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.)

Comments

Driving ban

[silas_moeckel]

Most of the affected area seems to have one.

Bad economics leads to bad policy

[Cytotoxic]

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.

Re:So what will this accomplish?

[Tom]

In Econ 101 you also learn about horizontal and vertical pricing.

Basically, if the surge price is reasonably high, most drivers will be available. From 1.0 to 1.5 you may raise the number of drivers considerably, but from 3.0 to 3.5 you will probably not motivate many more drivers to go out and drive - most available drivers will already be on the road, and the few who decide against it will not change their mind here because if 3.0 doesn't motivate them, then 3.5 most likely won't because they have important reasons to stay home.

A cap on such elastic pricing is almost always a good idea.