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

So what will this accomplish?

[weloytty]

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?

Re:So what will this accomplish?

[bws111]

They could still pay the drivers more, without charging the passengers more, if they actually want people to believe they are only trying to help.

Re:So what will this accomplish?

[bluefoxlucid]

They still need to eat, too.

Re:So what will this accomplish?

[bws111]

Who still needs to eat? The billionaire owners of Uber?

Re:So what will this accomplish?

[ShanghaiBill]

if they actually want people to believe they are only trying to help.

They are a business, not a charity. So no one should expect them to be "only trying to help". Even if they wanted to contribute some profits to charity, helping some investment banker get to his job on Wall Street by subsidizing his fare, probably isn't the most worthy of causes.

Re:So what will this accomplish?

[bluefoxlucid]

That's not as magic as people want it to seem; but it is a force to be reckoned with. Do note that most goods are priced substantially above the minimum business viable price: there's huge mark-up on all kinds of shit, at all levels, even in markets with healthy competition. Apartments are practically divorced from price competition, for example, and tend to only shift prices with general demand (e.g. they get cheaper in a tough economy, they get more expensive when more middle class move to an area, but they don't become cheaper when more landlords own the same limited number of apartments).

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.

Re:So what will this accomplish?

[Rich0]

Correct me if I'm wrong, but in normal operation on a busy night you can see Uber prices surge up to 500% or more. If you want to see anti-gouging laws implemented like they have in New Jersey, where gas stations and service providers are not allowed to increase their prices during a disaster situation, go ahead and support Uber's right to surge pricing whenever they want it.

What a surprise that during hurricane Sandy there were huge lines in NJ and it was impossible to buy gas there. Maybe if they allowed prices to float people would have reconsidered the importance of their trip, but anybody with a need to drive could pay the $20/gallon to drive, or at least easily obtain enough gas to drive to someplace where it was cheaper (you only need a few gallons to get to an area not impacted by the storm). Also, if prices were higher you'd see everybody with a tanker truck driving east to fill up and offering the gas for sale at a street stand, which would provide far more gas to the region.

Instead it worked a bit like the USSR. If you knew somebody you could go buy cheap gas from FEMA, and if not you either stood in line all day long, drove 150 miles yourself for gas, or went without.

Re:So what will this accomplish?

[ShanghaiBill]

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

Exactly. Because otherwise some poor and vulnerable investment banker trying to get to his office, will be exploited by a rich and powerful single mom trying to earn extra grocery money by driving in a blizzard.

 

Driving ban

[silas_moeckel]

Most of the affected area seems to have one.

Damn, nannies are hypocritical idiots

[A nonymous Coward]

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.

Re:Damn, nannies are hypocritical idiots

[bluefoxlucid]

The sympathy isn't for the poor, destitute, unworking American; it's for the hard worker who isn't making enough. We'd rather have 100,000 starving, jobless leeches and 20,000 upstanding, comfortable workers than 50,000 starving leeches and 70,000 struggling workers.

Re:Damn, nannies are hypocritical idiots

[ShanghaiBill]

Increasing the minimum wage rather than the EITC has the benefit that more money is paid in taxes

Except that you are taxing the creation of low wage jobs. That is probably not smart policy. People are poor, not because of low pay, but because of NO pay. Most poor households have no earned income at all.

those who do have a minimum wage job ... typically are poor, and it's ridiculous to assert otherwise

Claiming that something is "ridiculous" does not make it untrue. Most minimum wage earners are not rich, but they are not poor either. Their average family income is $53k. Citations:

Very few minimum wage earners are the sole providers for a family
Typical Minimum-Wage Earners Aren’t Poor
most minimum-wage earners are young, part-time workers and relatively few of them live below the poverty line
Minimum wage myths

Re:Bad economics leads to bad policy

[bws111]

'They' don't want people on the roads at all. The last thing they want is someone dimwit who says 'for the right price I will ignore the travel bans'.

only trying to help?

[schlachter]

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.

Re:only trying to help?

[LoyalOpposition]

Exactly my point. They are only trying to make money for themselves, and if exploiting a disaster make them more money, they will do that. Yet here we have people (like the OP) trying to claim that they are 'ensuring there are enough drivers'. Bullshit

Let me see...I can get out in this snow, go several extra blocks, pick up someone I don't know and drive them somewhere. I could get 2.8x. Or I could stay in next to this fire, drink this rum & coke, and call in 'sick' today. Screw it. Sorry, Uber--not available.

~Loyal

Re:only trying to help?

[Rich0]

Exactly my point. They are only trying to make money for themselves, and if exploiting a disaster make them more money, they will do that. Yet here we have people (like the OP) trying to claim that they are 'ensuring there are enough drivers'. Bullshit.

Free market pricing is desirable BECAUSE it ensures that there aren't shortages. That doesn't mean that this is the primary motivation of the participants in a market.

When you buy a smartphone you're not doing it to reward some kid for studying hard to become an engineer, but that is the result of your actions all the same. The smart kid isn't building the phone so that you personally can have one, but that is the result of his actions all the same.

All the benefits of a free market tend to be side-effects, but they're benefits all the same.

What is the alternative, capping prices and watching everybody stay home, so that you're stuck freezing on the side of the street when nobody wants to go pick you up?

Re:only trying to help?

[fuzzyfuzzyfungus]

Few companies have ever done that(probably not zero, I'm sure at least a few charities have been structured such that they count as 'companies' in legal terms); but any company with a PR budget has wished to appear (at least in part) to be doing that. Given the number and size of the world's PR budgets, I can only assume that a great many companies have wished to appear to do that.

I don't know how much Uber HQ values good PR, though given their zillion-odd entanglements in markets where they are dubiously legal, they probably should consider it; but if they do value it, the case to be made is pretty obvious:

Whatever Team Econ has to say about the wonders of equilibrium pricing and the joyous intersection of the supply and demand curves, it's pretty obvious that 'surge pricing' is not people's favorite aspect of Uber, especially during events that are seen as exceptional in some way(they scored some very acidic headlines during the Sydney hostage incident, as I recall). Even among people who reject economic moralizing, the existence of options markets is a convincing demonstration that people assign value to predictable prices.

On the other hand, it's also fairly evident that Uber's service will be less popular if it is seen as unreliable and more popular if people think of it as always delivering a ride on request.

If Uber wants to improve their image, they have the option of doing so by absorbing some or all of the conflict between these two aspects of their service in situations that would be likely to generate unpleasant attention otherwise. They don't have an obligation to do so(even if they did drop the facade of not being a taxi operation, taxi regulations largely focus on price not on obligating operators to operate at all times); but it is a fairly obvious way to buy more favorable opinion, which is something that profit-oriented companies routinely think is worth doing.

Re:only trying to help?

[John Jorsett]

Exactly my point. They are only trying to make money for themselves, and if exploiting a disaster make them more money, they will do that. Yet here we have people (like the OP) trying to claim that they are 'ensuring there are enough drivers'. Bullshit.

In crises, you get rationing no matter what. If you don't regulate prices you'll get rationing thru price. If you do regulate prices, you'll get rationing thru scarcity. Putting limits on Uber means you deny some billionaire fat cat some money, but you also deny the people who really need a ride and are willing to pay for it the ability to get one. I'd rather have the latter system where I can get what I need and am willing to pay for, because I can always decide I don't need it that bad, but I can't conjure a car out of the air when prices are cheap but cars aren't available.

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