know what Sidecar is if they only hear about ride-sharing services on TV. Maybe people taking Uber and Lyft rides are consciously or subconsciously trying to be trendy, and there's no point in using the less popular alternative. (Hipsters, on the other hand, now there's a marketing opportunity -- "I'm using this really obscure ride-sharing app, you've probably never heard of it...")
But I think the simpler answer is that the free market is just not the meritocracy that people think it is, or that it's portrayed to be in textbook economic exercises (which would predict that Sidecar should have captured 100% of the market by now). People use what they've heard of, and if a critical mass of influencers happen to talk up a particular product or service at the same time, that gets the snowball rolling, so that still other users will be attracted to the product or service because of the large numbers already using it. Whether the product is objectively "the best" has little to do with the outcome. In a plausible parallel world, Sidecar could have captured more of the initial buzz purely by accident, and led the pack with its flex-pricing model, and now we'd all be talking about Richard Branson's brilliant move that "shook up the industry."
I don't need to read this to tell you why it didn't work. in my area we had sidecar service but didn't have too many cars. in theory, with flex pricing, boom, creates more incentive and we get the cars we need. instead, nobody wanted to drive over here regardless, so they all tripled their prices. a short ride went from $5 to $15. This made them way overpriced compared to Lyft and Uber.
I applaud Sidecar for trying something innovative. Flex pricing is a great idea in theory. if a driver has a sweet car, he can try to extract a couple bucks more. Similarly if the driver is a she and a hottie. if a driver wants to boost volume he can take a couple bucks less. but in practice it did not help increase service or competitiveness in my area. it's a shame cuz I really liked sidecar, they were the "funnest" of the three services.
>> Why Didn't Sidecar's Flex Pricing Work?
Because they hired Bennett Haselton to promote it, and the target audience died of thirst waiting for BH to finish his pitch.