How Uber Surge Pricing Really Works 96
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."
There's no great way to predict the load. (Score:1)
If you can't predict it, there's no real lasting incentive as you won't be predictably making more money by starting a shift suddenly as demand ramps up quickly, then dies off.
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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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Re: There's no great way to predict the load. (Score:2)
Haha. It's the law of transaction costs but on the other party now. Just because computers can cheaply process transactions now doesn't mean people can. The same reason the the restaurant diesn't charge you for salt or sugar packets.
And? (Score:2, Insightful)
It's like calling a taxi service a ride share.. dumb people fall for it?
Re:And? (Score:4, Insightful)
Uber is just using the phrase 'ride share' as part of their effort to ignore following regulations.
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Yes, that is totally the same situation.
College guys: I am going to LA. For $50 I will take someone with me.
Uber guy: a taxi ride, arranged over the internet
Indistinguishable.
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sorry, I forgot the part about predatory pricing.
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Of course. Because some individuals are doing something that violates regulations, it's perfectly find to set up a corporation to do it on a global scale.
Other things Uber needs to start working on:
Prostitution
Drugs
Child Pornography
Good demand, and everybody wants better service.
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laugh (Score:2)
The HFT of the physical World.
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HFT *is* constrained by the physical world, eg the speed of light. Been there, helped with the networking for that.
As to relative levels of thuggery between HFT and Uber... I've never used Uber, so I can't say.
Rgds
Damon
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HFT is physical of course, hardware, network, etc, but it resides in a digital domain while Uber is out and about in the physical World.
Yes they use their systems to manipulate pricing, location, etc to their advantage.
But the results occurs in the physical.
Nothing "physical" about stocks... unless you want to argue minutiae.
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Still works, just not the way people thought (Score:5, Interesting)
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:Still works, just not the way people thought (Score:4, Funny)
Gee, I thought Über's Surge Plan looked like this:
1. Über calls in a bomb threat at a major train and subway station.
2. The station gets evacuated and locked down.
3. Thousands of rail commuters are stranded, with no way to get home.
4. Everyone calls Über.
5. Surge!
6. Profit for Über!
You might say the calling in a bomb threat is illegal, but does Über care if the things they do are legal? It's just a new business model, that old folks do not understand.
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As the article and the summary itself notes:
It moves current drivers from one side of town to the other. It does not put new drivers on the road.
His analysis shows that the surge pricing is not increasing the number of drivers working, it is only shifting drivers from one neighbourhood to another. This means that the unexpected side-effect noted in the article is that in some neighbourhoods the wait time actually increases along with the surge price increase.
I'm not against a market-oriented approach of surge-pricing to solve a supply need, but the way it is implemented by Uber the prices are changing too
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It makes sense that neighborhoods with a relative oversupply of drivers would see their wait times increase, approaching the wait times in neighborhoods with higher demand.
In San Francisco when they implemented surge pricing for parking, prices went up in some neighborhoods and down in others. But prices on average fell [streetsblog.org].
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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.
The point is that you work the surge by making the service worse everywhere else. You're not able to deliver more passenger miles, you just charge more for the same fixed-ish supply. It's good business but it's questionable if the users in aggregate are better off. Then again, it does create a flash mob which may eliminate the outliers which depends on how you value waiting time. If you wait 3x5, 1x60 minutes it's less than 4x20 minutes but the latter is often preferable, since you often have to make room f
It does get more drivers on the road (Score:3)
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.
Re:It does get more drivers on the road (Score:5, Interesting)
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.
Re:It does get more drivers on the road (Score:5, Insightful)
I think the idea is that those drivers will be less likely to work that morning/afternoon when there is a high prices night up ahead. Of course the means there are limited drivers on the lower priced afternoons, but it should work out as time goes on with more and more drivers signing up.
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The problem is, as the article noted, is that the surge pricing is fluctuating too much for it to be predictable and for drivers to adapt their habits accordingly. When the surge price is fluctuating from 1x to 2.5x the price and back to 1x in the span of a few minutes, as noted in the article, it's not predictable enough for one to add more cars to the road. The best one can do as a driver is take advantage of those surges by taking the most expensive fares possible - which means those with short routes an
"Surge Pricing" (Score:1, Interesting)
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?
Re:"Surge Pricing" (Score:5, Insightful)
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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In fact on a wholesale level from BT there still are three different time bands for pricing (daytime, off-peak, weekend) and different charges based on whether the call just goes through the local
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Interesting, thank you.
Given that I no longer see differential pricing in any of my own retail bills, and given remarks from BT execs some time ago that they'd like the differentials to go away, I assumed that they'd gone at wholesale level too.
What ratios are there in the wholesale pricing, eg is it still anything like 4:1 between the highest and lowest by time of day?
Rgds
Damon
Re:"Surge Pricing" (Score:5, Informative)
Price gouging laws predominately apply in a period of civil emergency and only to items that that are necessary for survival.
Re: "Surge Pricing" (Score:1)
If I own a store and there's a civil emergency, I won't even open my store. I would use the products for the safety/survival of my family.
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If I own a store and there's a civil emergency, I won't even open my store. I would use the products for the safety/survival of my family.
On the other hand if there aren't any silly laws in place preventing your from selling your goods at 10X the normal price, maybe you will only keep aside what your family really needs and sell the rest, thus making important goods available to the public when they're really needed. But if that's illegal, yeah, might as well keep them for yourself. When things get back to normal you can continue selling whatever you didn't use at the normal price -- same as you were able to sell it for during the emergency,
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And when some comes and takes your $500 pack of water it will be hard to make it more then a Misdemeanor stick even if the Misdemeanors is for $250 or lower.
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Who are you going to kill when there's nothing to buy because the idiots before you panicked and bought 10 times more than what's necessary to survive?
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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.
Re:"Surge Pricing" (Score:5, Insightful)
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.
Re:"Surge Pricing" (Score:4, Insightful)
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.
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Really? So why do you need "price gouging laws"? In addition, decent human beings may simply not want to deal with you if you give them a big "fuck you" in the form of a price fixing law.
Selling during an emergency means a lot of risk, in particular for
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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.
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Yes, you do live in a "civilised" country, where from birth on, you are taught to obey your masters and not to think for yourself. When you get fucked over, as you do every day, you say "harder, please!". Europe is full of people like you. I was born in such a "civilised" country myself and I left. I hope my new country will never b
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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/... [wikipedia.org]
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IE rich people don't get rich or stay rich by monopolizing resources for no reason.
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Government can impose prices, but it can't force people to do business.
Unless you bake cakes ...
Re:"Surge Pricing" (Score:5, Insightful)
"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.
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Wish I could mod you up today.
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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.
1) Uber has stated repeatedly that they are not a livery service and shouldn't be subject to the same regulations as real taxies.
2) If you cut out the peak earnings from full time cabbies, you decrease their income, which means you end yup with fewer real cabs. Downtown metro areas will be fine, but you are SOL if you live out of the major routes.
Put it another way. It's like a retail toy store, being open and paying rent all year long, only to have 15 toy stores materialize on Black Friday and vanish the d
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We can get toys from Amazon instead of Toys R Us, true, but we will no longer have the EXPERIENCE of going to a toy store.
That's for the best. When the focus of the experience moved from toys to packaging, it all went wrong. Now parents can read reviews before they click buy.
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1) Uber has stated repeatedly that they are not a livery service and shouldn't be subject to the same regulations as real taxies.
Yes they say that so they can avoid stupid protectionist regulation that would otherwise lock them out of the market. The original reasons limiting the number 'real cab service vehicles' was to create tax revenue for big cities; and maybe to reduce the number of motor vehicles on the road. Both horses have left the barn it does not matter.
2) If you cut out the peak earnings from full time cabbies, you decrease their income, which means you end yup with fewer real cabs. Downtown metro areas will be fine, but you are SOL if you live out of the major routes.
I don't see any advantage to 'real cabs'. The they know the roads argument is utter bullshit. Every cab I have been in lately the first thing the guy does it punch
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Price gouging may be illegal under certain circumstances but there is nothing immoral about adjusting the prices of a certain service based on supply and demand.
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The difference is that your claim that surge pricing is the same as price gouging is incorrect.
Price gouging occurs when you artificially raise the price away from the supply-demand equilibrium. Surge pricing occurs when you naturally raise the price toward the supply-demand equilibrium.
Does the supply of Uber drivers actually increase with surge pricing? If so then it is not price gouging.
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I should be more precise and say "Does the supply of Uber drivers actually increase *relative to demand* with surge pricing?"
If the surge pricing does not increase supply but it does reduce demand, then it is still not price gouging. It is a pricing error by the supplier which they would correct once they realize they are making less money even though they are charging a higher price.
This is why price gouging laws are often associated with emergency situations: both supply and demand have shifted away from
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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?
Cite? If it is illegal, then you can reference the law.
In any case, making demand-based pricing (or gouging if you prefer) is often counter-productive. If a resource is scarce, you WANT people to change their behavior. If there is a hurricane and gas is scarce, then you want people to stop driving to the movie theater or whatever, and then there is gas available when people need to buy necessities or whatever. If you have to drive to the hospital, you're not going to care if gas is $10/gallon. However,
Same Thing (Score:3)
Summary; Uber solves some but not all economics (Score:5, Informative)
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.
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I'm so sorry you confuse explanation of facts with conspiracies.
Idiot writer - Uber driver notes (Score:2, Informative)
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 mo
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With prices changing every 5 minutes, seems to me the astute driver would foregoe the first surge that attracts other drivers to an area and try to be in the vacant area that receives the next surge 5 minutes later.
By
The plural of anecdote is not data however (Score:2)
my experiences are very different to the stated outcome of the analysis that "It does not put new drivers on the road."
I use Uber fairly regularly in London with friends (more than monthly compared with perhaps annually for "Black Cabs" prior to Uber) and I often chat with the drivers about their experiences, financial impact of uber etc. because my father is a cab driver in a city which does not yet have Uber and I have a vested interest.
When I ask about the surge pricing, every driver without exception ha
How about a "Meter" function in the app? (Score:1)