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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."
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."
It's like calling a taxi service a ride share.. dumb people fall for it?
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
http://m.earth.org.uk/
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.
"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.
Repeal the 17th Amendment TODAY! Also Please Read http://www.gnu.org/philosophy/right-to-read.html
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.
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.
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.