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