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

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.