How Uber Surge Pricing Really Works

minstrelmike writes with this analysis from Nicholas Diakopoulos of the Washington Post: At the core of Uber's wild success and market valuation of over $41 billion is its data and algorithmically fueled approach to matching supply and demand for cars. It's classic economics, supposedly....but is Uber's surge pricing algorithm really doing what they claim? Do surge prices really get more cars on the road?

My analysis suggests that rather than motivating a fresh supply of drivers, surge pricing instead re-distributes drivers already on the road. Adds minstrelmike: The writer goes on to analyze 4 weeks of pricing info from 5 areas in D.C. and plotted prices versus wait times. "Price surging can work in any of three ways: by reducing demand for cars (less people want a car for a higher price), by creating new supply (providing an incentive for new drivers to hit the roads), or by shifting supply (drivers) to areas of higher demand."

It moves current drivers from one side of town to the other. It does not put new drivers on the road. It can't because the prices change every 3-5 minutes."

Comments

There's no great way to predict the load.

[Anonymous Coward]

If you can't predict it, there's no real lasting incentive as you won't be predictably making more money by starting a shift suddenly as demand ramps up quickly, then dies off.

Re:There's no great way to predict the load.

[davester666]

Unless a natural disaster strikes. Now Uber drivers know to wait for surge pricing to hit, then take a few fares, then book off when Uber turns off surge pricing because it make them look bad.

Re: There's no great way to predict the load.

[broward]

Haha. It's the law of transaction costs but on the other party now. Just because computers can cheaply process transactions now doesn't mean people can. The same reason the the restaurant diesn't charge you for salt or sugar packets.

Re:There's no great way to predict the load.

[AK Marc]

I've signed up as an Uber driver, but haven't ever taken a fare. It's free and no-commitment to sign up. I was thinking that I'd work a few hours on holidays and take advantage of the surge pricing, but have always had something better to do at those times. But if a natural disaster hits, I'm ready to profiteer.

Re:There's no great way to predict the load.

[Anonymous Coward]

You need to take at least one fare or they'll deactivate you. After that, you need to take one fare every 180 days, IIRC.

Re:There's no great way to predict the load.

[AK Marc]

Oh, then I'm likely deactivated now. And I'll have to do one every 6 months. Thanks for the info. I may just let it stay deactivated, I didn't do it over the last holiday period, so likely never will.

Re:There's no great way to predict the load.

[TapeCutter]

Ex 1980's taxi driver here, public holidays are dead times, surge times used to be called Friday and Saturday night, but the price didn't change.

Re:There's no great way to predict the load.

[AK Marc]

For Uber, the surge pricing applied on all the major holidays last Christmas season. They may be dead times for a full shift, but the number of people taking a taxi out and back in the evening is large. So the surge counts at night.

Re:There's no great way to predict the load.

[Shirley Marquez]

There may also be a lack of drivers on holidays, because people who would normally be driving are doing other things. So the surge pricing is caused by reduced supply as well as high demand.

And?

[Anonymous Coward]

It's like calling a taxi service a ride share.. dumb people fall for it?

Re:And?

[davester666]

Uber is just using the phrase 'ride share' as part of their effort to ignore following regulations.

Re:And?

[tmosley]

Yeah, just like those damn college guys who give each other gas money in exchange for rides. Don't they know they are supposed to pay a million dollars (!!!) for a medallion before they can do that?

Re:And?

[davester666]

Yes, that is totally the same situation.

College guys: I am going to LA. For $50 I will take someone with me.
Uber guy: a taxi ride, arranged over the internet

Indistinguishable.

Re:And?

[Anonymous Coward]

Uber guy: "For $50 I will be going wherever you want to go, unless the computer says it's $200 now"

Re:And?

[davester666]

sorry, I forgot the part about predatory pricing.

Re:And?

[tmosley]

Go to the Craigslist rideshare section. Yes, they are indistinguishable.

Re:And?

[davester666]

Of course. Because some individuals are doing something that violates regulations, it's perfectly find to set up a corporation to do it on a global scale.

Other things Uber needs to start working on:

Prostitution
Drugs
Child Pornography

Good demand, and everybody wants better service.

Re:And?

[tmosley]

Yes, all of those things should be legal. Prostitution because the alternative is "white" slavery, drugs because the alternative is massive nation destroying violence and people who harmed no-one spending their lives in jail (ie more slavery), and child pornography because the alternative is increased rates of child rape, as has been shown in Japan and even in the West where such pornography was perfectly legal until the 70's, and was produced professionally under strict supervision for the benefit of the actors, who had a good time and were paid exorbitant sums.

laugh

[koan]

The HFT of the physical World.

Re:laugh

[DamonHD]

HFT *is* constrained by the physical world, eg the speed of light. Been there, helped with the networking for that.

As to relative levels of thuggery between HFT and Uber... I've never used Uber, so I can't say.

Rgds

Damon

Re:laugh

[koan]

HFT is physical of course, hardware, network, etc, but it resides in a digital domain while Uber is out and about in the physical World.
Yes they use their systems to manipulate pricing, location, etc to their advantage.

But the results occurs in the physical.
Nothing "physical" about stocks... unless you want to argue minutiae.

Re:laugh

[AK Marc]

I remember when I held stocks that were printed, and shipped when you bought one. But that's not "stock". That's a receipt representing the share held, which is 100% incorporeal. If I presented a receipt for buying a unicorn, that doesn't make a unicorn real, just like a receipt for a share in a company (generally called a stock certificate), doesn't make the underlying idea or ownership any more real/physical.

If I was an uber driver

[Anonymous Coward]

I'd drink surge all day!

Re:If I was an uber driver

[Anonymous Coward]

If I was an Uber driver I'd drink water all day because I couldn't afford Surge...

I have two coworkers and a friend who tried doing the Uber thing. The coworkers were moonlighting at night, especially NBA game nights, and my friend tried doing it full time. For all three, by the time they figured in the cost of gas and the time taken to get to/from each "job," they were making less than minimum wage. They all quit driving for Uber within a few weeks of starting because it just isn't worth it.

One coworker did wind up with an interesting arrangement. One of his last official Uber customers was a rich old alcoholic guy who wanted driven home from a bar. The bar isn't far from our office, and it turns out the guy lives in my coworker's neighborhood. Now he drives this guy home almost every weekday for $20 cash, but it's done entirely outside of the Uber ecosystem.

I wonder how many people make a few contacts like that through Uber and then keep up those clients, cutting Uber out of the picture. Why the hell give Uber any money at that point?

Still works, just not the way people thought

[gurps_npc]

It both increases the number of drivers dealing with a surge when a surge is happening and also decreases the people asking for rides.

No, it won't increase the number of drivers total, but so what? It increases the drivers working the surge, which is the point.

Re:Still works, just not the way people thought

[PolygamousRanchKid]

Gee, I thought Über's Surge Plan looked like this:

1. Über calls in a bomb threat at a major train and subway station.
2. The station gets evacuated and locked down.
3. Thousands of rail commuters are stranded, with no way to get home.
4. Everyone calls Über.
5. Surge!
6. Profit for Über!

You might say the calling in a bomb threat is illegal, but does Über care if the things they do are legal? It's just a new business model, that old folks do not understand.

Re:Still works, just not the way people thought

[wired_parrot]

As the article and the summary itself notes:

It moves current drivers from one side of town to the other. It does not put new drivers on the road.

His analysis shows that the surge pricing is not increasing the number of drivers working, it is only shifting drivers from one neighbourhood to another. This means that the unexpected side-effect noted in the article is that in some neighbourhoods the wait time actually increases along with the surge price increase.

I'm not against a market-oriented approach of surge-pricing to solve a supply need, but the way it is implemented by Uber the prices are changing too fast to serve as a meaningful incentive, so without an increase in drivers you're only shifting drivers from one neighbourhood to another and aggravating the problem in certain places.

Re:Still works, just not the way people thought

[Kjella]

It both increases the number of drivers dealing with a surge when a surge is happening and also decreases the people asking for rides. No, it won't increase the number of drivers total, but so what? It increases the drivers working the surge, which is the point.

The point is that you work the surge by making the service worse everywhere else. You're not able to deliver more passenger miles, you just charge more for the same fixed-ish supply. It's good business but it's questionable if the users in aggregate are better off. Then again, it does create a flash mob which may eliminate the outliers which depends on how you value waiting time. If you wait 3x5, 1x60 minutes it's less than 4x20 minutes but the latter is often preferable, since you often have to make room for a "worst case" travel time in order to be there on time.

Re:Still works, just not the way people thought

[Ichijo]

in some neighbourhoods the wait time actually increases along with the surge price increase.

It makes sense that neighborhoods with a relative oversupply of drivers would see their wait times increase, approaching the wait times in neighborhoods with higher demand.

In San Francisco when they implemented surge pricing for parking, prices went up in some neighborhoods and down in others. But prices on average fell.

It does get more drivers on the road

[geekd]

If drivers come to expect surge pricing to be in effect on a given night, "It usually surges on Saturday night," then they will hit the road on that night.

Drivers are not dumb, they can predict when they will make more money, and will work more when there's more profit to be made.

Re:It does get more drivers on the road

[obarthelemy]

Actually, I read an article on The Economist a long time ago saying just the contrary: freelance cab drivers quit working earlier when they make a lot of money. Easiest explanation is that they set out to make a certain amount of $$, and stop once that goal is reached, regardless of whether it'll take them 3-4x longer to make the same amount the next day.

Re:It does get more drivers on the road

[MindStalker]

I think the idea is that those drivers will be less likely to work that morning/afternoon when there is a high prices night up ahead. Of course the means there are limited drivers on the lower priced afternoons, but it should work out as time goes on with more and more drivers signing up.

Re:It does get more drivers on the road

[mjr167]

I think cab drivers don't need a computer to tell them this...

Re:It does get more drivers on the road

[wired_parrot]

The problem is, as the article noted, is that the surge pricing is fluctuating too much for it to be predictable and for drivers to adapt their habits accordingly. When the surge price is fluctuating from 1x to 2.5x the price and back to 1x in the span of a few minutes, as noted in the article, it's not predictable enough for one to add more cars to the road. The best one can do as a driver is take advantage of those surges by taking the most expensive fares possible - which means those with short routes and inexpensive fares are actually seeing their wait time increase despite an increase in surge pricing.

If Uber tweaked its algorithm so that the surge pricing was based less on instantaneous demand, and more on long term trends - so that for example at rush hour prices reliably rose every week - then you might see more drivers getting to the road at those times to take advantage of it.

"Surge Pricing"

[CanHasDIY]

In pretty much every single other business, what Uber calls "surge pricing" is referred to as "price gouging," and is illegal.

What's the difference between what Uber is doing today and what a handful of gas stations tried to pull on 9\11\2001? The fact Uber is getting away with it?

Re:"Surge Pricing"

[DamonHD]

It's called 'scarcity pricing' if you want to keep emotion out of it.

Sometimes it's needed to help prevent a service being overwhelmed: our phone calls used to cost 4x more 9am to 1pm than 6pm to 8am because our phone service (government run) had limited available bandwidth. Now that is no longer an issue (largely c/o fibre optics) there is no pricing surcharge for the daytime peak. Nor even for national vs local calls in the UK. It was a premium charge or lots of failed calls, including for those who really had no alternative to using the morning business slot.

Rgds

Damon

Re:"Surge Pricing"

[Alan Shutko]

Price gouging laws predominately apply in a period of civil emergency and only to items that that are necessary for survival.

Re:"Surge Pricing"

[BasilBrush]

Everyone pulled together on 9/11. Anyone who saw it as an opportunity to increase profit is a shitbag.

It's quite different from a general policy to match supply with demand by varying price.

Re:"Surge Pricing"

[NostalgiaForInfinity]

The difference is that 9/11 was a civil emergency, not just a period of high demand, and that gas is considered something essential to survival. Price gouging laws only apply to periods of civil emergencies, and only to a small list of essential goods. Such laws are nominally justified by helping police deal with the aftermath of the emergency. In all other situations, "price gouging" or demand pricing is legal everywhere. So your statement that "in pretty much every single other business" price gouging is illegal is utter nonsense.

As it turns out, "price gouging laws" are a bad idea in all circumstances; they simply create additional shortages, in particular in emergencies. Many stores will simply close altogether; it's not worth staying open in an emergency subject to price fixing laws if they can just sell at the same price after the emergency is over anyway. Government can impose prices, but it can't force people to do business.

Re: "Surge Pricing"

[Anonymous Coward]

If I own a store and there's a civil emergency, I won't even open my store. I would use the products for the safety/survival of my family.

Re:"Surge Pricing"

[DarkOx]

"price gouging" laws almost always have an emergency component, that is the only thing that makes them remotely Constitutional. They also generally apply only to items considered necessary for survival; ie food, water, gasoline in a quantity you might be using to travel out of a disaster area, etc.

Uber probably could be prevented from using surge pricing or prosecuted for it where they to do it in the middle of hurricane or something. "The local sports team just finished playing" isn't an emergency. So its not illegal at all. I don't know what it is about Slashdot that seems to make people asume anything they don't like must be someone getting away with a crime.

Surge pricing is a good thing!

Drivers are a resource like any other. People have lives etc, and most can't just hit the road because the cost of rides has gone up. Overtime though I am sure that people who want to do Uber as more than just a hobby can and do observe when prices are highest and re-arrange their activities so they can be driving at those times. That is a process that probably happens over months though not, moments. Its just simple supply and demand and its how the market should operate. If you want a ride so bad at the same moment everyone else does you should be willing to pay! If you time is so valuable you can't hang out for a couple hours for the rush to die down, than you ought to pay someone who is trying to earn a living driving for the privilege of immediate transportation. If you are unwilling to pay that driver deserves the change to sell their services to someone who is!

People who complain about it pretty much are crying that they can no longer take advantage of livery drivers not having good information about the market and being able to revalue their services accordingly. They are just use to drivers having no choice but to set a price the market will usually support and missing the opportunity to earn more at peak times. So I say shut the fuck up if you have enough money to pay someone to drive your ass around you have enough money to pay them what it worth at that time. Otherwise wait, walk, take public transit, drive your own vehicle, etc.

Re:"Surge Pricing"

[Anonymous Coward]

Price gouging may be illegal under certain circumstances but there is nothing immoral about adjusting the prices of a certain service based on supply and demand.

Re:"Surge Pricing"

[BasilBrush]

Many stores will simply close altogether; it's not worth staying open in an emergency subject to price fixing laws if they can just sell at the same price after the emergency is over anyway.

Sure it is, because the stock will sell far faster - assuming it's the kind of store that sells practical items.

Given that they would be open when the emergency is over anyway. All that period of high sales would be wasted opportunity.

And that's just from the purely selfish capitalist angle. Mostly shops are run by decent human beings so will strive to be open in times of need anyway because they don't want to cause even more suffering.

Re:"Surge Pricing"

[Anonymous Coward]

What's the difference between what Uber is doing today and what my electricity provider does with their "peak" and "offpeak" prices?

Re:"Surge Pricing"

[ErikTheRed]

Wish I could mod you up today.

Re: "Surge Pricing"

[swillden]

If I own a store and there's a civil emergency, I won't even open my store. I would use the products for the safety/survival of my family.

On the other hand if there aren't any silly laws in place preventing your from selling your goods at 10X the normal price, maybe you will only keep aside what your family really needs and sell the rest, thus making important goods available to the public when they're really needed. But if that's illegal, yeah, might as well keep them for yourself. When things get back to normal you can continue selling whatever you didn't use at the normal price -- same as you were able to sell it for during the emergency, but without taking the risk of selling something you might need.

Restrictions on scarcity pricing are a bad idea and serve only to create even more scarcity.

Re:"Surge Pricing"

[radarskiy]

The difference is that your claim that surge pricing is the same as price gouging is incorrect.

Price gouging occurs when you artificially raise the price away from the supply-demand equilibrium. Surge pricing occurs when you naturally raise the price toward the supply-demand equilibrium.

Does the supply of Uber drivers actually increase with surge pricing? If so then it is not price gouging.

Re:"Surge Pricing"

[Rich0]

In pretty much every single other business, what Uber calls "surge pricing" is referred to as "price gouging," and is illegal.

What's the difference between what Uber is doing today and what a handful of gas stations tried to pull on 9\11\2001? The fact Uber is getting away with it?

Cite? If it is illegal, then you can reference the law.

In any case, making demand-based pricing (or gouging if you prefer) is often counter-productive. If a resource is scarce, you WANT people to change their behavior. If there is a hurricane and gas is scarce, then you want people to stop driving to the movie theater or whatever, and then there is gas available when people need to buy necessities or whatever. If you have to drive to the hospital, you're not going to care if gas is $10/gallon. However, that $10/gallon gas will prevent you from driving to your friend's house to hang out 25 miles away.

The alternative is that everybody runs out of gas, and then people with connections get their cheap gas, or you have wasteful activities like driving 100 miles to buy gas (thus wasting quite a bit of gas vs just tankering it in). During Hurricane Sandy there was quite a bit of scandal where people with connections got cheap gas from FEMA depots, and then everybody else just did without.

The exception should be situations where there isn't much competition, and there should of course not be collusion. That is just antitrust law.

Re:"Surge Pricing"

[Anonymous Coward]

Hmm, it seems hotels have no problem getting away with it.

Re:"Surge Pricing"

[NostalgiaForInfinity]

Mostly shops are run by decent human beings so will strive to be open in times of need anyway because they don't want to cause even more suffering.

Really? So why do you need "price gouging laws"? In addition, decent human beings may simply not want to deal with you if you give them a big "fuck you" in the form of a price fixing law.

Sure it is, because the stock will sell far faster - assuming it's the kind of store that sells practical items.

Selling during an emergency means a lot of risk, in particular for smaller stores: the store keepers have their own families to worry about, they may want to keep supplies for their own safety, and there is a big risk in letting desperate mobs into their stores. Sure, big, nameless stores probably will do that. Small family run retailers will often prefer to close.

Re:"Surge Pricing"

[radarskiy]

I should be more precise and say "Does the supply of Uber drivers actually increase *relative to demand* with surge pricing?"

If the surge pricing does not increase supply but it does reduce demand, then it is still not price gouging. It is a pricing error by the supplier which they would correct once they realize they are making less money even though they are charging a higher price.

This is why price gouging laws are often associated with emergency situations: both supply and demand have shifted away from equilibrium due to the economic shock so would not respond quickly to prices.

Re: "Surge Pricing"

[Joe_Dragon]

And when some comes and takes your $500 pack of water it will be hard to make it more then a Misdemeanor stick even if the Misdemeanors is for $250 or lower.

Re:"Surge Pricing"

[Anonymous Coward]

Many stores will simply close altogether; it's not worth staying open in an emergency subject to price fixing laws if they can just sell at the same price after the emergency is over anyway.

If the reservoir is contaminated, then stores have an incentive to gouge for bottled water. When the contamination has been dealt with and people can drink tap water, stores won't be able to sell at anywhere near the same price.

But if Montgomery Burns can buy the Kwik-E Mart's entire supply of bottled water at an exorbitant price, then both Mr. Burns and Apu are happy, but nobody else is -- from which it follows that nobody else is hurt by price gouging laws. Whether Apu shutters his Kwik-E Mart or sells his entire stock to Mr. Burns, the Simpsons aren't going to be able to drink bottled water.

Re:"Surge Pricing"

[BasilBrush]

I know nothing of these price gouging laws of which you speak. But then I live in a civilised country, where people aren't taught from birth to fuck each other over if possible.

Re: "Surge Pricing"

[spire3661]

The problem with this is, in an emergency, if something costs too much due to price gouging, Im going to dispense with the pleasantries and take what i need to survive, by force if necessary. I will kill you before i allow you to let me die.

Re: "Surge Pricing"

[Anonymous Coward]

"Free case of water to everyone who helps me kill the looter!"

Re: "Surge Pricing"

[Anonymous Coward]

I will kill you before i allow you to let me die.

Libertarians always forget that part.

Re: "Surge Pricing"

[Anonymous Coward]

In this case, laws agains price gauging in such situations are still meaningless.

Re:"Surge Pricing"

[Anonymous Coward]

Simplifying for the case of a fixed supply:
Price=Demand x Supply

If the Demand increases then the Price should also increase.

You actually prove the point about price gauging being good for the market, given a fixed supply of drivers, an increase in demand raises prices in order to keep demand in check. And actually Uber does better than that because they only increase prices where they need to increase them.

Re: "Surge Pricing"

[Anonymous Coward]

"Free case of water to everyone who helps me kill the looter!"

Looter: Free water AND chips for anyone who helps kill the store owner!

Adaption from a better joke:
Sam: Hey, I lost my wallet with $40 in it! I'll give $20 to anyone who finds it!
Larry: I'll give $30!

Re: "Surge Pricing"

[Anonymous Coward]

As a retailer you want to be open to the community during a time of trouble because people really do need the services and products you provide. It's actually a great way to rotate out of product as well. Working in a grocery store, I've been through civil emergencies and it really empties the shelves. Even at standard prices this is awesome.

Luckily our company was able to quickly get us an extra 15 pallets of case water. Think we gave half of it away for free in a one drop donation.

Re:"Surge Pricing"

[Anonymous Coward]

People who complain about it pretty much are crying that they can no longer take advantage of livery drivers not having good information about the market and being able to revalue their services accordingly. They are just use to drivers having no choice but to set a price the market will usually support and missing the opportunity to earn more at peak times.

1) Uber has stated repeatedly that they are not a livery service and shouldn't be subject to the same regulations as real taxies.

2) If you cut out the peak earnings from full time cabbies, you decrease their income, which means you end yup with fewer real cabs. Downtown metro areas will be fine, but you are SOL if you live out of the major routes.

Put it another way. It's like a retail toy store, being open and paying rent all year long, only to have 15 toy stores materialize on Black Friday and vanish the day after Christmas. That toy store won't survive and you'll just be left with Walmart. Once the "real" cabbies are gone, we'll be left with Uber and other illegal cab services as the only option, with no mandate for them to serve rural areas. And Uber, like the fast food industry, will drive wages into the ground while keeping prices, and their profits, high. You won't save a dime when that happens, you'll just get shittier service.

We can get toys from Amazon instead of Toys R Us, true, but we will no longer have the EXPERIENCE of going to a toy store.

Re:"Surge Pricing"

[cascadingstylesheet]

Government can impose prices, but it can't force people to do business.

Unless you bake cakes ...

Re: "Surge Pricing"

[Anonymous Coward]

Anti-price gouging laws are also economically ignorant.

Re:"Surge Pricing"

[drinkypoo]

We can get toys from Amazon instead of Toys R Us, true, but we will no longer have the EXPERIENCE of going to a toy store.

That's for the best. When the focus of the experience moved from toys to packaging, it all went wrong. Now parents can read reviews before they click buy.

Re: "Surge Pricing"

[Anonymous Coward]

Slaves of the state always use strawmen.

Re:"Surge Pricing"

[tmosley]

Why did Mr. Burns want all that water? If he was going to resell it at an even higher price, then Apu should have just raised his price higher, and/or Barney would have gotten out his Plow King and shuttled water from another town. I suspect, however, that Mr. Burns needed the water because there was a problem at the plant, and he needed water for the cooling systems, which helps EVERYONE by preventing a meltdown.

IE rich people don't get rich or stay rich by monopolizing resources for no reason.

Re:"Surge Pricing"

[Anonymous Coward]

Cheaper, faster, better service? It's a free-market Shoah! A laissez faire Holocaust I tells ya!

Peoples needs the stink of a smelly cab and da yellin of foreign languages every now and den or dey ain't gonna appreciate da rest of der lives!

Re:"Surge Pricing"

[NostalgiaForInfinity]

I know nothing of these price gouging laws of which you speak. But then I live in a civilised country, where people aren't taught from birth to fuck each other over if possible.

Yes, you do live in a "civilised" country, where from birth on, you are taught to obey your masters and not to think for yourself. When you get fucked over, as you do every day, you say "harder, please!". Europe is full of people like you. I was born in such a "civilised" country myself and I left. I hope my new country will never become "civilised".

Oh, and Europe does have price gouging laws, and unlike the US, they apply even when there is no state of emergency.

Re: "Surge Pricing"

[Anonymous Coward]

No they aren't. price gouging laws go hand in hand with dumping laws. price gouging is generally the result of an organization that doesn't have sufficient competition or has been allowed to unfairly drive competition out of the market through dumping. Uber does both of these in various markets and really it is the exact behavior that governments should be stepping in to prevent. The problem gets worse as Uber drives other companies out of business.

Re:"Surge Pricing"

[DarkOx]

1) Uber has stated repeatedly that they are not a livery service and shouldn't be subject to the same regulations as real taxies.

Yes they say that so they can avoid stupid protectionist regulation that would otherwise lock them out of the market. The original reasons limiting the number 'real cab service vehicles' was to create tax revenue for big cities; and maybe to reduce the number of motor vehicles on the road. Both horses have left the barn it does not matter.

2) If you cut out the peak earnings from full time cabbies, you decrease their income, which means you end yup with fewer real cabs. Downtown metro areas will be fine, but you are SOL if you live out of the major routes.

I don't see any advantage to 'real cabs'. The they know the roads argument is utter bullshit. Every cab I have been in lately the first thing the guy does it punch the address into a smart phone and let GPS take him there; hint the same thing every uber driver does.

As to out of the major routes bit, I also don't believe this is a problem, for admittedly anecdotal reasons. I have done lots of hiking on the east coast trails, AT, Long Trail, etc. That hobby has found me wanting rides along the side of lots of little rural roads outside lots of small towns. There is ALWAYS a "cab service". Why? Because the need for cabs is relatively low. Typically the folks running the local gas station, convince store, or hardware store fill this role by moon lighting. When someone calls up for a ride (rare) they just close up for a few moments and take care of it. The also know the fair is almost certain to be a good number of miles and is therefor worth their time. Uber is actually PERFECT for this business model.

Re: "Surge Pricing"

[mobby_6kl]

Who are you going to kill when there's nothing to buy because the idiots before you panicked and bought 10 times more than what's necessary to survive?

Re:"Surge Pricing"

[Anonymous Coward]

You missed one more case: if there's a local shortage of essential widgets, and the price spikes, people have an economic motive to travel somewhere else, buy widgets, bring them back, and sell them. This alleviates the shortage. If you impose price controls, then it doesn't happen.

Re:"Surge Pricing"

[Cyberdyne]

Sometimes it's needed to help prevent a service being overwhelmed: our phone calls used to cost 4x more 9am to 1pm than 6pm to 8am because our phone service (government run) had limited available bandwidth. Now that is no longer an issue (largely c/o fibre optics) there is no pricing surcharge for the daytime peak.

In fact on a wholesale level from BT there still are three different time bands for pricing (daytime, off-peak, weekend) and different charges based on whether the call just goes through the local exchange, one regional ('single-tandem') exchange, or two ('double-tandem', which in turn is broken down into short, medium and long distances). Retail phone companies tend to lump them all together into a single rate, though - either an unlimited use bundle, or a simple flat-rate per minute.

For that matter, many of the better ISPs still have some time-based variation in charging: my previous one only charged for usage during the working day, my current one has three tariffs, one of which is much much cheaper outside working hours. (The worse ISPs tend to offer "unlimited" service, and accept that their network is congested and slow at busy times.)

Re: "Surge Pricing"

[Anonymous Coward]

One of the idiots obviously....

Re:"Surge Pricing"

[DamonHD]

Interesting, thank you.

Given that I no longer see differential pricing in any of my own retail bills, and given remarks from BT execs some time ago that they'd like the differentials to go away, I assumed that they'd gone at wholesale level too.

What ratios are there in the wholesale pricing, eg is it still anything like 4:1 between the highest and lowest by time of day?

Rgds

Damon

Re:"Surge Pricing"

[Anonymous Coward]

Always price shop between Uber and Lyft.

Re:"Surge Pricing"

[BasilBrush]

I hope my new country will never become "civilised".

I don't think there's much danger of that.

Oh, and Europe does have price gouging laws, and unlike the US, they apply even when there is no state of emergency.

No, it's pretty much you guys and the Russians.
https://en.wikipedia.org/wiki/...

Re:"Surge Pricing"

[Anonymous Coward]

No, it's pretty much you guys and the Russians.

Well, as usual, you are ill informed:

http://en.wikipedia.org/wiki/U...

I hope my new country will never become "civilised".

I don't think there's much danger of that.

Unfortunately, there is, because of people coming here that are as economically and historically ignorant as you.

Re:"Surge Pricing"

[Anonymous Coward]

1) Uber has stated repeatedly that they are not a livery service and shouldn't be subject to the same regulations as real taxies.

Yes they say that so they can avoid stupid protectionist regulation that would otherwise lock them out of the market. The original reasons limiting the number 'real cab service vehicles' was to create tax revenue for big cities; and maybe to reduce the number of motor vehicles on the road. Both horses have left the barn it does not matter.

You're wrong, even if the right wing part of your brain wants to think so:
1930s

Wikipedia:

During the Great Depression, New York had as many as 30,000 cab drivers. With more drivers than passengers, cab drivers were working longer hours which led to growing public concern over the maintenance and mechanical integrity of taxi vehicles. To resolve these issues, the city considered creating a taxi monopoly... In 1937, Mayor Fiorello H. La Guardia signed the Haas Act which introduced official taxi licenses and the medallion system that remains in place today.

If you want to do away with regulation entirely, please advocate as such, preferably addressing the concerns that arise in such an unregulated system and fly by night operations. The current system may suck, but it seems to suck slightly less than a free for all.

My reference to major routes is urban centric, as in from the airport to downtown is a major route, but from one isolated area of a major city to another is more difficult to hail a cab on. Calling a car/livery service isn't part of the "taxi" experience, as taxi's are specially regulated so that they HAVE to accept passengers in a way that call ahead places do not. Truly rural areas have their own dead zones, or hefty fees likely equivalent of roundtrip pricing on a one way trip. They also suck compared to urban cores, but I say that as a city slicker in general, not just wrt to cabs.

Same Thing

[wisnoskij]

redistributing drivers to areas currently under heavy load is the same thing as getting a new drivers on the road. It doesn't matter if the new driver is coming form his mom's basement or just heading into a new part of town to continue working. Also. sure prices change by the minute, but you would definitely see patterns. taxi use is not being to be anywhere need random, demand is going to very predictable and come in spurts (lunch, morning, afternoon). But then surge pricing will hopefully allow the system to dynamically redistribute and get more drivers to take shifts during high load. And if there is a huge accident and demand skyrockets for hours get more drivers to respond.

Too confusing, need Bennett Haselton

[Anonymous Coward]

This is too confusing math, too many variables. Can we bring in Bennett Haselton to explain, it's been awhile anyways since we had another rant session anyways

Summary; Uber solves some but not all economics

[swb]

I'm not sure why the submitter/story takes a conspiratorial tone about surge pricing but then proceeds to basically explain that surge pricing successfully solves two of three scarcity problems.

The most immediate way to increase supply is to reallocate available resources to where demand is higher. You WANT cars on the road now to go where there is greater demand.

Price increaes help reduce demand from people with lower priority travel requirements and allow those with higher priority travel obtain transportation by allowing them to use willingness to pay a signal of their greater needs.

The only thing it appears to be failing at is increasing the aggregate supply. Uber many need to provide an additional incentive to draw in inactive drivers, like some kind of bonus for drivers inactive for the N previous hours to become active again (such as guaranteeing at least one surge priced fare if surge pricing stops before they can obtain a fare within some time window, even if Uber has to cover the differential).

The only conspiracy in my mind with surge pricing would be if Uber enables it WITHOUT a concurrent increase in demand. If they are just enabling it because its raining even if there's no increase in demand, they're just opportunistically increasing fares. I might buy into the notion that they may be predictively enabling surge pricing IF they coud produce the data that says that some event X results in a Y percent demand increase historically; in that case they may actually be signalling additional supply and doing some good.

Idiot writer - Uber driver notes

[Anonymous Coward]

This writer is a total idiot.

As a former uber driver this is 100% false. What happens is over a week or two, the times when surge is likely become known to drivers. Some drivers (such as myself) generally only want to drive during periods with likely surge demand. Uber actually exposes this to the driver over time (as does Lyft etc) - with peak and prime time discussions, history etc, and you have an earnings report that shows this.

Basically, check weather for the week. If it's going to be raining at the morning or evening commute or dinner hour, fire up the car - you were much more likely to see surge pricing (basically when it's raining even after price goes up demand tends to stay up).

If it's not raining, surge tends to drive demand down I've noticed. Folks walk, bus, wait, do an errand etc. For riders willing to pay service quality (ie, wait time) remains pretty consistent - so if you've GOT to get the that job interview / meeting, you can still count on uber (at a higher price).

It seems to work pretty well.

I'd be much more interested if this "wonk" actually had a better system. It's easy to poke holes in someone elses approach, but I've often found asking these kind of folks to design their own system is eye opening, they often know FAR less about the subject then they claim.

Re:Idiot writer - Uber driver notes

[minstrelmike]

I appreciate your on-the-spot insight, but it seems as if there would also be facts to back up your assertion. Granted, it would be hard to discriminate between the folks who drive for Uber every Saturday vs the ones who drive only on the Saturdays they "think" there might be surge pricing.

With prices changing every 5 minutes, seems to me the astute driver would foregoe the first surge that attracts other drivers to an area and try to be in the vacant area that receives the next surge 5 minutes later.

By the way, he isn't poking holes in anybody's approach. Everyone agrees there are three ways surge prices address scarcities. Uber says their approach worksby doing option 1 but the researcher says it works by doing option 3. It thought it was pretty clear in both the summary and the article but apparently not.

Re:Summary; Uber solves some but not all economics

[minstrelmike]

Actually, it is Uber that says their surge pricing puts more drivers on the road and the researcher who says that is not true, that Uber's surge pricing merely redistributes the current drivers, it does not add new drivers.

I'm so sorry you confuse explanation of facts with conspiracies.

Yes it does. Drivers learn, cash inflow is growth

[Anonymous Coward]

Pay more, you will get more, it may take some time but given if you believe in market forces, supply will equal demand

any chance this will deter people from going out

[Anonymous Coward]

when everyone else is? nah, we aren't that bright ...

If you don't like Uber surge pricing...

[Anonymous Coward]

...then drive your own damn car!

Re:Summary; Uber solves some but not all economics

[Anonymous Coward]

And the reason for that is because nobody can plan for surges because the pricing changes from minute to minute. As a driver this sucks because if you weren't already on the road, you probably can't get on the road fast enough to take advantage of it, as a passenger this sucks because you took an Uber to the concert for $25 and now it's midnight and Uber wants $100 to take you back to where you started.

My plan to deal with Uber surges is to simply not use Uber until some sort of "uber futures" contract exists where I can know that my ride back will be $x before I take a ride away.

The plural of anecdote is not data however

[Afty0r]

my experiences are very different to the stated outcome of the analysis that "It does not put new drivers on the road."

I use Uber fairly regularly in London with friends (more than monthly compared with perhaps annually for "Black Cabs" prior to Uber) and I often chat with the drivers about their experiences, financial impact of uber etc. because my father is a cab driver in a city which does not yet have Uber and I have a vested interest.

When I ask about the surge pricing, every driver without exception has told me that he works around "chucking out time" (common bar closing time in the UK) more than he normally would because of surge pricing.

The methodology the author (above) uses seems extremely suspect, and I cannot agree with this conclusion that it doesn't put new drivers on the road. He seems to think that as soon as surge pricing activates, that magical drivers will appear from nowhere within 2-3 minutes - and if that doesn't happen he claims "it's not working". He is missing a MASSIVE factor here (that also affects taxi cab drivers other than uber) which is that demand is predictable - busy late-night areas, concert and sporting venues at the end of events etc. are known to be busy well ahead of time. The number of drivers in that area at that time would not be so volatile as to immediately increase when surge pricing kicks in, but it is highly likely that the number of drivers in the area *before Surge Pricing even kicks in* is way way higher than it would otherwise have been.

For example: A good taxi cab driver will choose to be in predictably busy areas a while before they get busy...

In conclusion, author sucks. Source: family in the industry, and analytical/logical brain.

How about a "Meter" function in the app?

[pbasch]

I know the "kids nowadays" don't want to look at a meter, because it destroys the fantasy that they have a private limo... or the fantasy that the driver is a buddy just giving them a ride because they love them. Also an actual meter would be an expense. On the other hand, there IS a meter - that fare is being calculated somewhere. Why can't I see it? The app should have a screen where I can watch the fare, and see all add-ons - health & safety (or whatever they call it), surge multiples, everything. Anybody who prefers to ignore it can.