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

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: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.