Wednesday, December 18, 2013

Uber gouges customers in bad weather (again)

The two previous posts here about Uber and its pending entry to the Houston market are among the most heavily-clicked in this blog's history.  Here's the latest on the transportation phone app, first from CNN Money.

Luxury cab app Uber is under fire for charging New Yorkers insanely high prices during last week's snow storm.

Uber, which sends private cars to your location with a tap of a button, raised fares by as much as eight times (last) Saturday, as New York was blanketed with four inches of snow. Minimum fares surged well above $100, and per-mile charges were upwards of $30.

There were no surprises: Uber notified users what the prices would be before they ordered their cabs. Still, the Twitters were ablaze with angry Uberites crying foul. 

Uber calls it "surge pricing".  And from Bloomberg.

Uber is the darling of the technology industry—unless it’s raining. That’s when it raises prices and becomes the whipping boy of the Twitterati. The latest round of outrage over the company’s surge pricing came over the weekend, when rates increased by a factor of seven in New York because of a snowstorm. At one point, Uber was asking riders for a rate of $35 a mile.

An article in Wired on Tuesday broke down the thinking behind surge pricing, as explained by Travis Kalanick, the company’s chief executive officer. It’s basically the first lecture from an Introduction to Economics class:

“To understand the economics of surge pricing from Uber’s point of view, think of drivers as supply and riders as demand. Especially in bad weather, demand goes up: Would-be passengers don’t want to be out in the snow and rain. Meanwhile, supply goes down: Drivers don’t want to be out in the snow and rain, either.

“In that scenario, higher prices are meant to accomplish two things. First, by offering drivers more money, it gives them more incentive to get out on the streets—at least in theory—thereby increasing supply. Second, higher fares price out some riders, and demand goes down. Calibrating supply, demand, and price to get the most people the most rides for the least money is the math problem that Kalanick says Uber is always trying to solve.”

Kalanick told Wired that higher prices facilitate more rides in situations of high demand. “We are not setting the price. The market is setting the price,” he says. “We have algorithms to determine what the market is.”

Now that's as invisible as the hand of the free market can get.  Don't like being gouged in bad weather by Uber? The author of the CNN Money piece says 'get over it'.

Uber has a dynamic pricing model, in which fares rise when demand for cars is higher. That encourages more cabs to get on the road -- few chauffeurs want to drive around the city in the middle of a blizzard, but a guarantee of a $200-per-ride fare might be incentive enough to change their minds.
It also ensures that users don't have to wait around for hours for an Uber cab, which would defeat the purpose of the luxury service. If you're willing to pay $350 to go from Midtown to Brooklyn, there will be a cab at your location when you want it.


"Nobody is required to take an Uber, but having a reliable option is what we're shooting for," Uber CEO Travis Kalanick blogged last year. "It's not about gouging."

It doesn't matter how rich you are; nobody wants to pay $200 for a cab ride. But the wonderful thing about a free market is there's always another option. You can still travel 25 miles from Yankee Stadium to Rockaway Beach for just $2.50 if you take the subway.

Everything is now a commodity. The Bloomberg writer suggests a more, shall we call it, existential rationale.

Whether or not this is outrageous isn’t a question of economics. It’s a question of values. The ethical discussion can get a bit Talmudic. For some things, like the price of publicly traded stocks, society has decided to strive for as close to a perfect market as possible. For others, market forces are interrupted in one way or another. Restaurants, concert venues, and movie theaters all accept less than full market value for their goods and services at times of high demand, because they think it’s good business. At other times, the government sees a social good in dulling market forces through regulation or subsidies.

Kalanick, on the other hand, is a free-market fundamentalist. This isn’t surprising: Rationality has long been the religion of Silicon Valley, and what’s more rational than having a computer constantly calibrating prices? But a free market is always defined by scarcity: Not everyone who wants something can have it. So even if Uber is facilitating more rides, building a system where there is what amounts to continuous bidding for services will aggravate inequality.


Uber’s approach is effectively the opposite of the existing car-service industry’s model, where prices are largely regulated. Then, when it rains or snows, people manage to get rides mostly by being lucky. Uber’s riders can trump luck by being wealthy. Which one is unfair?

John Aravosis at AMERICAblog recently wrote a glowing advertorial about his maiden voyage on Uber.  He used his space not only to praise the service -- no problem there -- but to help himself get a few $10 credits.  Sorry John, but that's unethical too.

I think anybody who uses this service has to steel themselves for the eventuality that they are going to get ripped off, and sooner rather than later.  So have it, lemmings. It's all yours.  I'll stick to the folks that provide actual local jobs, give back to the community, are just as reliable and dependable without the predatory capitalistic supply/demand price gouging, and play by the rules that were established decades ago to weed out unscrupulous businesses (like Uber).

Update: More from Gawker, and a Los Angeles victim, in The $357 Uber Ride.


Gadfly said...

Per your Silicon Valley comment, this is another reason why it's laughable to call Silicon Valley "liberal," unless you're a national neolib Democrat needing to dip your hands in the libertarian campaign finance till.

PDiddie said...

That's actually not mine but the guy from Bloomberg Businessweek, Joshua Brustein, and both he and you are correct.