Lucky recently wrote about Uber’s fixed rate pricing for airport runs and some of the rates are pretty good.
For instance, 550 baht for airport to downtown in Bangkok. The Airports of Thailand service will set you back 1000 baht. (It’s still 2.5x the price of a taxi.)
I think that £37 for London Heathrow to downtown with UberX and £60 with UberBlack is a pretty good deal, since a taxi can be as high as £80.
There are cheaper ways to do it, but the pricing is pretty good for what you get.
In his post, Lucky offered as an aside,
There are some fair complaints about Uber’s surge pricing..
And I replied in the comments,
No, there really aren’t.
1. Surge pricing is disclosed clearly in advance. You can take them up on it or not.
2. It’s only during times of scarcity. And Uber isn’t keeping most of it (their percentage cut remains the same). It brings out drivers who would otherwise stay home or go home.
I’ve arrived at Penn Station in New York at 4pm on a Friday. Shift change. It’s raining. Cab line an hour long. Destination not convenient to subway. Will I pay 1.5x and have a ride right away? Darned straight. Better than not having a ride at all, or waiting an hour.
Is it better for everyone? No. The higher price suppresses demand as well.
But it encourages drivers who might have gone off shift to work a little while longer while demand is high.
Or during a snowstorm, gosh it’s just easier to stay warm and inside but they’ll come out and take people where they need to go for a higher fare. The regulated fare system doesn’t allow it, and creates shortages at key times.
Surge pricing isn’t just defensible, it’s actually brilliant, and I’m sick of listening to people complain about something that provides rides when without the system there wouldn’t be any.
Just days later comes an announcement that Uber has entered into an agreement with New York State’s Attorney General to curtail the practice, complete with quotes suggesting that the New York settlement could become a model systemwide.
I like Uber’s pricing transparency. Instead, though, in New York we get this government pricing formula:
Quite simply, since Uber can’t raise its prices during emergencies they won’t be able to entice more drivers to drive and people will just be left without rides. Which is apparently considered better than letting people have rides at a price they’re willing to pay and that makes it worthwhile for drivers, too.
(HT: Katherine Mangu-Ward)
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Gary is being a typical republican on this. Price gouging is not fair, good on ny for stepping up.
This is EXACTLY why there is taxi regulation. Public transportation is what helps make a city work. For those of us with the means to afford paying extra, surge pricing may not be an issue, but what you are laying out is how taxis go out of business because THEY cannot flex pricing as well. Heck, why not charge more on the subway when it rains as well? As much as I like innovation, this is a question of fairness. Uber needs to play by the same rules as taxis. If Uber says their service is BETTER, then let people pay more for it ALL the time, or prove to the drivers that they should be able to charge more ALL the time.
We don’t let gas stations gouge on pricing for gas during emergencies, I assume that you are in favor of that as well? How about food and water?
@daniel – Uber doesn’t really make more money from surge pricing. most of the increase flows to the drivers. that gets people rides. this just leads to shortages.
And funny, just last week I was being criticized by readers for being way too liberal…
@Gary – Uber gets market value from more money being paid through their app. They are venture funded, and at this point they are NOT looking to make a profit, just churn money. This is another reason why Uber is not fair as compared to taxis.
See, you can have laws about price gouging and stores that have stuff on their shelves either have to sell the product or close. Either way there’s not enough to go around. But the stuff is there.
In the case of a service, unless you’re literally going to conscript people then the service just doesn’t get provided. Why would anyone go out and drive during a snowstorm or other emergency when they don’t have to? So you get shortages, big time. That’s what we saw in New York.
So now you’re just effectively saying no one will be able to buy rides at any price, which cannot possibly be better than saying that drivers can make more money if they come out and drive.
No, I am saying that if CABS can’t change their rates, then Uber shouldn’t be able to. If Uber wants to, then they need to conform to the laws that would allow them to. There are services that ARE allowed to flex rates based upon the situation, but hailed car rides are not one of them. I am sure that a way could be found to make a service that would allow this, but its not Uber as it is formulated now. And you are saying that people wouldn’t work at ALL for regular rate when surge pricing is in effect? Isn’t that pure supply and demand? If Uber and its drivers don’t want to fill that need, someone else will.
@joelfreak that’s absurd.
– Taking in money and paying it out doesn’t help Uber.
– Operating at a loss works when what they are doing is growing revenue and reinvesting that revenue, meaning deferring profitability / growing their future profitability.
– The relevant metric is growth in operating revenue, net of payments to drivers.
uber passes through what, 80% or 90% of the fare to drivers?
@joelfreak – “No, I am saying that if CABS can’t change their rates, then Uber shouldn’t be able to.”
If regulations screw up one industry, every industry should have to be equally messed up.
@Gary Oh come on, you are telling me that VC funded companies are not valued upon SALES? I have been through 2 .com busts, I can show you the companies that ALL operated this way.
@joelfreak Uber’s investors aren’t interested in made up numbers. For uber, the relevant sales are the slice they take out of each ride. If they took in an extra $100 million or $100 billion on day 1, and that same day paid out the exact amount to driver 1 as a pure passthrough, that doesn’t make them more valuable in anyone’s eyes.
@Gary public transportation is an ESSENTIAL industry. This is not bouncy castle rentals, where it doesn’t affect the economy if people can’t buy it. There are some industries that NEED to be regulated. This is one of them. Is the regulation perfect? Definitely not. But don’t try to say that transportation isn’t an essential industry.
@Gary I completely disagree with you. Look at companies such as Amazon, Ebay, etc who are ALL valued upon SALES. Sure, pass through is less valued than actual profit, but there are TONS of examples where companies raise money based on SALES and not profit.
I agree 100%, Gary. If you don’t want to pay the surge, wait for the surge to end. Similar to waiting in that hour long taxi line. Or find alternate transport. I just think the surge prices go up too steeply. An extra 25% would be a better start. To be honest, I’ve never actually seen surge pricing. In NJ there is a large surplus of drivers so the fares are very cheap. Probably the biggest reason I like Uber so much now. If that were to change, I would go back to driving to the airport.
The issue of whether taxi’s can do surge pricing as well is a separate issue from whether surge pricing *within the context of Uber alone* is a good thing. Don’t conflate those, folks. Both are important (separate) discussions.
Blaming prices is shooting the messenger. Prices are a messenger for underlying scarcity that does not change simply because you shoot down the prices. The emotional appeal of fairness, the narrative of simple victims, and inability to see through the price veil to underlying scarcity is ever-so-powerful.
Also bizarre that the same people screaming about surge pricing find it anything other than incredibly ironic when they complain about wasting time in the rain unable to find transportation, seemingly not seeing any connection there.
@joelfreak let’s not conflate subways and buses with private taxi monopolies which are regulated for the benefit of the incumbent businesses and not the public
@joelfreak the relevant sales metric for uber isn’t an inflated pass-through but their margin on each ride
Gary – 100% agree with you. I live in New York and use Uber frequently, but not as often during “surge” pricing (a handful of times since they started).
@joelfreak and others: It IS NOT price gouging. It is a simple concept – surge pricing attracts drivers to an area… initially improving service, and as more drivers come, prices return to normal, but the surge in demand has been satisfied more efficiently. Without this innovation, your left to stand on the corner like an idiot… hoping for some good luck. Uber brings drivers, and whether you use surge or not, your situation has improved. Taxi drivers are provided with substantial protections (primarily limited medallions) that limit competition, which essentially guarantee a steady income – the flip side of this is they have little incentive to work more when needed. Fundamentally, the traditional regulations here limit your options/ability to get a ride.
Agree scarcity will arise during events like snowstorms etc, the drivers can basically come and go as they please. And many will opt for “private” business during these periods.
Gary: obviously, there are some progressives masquerading as knowledgable frequent flyers commenting here. Saying a private service like Uber can’t utilize surge pricing is like saying an airline can’t charge more for a last minute flight or a Friday afternoon flight out of a big city. Much like Uber’s suggestion saying wait a while until the surge price goes down, folks can choose to fly Saturday, Tuesday, etc to avoid the higher costs.
There are many progressive frequent fliers, of which I am one, and a proud one at that. However our system has put into place a trade: Taxi drivers MUST charge regulated rates, must provide service to anyone who flags them, etc, and in return there are a controlled number of cabs, so that they get enough of a return to earn a living. Uber ruins this model. They need to cooperate with regulators, while pushing the envelope a bit…this agreement is part of that.
Totally agree with you on this one, Gary.
Uber using surge pricing to encourage more driving?
Ummm didn’t they manipulate surge pricing to gouge the customers?
http://valleywag.gawker.com/the-weekend-uber-tried-to-rip-everyone-off-1484140137
@joelfreak
you ask:
We don’t let gas stations gouge on pricing for gas during emergencies, I assume that you are in favor of that as well? How about food and water?
I am well fine with market pricing of gas during emergencies. Such discourages hoarding by consumers in a time of shortage and encourages users to conserve what is temporarily in short supply. And it is an aside, but the poor sap who operates an Exxon station likely deserves an occasional windfall given the way Exxon squeezes its operators.
As for surge pricing of transport, DC’s metro system provides a helpful example – if you travel outside of peak hours, you pay less, which ensures that resources – e.g., room in trains, are available for those without ample flexibility.
Perhaps the problem here is not that Uber has surge pricing – rather the problem is that ordinarily regulated vehicles do not. There are crappy conditions in which to drive folks around – rush hour, blizzards, etc.; any dude who is too cheap to pony up a bit more to the people (most of whom are less fortunate than I am) who provide services in such periods should just stay home.
Let me get this straight: they are capping emergency surge pricing at normal surge pricing. Gary says “I’d gladly pay 1.5x.” Last I checked, normal surge pricing is 10x to 12x, not 1.5x ($30 and $300 sometimes gets you the same 9 miles in LA where I am). Emergency surge pricing was 20x or 30x – so this says you can’t gouge, and that’s what it is.
It seems to me that 12x surge pricing is already FU – outrageous, and something others (Lyft) don’t need to do to (a) get drivers or (b) stay in business. Because they don’t have to – it’s purely to make more money. Oh sure the drivers get a percent, but so does Uber. A entire 24 hours of 30x is worth weeks of an hour of 10x. I mean, an Uber driver makes more than a cab driver every single time with less commitment – no one says “oh I saved so much money with Uber.” They say, “it was so much better.”
Anyway, it’s sure nice some people can take a public utility and hijack it for their own profit, and ignore laws designed to protect people. What Gary doesn’t say is, Uber has won. So cabs will be going away, and we can look forward to Uber raising prices across the board as cabs decline. So everyone who can will pay more, and everyone else is screwed. The incumbent model is broken but don’t think for a second this is going to save you money.
Airlines shouldn’t be allowed to charge more for travel on Thanksgiving Sunday than on any other day of the year. That way we will all be able to fly on that day. Why didn’t we think of that before?
Actually, such a pricing rule was in effect for many years before deregulation in 1979. You could only buy a ticket for peak travel times months in advance.
It’s all about who wins and who loses. Demand pricing increases supply so more buyers can win, but they are people with money. Fixed pricing suppresses supply but people with less money have a small chance to win. Many people prefer the latter because they falsely believe they will win. I wonder if these are the same people who buy lottery tickets.
So I consider my politics pretty left of center AND I am a weekly traveler with top (precious metal and/or stone) status across two hotel groups, two rental car programs and one airline. There are Democrats and Republicans on both sides of the Uber debate, so no side owns this issue.
In my opinion, this is simply a matter of the market addressing temporary scarcity. I will always take an Uber (X or Black Car) over a cab, except when surge pricing is in effect. It’s not that I have a problem with Uber’s practice, I’m just frugal enough that I will go out and wait on the street to hail a cab.
Gary – am I missing something, my understanding is that Uber is a fixed 20% margin (and that is probably their biggest business risk). Surge pricing means higher sales and higher revenues – or are you really suggesting that surge pricing is only “lack of drivers” and not “plethora of people wanting rides”? I’m not an investor but I’d be willing to wager that surge pricing represents their highest sales volumes (and hence largest revenue periods) and not simply “we don’t have many cabs, so we’re trying to make the same per hour as when we have lots of cabs.” Your argument about fixed margin is totally BS – this is where they make their money.
Or, do you know details of their business we’re not privy too? Does the algorithm attempt to make Uber a consistent amount of money per hour? I don’t believe it. This is a way to make more money for BOTH Uber and the drivers. Heck, with prices that high maybe I should make a few extra k on new years eve. Not a bad job if you can get it! Oh, that’s right, anyone with a CDL and a car can get it!
How about an Uber Platinum annual subscription or something of the sort that would get X “upgrades”?? I really know nothing about Uber, but reading these comments (especially airline pricing on Thanksgiving – good point!!), reminds me how pitiful the gov’t is at doing pretty much everything – especially the communists in NY. Hey, how’s the southern border going lately?! 🙂
An Uber driver in NYC last week told me that the company takes 30% off the top.
I’ve see 1.5x to 3x surge, but nothing ever in the range of 10x or higher that was previously mentioned. Those prices would be insane.
The taxi model is broken. The taxi model is inefficient. That industry needs to grow up and be consumer friendly. Right now, it’s the lowest common denomintor.
And services like Uber and Lyft have to be scaring the hell out of companies that paid $200k-1MM for those medallions.
@daniel: you probably also think airlines shouldn’t charge more at peak times, right?
Gary that’s an interesting point regarding surges that I hadn’t though of before. This article explains it in more detail and provides exactly how the surge model came about because of a driver shortage in Boston. http://abovethecrowd.com/2014/03/11/a-deeper-look-at-ubers-dynamic-pricing-model/
@joelfreak, I don’t think the argument is against any regulation, just that this particular regulation is going to end up causing more problems than it solves. Uber doesn’t control its drivers schedules, so driver availability is a function of supply and demand. Offering higher fares to the drivers is a way of simulating that demand during times that the drivers might otherwise not want a fare. Think of it as overtime or other pay for working in non-standard conditions.
BTW many government run public transportation agencies implement their own versions of surge pricing using terms like “weekday vs weekend” or “peak travel”.
I will say that the assertion that “Uber doesn’t really make more money from surge pricing.” would be incorrect. If Uber is taking a percentage of the fare, unless the dynamic model reduces that percentage they indeed make more. As an example lets look at a $60 fare that if Uber takes 20% means $12, make that fare 1.5x during a surge and Uber gets $18 or 1.5x their normal take. More importantly though since there are no added costs, that extra 50% in this case is pure profit.
As I understand Uber’s agreement with the Attorney General, the change wouldn’t affect the situation you outlined (rainy rush hour) and, indeed, since Uber’s legal “emergency” markup will be based on its highest non-emergency markups, the company, on the margin, is encouraged to raise prices even more during rainy rush hours. I fully agree that the AG’s policy is dumb, but its application seems much more limited than you suggest.
100% agree with the brilliant concept of surge pricing, and of Gary’s defence of it. I am an occasional user and big fan of uber, and I support the idea of differential pricing in many environments. I have seen up to 2.5 times uber surge pricing (this column’s comments was the first place I ever saw 10 times mentioned) and in fact that day I paid the rate for my three mile drive in a torrential downpour at peak taxi time in NYC…and very willingly indeed.
If there is no premium rate system in place at uber, the drivers will simply shut off their app and instead stand at the major hotels and quote independent rates (and indirectly get their surge rewards from grateful buyers). It is worth noting that the uber driver is not *required* to work, so keying himself “offline” is as simple as tapping a key. And how is that good for the consumer?
Free enterprise works fine.
And the traditional taxis should be terrified of this disruptive force in their industry.
This is basic econ; surge pricing helps find equilibrium between the supply and demand curves.
Prices are merely a representation of value for a good or service. The increased value during peak times means that Uber and its drivers can charge more and service customers whose demand is more inelastic. It also provides and incentive for more drivers to hop in the car and provide the service.
It isn’t about fair or unfair, it’s about providing a service at a cost that individuals agree to pay. No one else is forcing you to ride Uber, there are other (inefficient) options. The number one goal of any company is to make a profit, which allows for the continuation of the business.
No need to use the wildly broken taxi industry as a baseline here. Uber is better, that’s the collective benefit of innovation.
Not sure why this is so difficult for some to understand.
Charge more than your competitors and you are gouging.
Charge less and you are predatory.
Charge the same and it’s an antitrust situation.
Lotsa muddled thinking around here.
Uber is ultimately going to regulated by the consumer. Why individuals want government to regulate pricing by a private service is beyond me. I understand the anti-trust and monopoly issues, but those are largely nonexistent and certainly less of a concern today. Certainly uber wouldn’t be a concern of being a monopoly. If anything, incumbent taxi medallions and regulations would be cause for concern.
To @joelfreak – you raise good points, but mostly on the flip side – in other words instead of asking uber to play by the same rules and regulations of the taxi industry., instead you should be asking, why do we have those stupid and asinine regulations anyway? Who benefits? Do all these rules Really benefit the consumer? I think if you look closely at things you’ll agree that a lot if the rules and regulations that exist in the so called “public” transportation arena only serve to benefit the existing players and owners of cabs – not customers.
To Gary’s point, even if you’re worries about “only the rich can afford it” you’re neglecting the other side if the trade- when a “rich person” grabs an uber in surge pricing, it makes another taxi or bus seat or more room on the subway. Again, no one is forcing anyone to buy anything – if the pricing meets demand, everyone wins. If you don’t like it, don’t take it. Stop telling me I can’t pay more and get to my meeting on time.
@ Joelfreak
There’s a difference between progressivism and communism and you’re flirting with it. Yes, the C word…
Uber provides limousine services and ride sharing by complete strangers, neither of which is anything close to resembling an essential government service like the subway (which, as already has been pointed out to you, actually implements surge pricing of their own in cities like DC).
As Gary points out, when you have independent owner/operators, there are two choices:
1. Pricing stays the same and not everybody who orders one gets a ride.
2. Pricing flexes to meet demand and everybody who orders one gets a ride.
In what universe is #2 not better? #2 results in not just more people getting rides (as higher pricing leads to more drivers willing to provide it), but it also results in higher wages for middle/working class drivers.
The fact that this service disrupts the central planners crappy model isn’t an argument that holds a drop of water. Either the central planners need a better model, or they need to get out of the market and let the private companies provide a better service. Again, as has already been pointed out, this is simply a massive devaluation of the medallions that were the product of ridiculously unfair, and in many cases corrupt, unholy negotiations between cabs and the cities in which they operate. I don’t feel bad that the people hoarding medallions got what they deserve.
And to find all these gripes about surge pricing on an airline forum! If anyone has onerous surge pricing, then it’s the airlines, not to mention all the other crazy, non-consumer friendly rules they have. Gary, why not start a gripe session about airline pricing! ….on the other hand, if they didn’t have such insane complexity, then this blog would be out of business 😉
There’s another angle here. Uber may have decided that ultra-high prices during emergencies promote extreme negative feelings about Uber. Customers are human, and they are likely to be more willing to forgive a lack of service than service available only at sky-high prices.
Who among us has not heard people swear never to fly Airline X again? Often it’s because the customer resents being “ripped off” by the airline in a situation where the customer had no viable alternative. People remember that and they are willing to pay more to exact revenge on the airline.
Uber would be justified to fear that effect.
The agreement defines “abnormal disruption of the market” as “any change in the market, whether actual or imminently threatened, resulting from stress of weather, convulsion of nature, failure or shortage of electric power or other source of energy, strike, civil disorder, war, military action, national or local emergency, or other cause of an abnormal disruption of the market which results in the declaration of a state of emergency by the governor.”
On the surface, I think this agreement is about the optics. The State looks like it’s playing tough. Uber looks like they are playing nice but will mostly likely do whatever they like, as they do in other jurisdictions. I doubt things will fundamentally change.
While I agree that this is dumb, it doesn’t seem like a huge deal to me. First it doesn’t matter the vast majority of the time, of course. Second, if I am reading it right, they can still surge, just not as much. I don’t know enough about the price of limo services to know how high the limit is, It seems like the average of their own three highest prices would be a more reasonable cap. You can’t really call it “price gouging” (which I don’t really believe in anyway and certainly not for livery service) if it’s a price they charged in the absence of any emergency.
So should airlines not hike prices during spring break? How about flower delivery around valentine’s day? I guess car rental firms should charge business customers the same as leisure customers as well. And electricity utilities have no business charging differing prices dependent on demand.
The surge pricing is great, and allows the market to function correctly. I recently got a surge price offer in London, and turned it down because it wasn’t worth it to me. And I wasn’t mad, I just made the right choice for me.
Gary is 100% right on this one. Surge pricing rationalizes supply and demand and makes more customers satisfied. Prohibiting surge pricing leaves the lucky few who have rides laying less, but leaves many more customers, who would have paid more (making more the market efficient price at that time) with no option. Why govt would dictate the inefficient outcome here makes no sense.
At no point did I argue the taxi system as it exists is perfect. However, picture this situation: Mary is a 50 year old, without a smartphone or a credit card. She works at a job where she needs to take a cab daily, making close to minimum wage. If the Uber model puts cabs out of business, there is no way for Mary (and countless others, be them students, retirees, etc) to get to work. The economy RELIES upon certain solutions which we ALL pay for. This is what a society is. We all pay for schools and roads, but they are not perfect systems either. I am not arguing Uber should NOT exist, just that they need to play by the rules.
Those pointing towards ‘peak’ travel rates for buses and trains are arguing my point; this rate is 100% scheduled, and plannable. Rates do NOT go up because of weather/emergencies, JUST because of time.
@Gary
I am with you on this one.
Surge Pricing increases capacity. That removes people waiting in line
That shortens time for all (including those waiting in line)
The problem of a fixed supply (e.g. Taxi Medallions) is inability to cope with extra demand
It is NOT mandatory. While waiting in lineyou can call for Uber and take that if it shows up
There is no need to regulate a mostly private industry in the same manner as the public transport system.
Airlines are not essential daily transportation within cities that people rely upon daily. I think a MUCH better comparison would be if tolls changed based upon ‘surge rates’. How would you like it if you left work, needed to get home, but didn’t know if the toll today would be $1, $2, or $5? This creates a system where some people can afford to drive, and others are left with no effective way to travel.
Surge Pricing is standard in airlines
2000$ cross country in economy just so I can go to my grand mothers funeral?
THAT is a crime ! Indeed. That is why we use miles. What about the poor who do not have miles? Give them all miles for emergencies?
Well why is that OK for airlines and not a private enterprise that is non essential?
People are thinking I am saying Uber should not exist. I use Uber. I just believe they shouldn’t be allowed to ignore regulations. This is like a drug company selling items to the consumer that are completely unregulated, and arguing that the FDA needs to get off their back.