Uber’s gotten a lot of bad press over its surge pricing system. As prices soared during Storm Sandy and a hostage crisis in Sydney, people saw it as price gouging when times are tough.
I’ve always thought the public reaction to price gouging in times of scarcity and emergency was irrational. While charging double or triple for food, rides or generators does mean that the rich get more access to them, it also does at least a partial job of assuring that people who truly need or want things the most get access over those who need them less. I do not quite understand why the alternative — keeping prices flat, and allocating items to whoever gets there first — is so broadly preferred.
Uber has promoted another reason to have surge pricing. They argue that as they raise the prices, it causes an increase in supply. Unlike generators, where there are only so many in the stores during a storm, doubling the price of a ride can mean a sudden influx of rides, both from people in the area and even those who rush in from outside to make the extra buck. I suspect that does happen, but Uber also makes more money and poorer people are priced out of the market, which has been a PR nightmare.
For the recent snowstorm that didn’t end up being too bad in NY, Uber announced some new policies — a cap of 2.8x on the price increase, and donation of all proceeds to the Red Cross. The mayor of New York even declared the surge-pricing was illegal.
It’s an interesting start, but what do they mean by all proceeds? If they’re not increasing the income of the drivers — many of whom are low enough income that the double-time or more rates can make a real difference — then they are defeating the whole point of this.
Here are some potential ideas I was thinking about for how to play surge pricing:
- Keep Uber’s fee during a surge the same. Ie. it’s always 20% of the rack rate, not of the surged price. So Uber is making no extra money (except from the extra volume,) just the drivers.
- To get really extreme, Uber could reduce its cut as volume increases, so they don’t even make money from the increased volume.
- They could just donate all their cut (which may be what they mean when they say all proceeds.)
- The extra could be split between drivers and a charity. You get more drivers, and they make more, but good deeds are also done.
Another option would be to do something like a “buy one give one” as we’ve seen in physical products. This would mean that during the surge, riders could elect to pay more to get priority (and to attract drivers.) But if the surge is for 2x, they might pay 3x, and the overage would go to provide a regular priced ride (1x) for somebody else, while still paying the driver 2x.
The tricky part is how to make sure the subsidized rides only go to those who can’t afford to pay the surge price. The subsidized rides will presumably still be in short supply. You want them to go only to those who truly need them. Options might include:
- Offer subsidies primarily for those who use UberX almost exclusively. Use a lot of black car and you don’t get a subsidy. (Yes, some people use black car on expense account and UberX on personal rides, including myself, so this is not perfect.)
- Require a declaration of low income. Subject those who declare low income to random audits after the fact, pulling up credit scores or asking them to actually demonstrate the low income. If they lied, charge them the full amount plus a penalty for all subsidized rides they took.
- Drivers could also elect to subsidize, and say they will drive for 1x, or any other amount, to really increase the supply of subsidized rides and the amount of subsidy. They might get a tax donation receipt for doing so if Uber could set up the tax structures properly with a non-profit. (A non-profit would probably need to work over all companies or be fully independent of the company.)
As already happens with the surge system, adjust the surcharge and subsidy to try and make demand match supply.
You could even offer rides to those in need for 0.5x, a flat fee, or even nothing, though nothing is very easy to abuse.