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Uber Capping Prices During Snowmageddon 2015
An anonymous reader writes that yesterday Uber announced a cap on surge pricing during the mammoth snow storm hitting the northeast this week; there will still be surge pricing, but it will be capped at 2.8 times the usual fares.
The cap comes after an agreement struck between Uber and the New York City Attorney General’s office in January 2014 that required Uber to limit prices during “abnormal disruptions of the market”, including emergencies and natural disasters. Uber also announced a national policy for its price limits during those emergencies. ... While Uber plans to limit dynamic pricing during this storm, the company has had a bad history with emergency situations and surge pricing. In late 2012, Uber received criticism for raising fares during Hurricane Sandy. (The agreement with the NY AG came in part as a result of Hurricane Sandy backlash.)
The purpose of the elastic pricing was to make sure that there was always a nice supply of drivers. Cap the prices, and you won't have as many drivers available to drive you around in the snow. Econ 101, right?
If 2.8 times the usual fare is reasonable, then you've likely hit the max supply. Some drivers ain't going out in that for any price.
Most of the affected area seems to have one.
No sir I dont like it.
They tax booze, tobacco, and anything fun, and raise tariffs, expressly to reduce demand. They subsidize whatever they want more of, to nudge people and to reward cronies.
Yet they think raising the minimum wage will increase the demand for low skill workers, they think wage and price controls will reduce demand and increase supply, they think capping surge pricing will increase supply and reduce demand, on and on the hypocrisy goes.
Just go away, nannies. Go away.
Infuriate left and right
This move by the AG office shows a complete lack of understanding of basic economics. But I suppose it also goes to priorities. Is your priority to deliver services to people in need during major disruptive events, or is it to prevent people from having to pay high prices for goods and services during major disruptive events?
If you want people to be able to get supplies and mobility (via Uber), then you'd let prices find their own level. Nobody wants to be out running a car service in a blizzard. But if the price is right? Maybe you get in your SUV and go to work. Higher prices means more supply - until there is enough supply to meet demand. Then prices will fall again as demand wanes and supply increases.
If you need milk, bread, ice and water after a hurricane hits you could wait for FEMA to deploy and deliver while using the law to keep prices stable. Or you could let prices rise until it is worth it for someone with a big truck and a chainsaw for clearing downed trees to drive a load of supplies in from another state.
Politicians are going to respond to the outrage of "Price Gouging", which places the priority on price stability at the expense of delivering needed services.
Uber's model is to allow prices to find their own level. If there are not enough cars to meet demand, prices rise until there are. If there are too many cars chasing too few riders, prices fall until there is balance. This is the best way to ensure that service is delivered to those who need it, but it doesn't guarantee what the price will be.
They would randomly choose "zones" in NYC, and charge for surge pricing in some, and not charge in others.
Then they could provide data to tell us how the demand for Uber vehicles matched the supply.
My guess: you would see more demand than supply in the areas with no surge pricing. Which is pretty banal. What might be interesting is to see the magnitude of the difference.
It's a company. They are not in the "only trying to help" business. What company has ever done that? They're in the grow market share and make money business...by filling a need in society and adhering to local laws when needed.
My God can beat up your God. Just kidding...don't take offense. I know there's no God.
http://www.deathandtaxesmag.co...
http://www.nationaljournal.com...
Price gouging, especially during an emergency situation, is illegal in many places. So basically what Uber is doing here is making themselves legally liable to return every red cent they collect over the normal rate during the snowstorm, not to mention inviting punitive damages.
An enigma, wrapped in a riddle, shrouded in bacon and cheese
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Uber does a poor job with how they present their pricing. They need to reboot how they present it. You cannot just increase prices, no matter how justifiable it is, without feeling backlash from consumers, because this create a "loss" scenario for them, for which there is no "win" to contrast it.
Uber should increase their baseline pricing 400% and offer a 75% discount during non-surge/off-peak times. They should make sure the consumer is well aware of this whenever they ride. eg: "Fair cost: $80. Off-peak discount: $60. Amount due: $20" This is a win, and will be something Uber users feel good about for 95% of their trips.
During surge pricing, you remove the discount. Now this isn't a loss from a consumer's perspective - it's just "normal" pricing.
Hypothetically speaking, if I'm desperate to get somewhere, and I'm willing to pay *whatever it takes*, why is it a good idea to limit the surge pricing?
If raising the price from 1.0 to 1.5 raises the number of drivers considerably, what about raising it from 3.0 to 4.5? In both cases the price increases by the same multiplier.
Or what about having an auction system where each person that wants a ride indicates how much they're willing to pay for it? Would you want to cap that as well?
I'm seeing a lot of very simplistic supply-demand curve arguments in this thread which surprises me.
Much like classical mechanics does not cover every case perfectly in physics, simple supply-demand relationships
don't quite work how one would expect at the extremes.
A few examples:
1) In natural disasters if prices are allowed to rise without bound an unintended effect often happens --
people's fear is stronger then their logic, they see prices rising so they tend to hoard fearing that prices will rise more.
This causes shortages.
2) In a natural disaster there is usually some temporarily unsurmountable bottleneck blocking up supply chains; for
example if all highways are blocked it does not matter if milk costs $1, $20 or $100 a gallon no trucks are getting in
and the number of people who need milk remains the same. One would think that rising prices would ensure that people
who need it the most would get it however the reality is #1 -- the richest hoard it thinking prices will rise more.
3) Price is not always the best allocator of resources. Think of a hospital during a natural disaster -- should the hospital
triage based on wealth and ability to pay at that moment or who needs the services the most?
Finally in the case of Uber it is very likely that municipalities don't want to encourage people to drive during a travel ban.
Yes, during a disaster an Uber driver could theoretically make unlimited money by driving but when they take more risk
for more private profit the public pays for the downside (car crashes, deaths, hospitalizations, etc).
It would be elegant if supply-demand curves worked for every case but they don't. Just like with classical mechanics things
get crazy in the extremes. In those cases thoughful limited regulation helps smooth out the corner cases. Price gouging laws
certainly are not perfect but in practice they often work better then the alternatives.