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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?
The HFT of the physical World.
"If any question why we died, Tell them because our fathers lied."
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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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.
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
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Price gouging laws predominately apply in a period of civil emergency and only to items that that are necessary for survival.
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.
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
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.
Troll is not a replacement for I disagree.
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.
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.
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.
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.
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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.
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.
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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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/...