The Uber Wars: Is “Surge” Pricing “Harassment” or a Consumer Choice Enhancement?

business_ethics_highlights_2The present writer finds it interesting to juxtapose this news account of the furor in India over Uber’s (and, apparently, local competitor Ola’s) peak-load (or “surge”) pricing with his own experience this afternoon. Uber employs peak-load pricing to equilibrate the supply of drivers and the demand for rideshare services. Surges can increase the price by as much as eight times the normal fare. This has the effect of both summoning more drivers to offer rideshare services and encouraging price-sensitive customers to either seek alternatives or wait out the surge period.

Uber competitor Lyft also employs peak-load pricing (they call it “prime time”), but caps it at 25% above the normal fare and invokes it less frequently than does Uber. One consequence of this is that Lyft’s supply of drivers and demand for rideshare services can get into disequilibrium and remain there longer.

This afternoon, the present writer launched his Uber app and was quoted a surge price of 3.6 times the normal fare, with a driver two minutes away from him ready to pick him up. Launching his Lyft app to compare prices, the present writer was met with no prime time pricing, but also a message that “all drivers are currently busy.” Differently put, quantity supplied and demanded were in equilibrium on Uber; on Lyft, quantity of rideshare services demanded exceeded the supply of drivers. Thus, the choice presented to the present writer was: a ride that he could get at a higher price (on Uber) versus a ride that he couldn’t get at a lower price (on Lyft).

Was the present writer “harassed” by Uber, as Karnataka commissioner of transport and road safety Rame Gowda maintains in the article? Would the present writer have been better served if rides were unavailable at a lower price on Uber, as well? >>>

LINK: Uber, Ola Cars Seized in Bangalore in ‘Surge Pricing’ Operation (By Saritha Rai for Bloomberg)

. . . The government of the southern state of Karnataka, of which Bangalore is the capital, banned “surge pricing” on April 6, and set a per-kilometer price ceiling for air-conditioned and non air-conditioned cabs, while customers across India complained in petitions and on social media against the higher fares.

“Surge pricing is not in the rules,” [Bangalore-based commissioner of transport and road safety Rame] Gowda said. “You have to follow the rules of the land, you cannot violate the rules of the land and harass the public.”

Uber this week sent out personalized e-mails to its base of users in Bangalore, saying that its pricing ensures reliability and availability for those who agree “to pay a bit more” on occasions such as weekends and holidays.

“It’s a bit of economics 101: supply and demand adjust in response to price changes,” Uber said in the e-mail. Airlines and hotels follow the same practice, it said.

What do you think?

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