Is Uber Surge Pricing Unethical?

Fortunately I spent New Year’s Eve in the Maldives, so the extent of my post-midnight commute home was from the beach to the overwater villa.

Maldives

But as I browse the internet today, I notice a bunch of people outraged by Uber’s surge pricing on New Year’s Eve.

Like this guy, who paid nearly $500 for a ~24 minute ride:

https://twitter.com/JHoule88/status/682968510457339905/photo/1?ref_src=twsrc%5Etfw

On the surface it seems totally ridiculous. I don’t think anyone will disagree. Nearly $20 per minute for being driven home is insane. But I think there are two sides to this.

Here are my general thoughts on Uber’s surge pricing:

  • Uber is very transparent with surge pricing. You agree to the surge at the time you book, and you can even get a fare quote. So while the fares might be ridiculous, I think the people waking up and saying “oh my god I paid how much?!?!” have only themselves to blame (or how much they drank). If you don’t like the fare, don’t take an Uber.
  • Surge pricing can go up and down pretty quickly, and people should know that. Don’t like the surge price at 1AM? Hang around till 2AM and I bet it will be much lower. Uber surge pricing changes by the minute, so the only time I’d accept 9.9x surge pricing is if it were an emergency. Of course waitingĀ might not be convenient, but neither is paying an insane amount for a ride. šŸ˜‰ If you’re not okay with the surge pricing, it’s something you have to deal with.
  • Uber is the perfect example of the “sharing” economy. Drivers are independent contractors and can work when they want. They need an incentive to work on New Year’s Eve, because I’m sure there are other things they’d rather be doing as well.Ā Without surge pricing I think you’d find very few Uber drivers. Now we can certainly debate how much of a surge would be reasonable. Would 2x be enough to get more people to drive? How about 3x? 9.9x does seem a bit excessive.
  • There are alternatives to Uber — other ridesharing apps, car services, taxis, etc. Put I think they’re also the perfect example of why Uber has surge pricing. Good luck finding a taxi on New Year’s Eve (few are working since they always charge the same, and those that are working are busy), and a car service doesn’t give you much flexibility. So to many it seems like Uber might just be the onlyĀ decent option. Does Uber have an ethical responsibility to provide cheap transportation on New Year’s Eve to keep the roads safe? Some might argue they have a near monopoly in some cities, so perhaps some think that they do.

Bottom line

I think it’s perfectly reasonable for people to take issue with Uber’s surge pricing. But I think they should do so before they get in an Uber, because once they accept the surge pricing they have no right to complain, in my opinion. I don’t go into a store, agree to buy something which I know has an inflated price, and then complain the next day that I overpaid.

With the sharing economy, people need an incentive to work during peak times, so I don’t think surge pricing is unreasonable.

What’s “reasonable” surge pricing, though? I agree 9.9x is excessive, but that’s a case where waiting an extra hour would have likely saved a passenger hundreds of dollars.

To sum it up, there are ways to avoid the truly ridiculous surge pricing (like being patient), so when you acceptĀ surge pricing you’re not happy with and complain after the fact, you have only yourself to blame, in my opinion.

Do you take issue with Uber’s surge pricing? If so, do you take issue with it in general, or only when it exceeds a certain multiple?

Comments

  1. It is absolutely good, because rides are scarce at that time.

    But you get idiots who will say it’s gouging and prefer shortages of scarce resources.

    Like when areas get hurricanes and hotels and gas stations jack prices up… they are at risk of being lynched or prosecuted for gouging.

    But the price SHOULD go up.

    That way people can choose to put 4+people in a room vs getting 2 rooms. Or only get the gas they immediately need.

    Simple capitalistic economics make everyone richer.

    Or people can risk a $20k (or deadly) DUI.

    $500 for 30 min ride on NYE safely home is a bargain.

  2. The problem with surge pricing, however, is it basically just lowers demand until those that can afford to pay can afford to ride. When the market is full with these drivers at ALL hours, those who have fixed pricing are forced to lose rides during normal hours (which are the majority), and thus possibly close or go out of business, but at those higher demand hours, the ONLY rides that may be obtainable are those that are all but unobtainable for those with regular means. This is how you build a caste society. This perverts a market where everyone has fair access to goods and services.

  3. Compare it to the price of a DUI and the surge pricing is a bargain. I really like the fact the surge puts more sober drivers on the road.

  4. No problem with surge pricing, I would agree you accept it before you take the ride. What I do have a problem with is drivers gaming the system by colluding to cancel on riders to drive up the surge.

  5. How in the WORLD does surge pricing put MORE sober drivers on the road? Technically it may force those who would take an Uber to decide NOT to, and thus drive drunk! I don’t think it would tip the scales towards more sober drivers on the road at all!

  6. Live in NYC and took a taxi home at 1 am right after new years. No issue getting one at that time and no surge pricing *shrug*. Saw plenty of cabs running around with their lights on.

  7. Now that Uber alerts you to surge pricing in advance, I don’t have much sympathy for people who post their $500 trip summary looking for sympathy/outrage. The problem is in cities where Uber has used its massive funding advantage to operate at a loss, enabling it to undercut the taxi system. Surge pricing allocates cars for those who can afford to ride, whereas flat-rate taxis are allocated for those who get lucky enough to find them. It’s great for wealthy people and not great for others – like a lot of the sharing economy. Same thing on the supply side – drivers need it as an incentive, because they have to pay for gas, car maintenance, and other expenses. Most taxi drivers I’ve met in San Francisco who quit to drive for Uber did so not because Uber is an overall better deal, but because they weren’t getting any fares, due to Uber’s predatory pricing.

  8. Uber’s surge pricing model is an efficient market at work. People who have an understanding of basic economics get this. Adam Smith in the 1700s understood the concept. In his most well known piece “An Inquiry into the Nature and Casues of the Wealth of Nations” (which you can read for free at http://www.ibiblio.org/ml/libri/s/SmithA_WealthNations_p.pdf) Chapter 7 explains this concept.

    Smith writes that if “the quantity brought to market should at any time fall short of the effectual demand, some of the component parts of its price must rise above their natural rate.” That’s exactly what happens when the demand for rides on Uber exceeds the supply of rides available. The price rises. Since the consumer has freedom/options (they have no mandate to use Uber), some consumers will determine the price is not worth paying and they will walk, wait for a taxi, take a subway/bus.

    The opposite can also happen. If demand for Uber was so low that there is a glut of drivers unable to take rides, then prices would fall. Uber in the last couple years had reduced the base ride costs in some cities (ie. Boston) due to this – as a result of the lower costs, demand went up. Of course, there’s a floor to how low you can price since the drivers need to cover their costs + make profit and Uber needs to make revenue, too.

    People complain about market-driven pricing all the time. When someone has to get to a funeral and needs a last-minute ticket, they complain it costs $500 for a 1-way from Boston to Dallas when a ticket before cost them just $129. When there’s a “shortage” of beef of milk and the price rises, people complain. It’s unfortunate that economic education is not better in the United States (some of these concepts should be taught in elementary school), because ignorance of economics seems to drive many of these complaints. People who understand supply and demand balance and that markets are efficient when the supply and demand are in equilibrium get it.

    Adam Smith also explained why the tactics of the taxi union bosses, wanting to eliminate competition like Uber or Lyft, will be bad for consumers because prices will be driven up. He wrote: “A monopoly granted either to an individual or to a trading company has the same effect as a secret in trade or manufactures. The monopolists, by keeping the market constantly understocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate. The price of monopoly is upon every occasion the highest which can be got. The natural price, or the price of free competition, on the contrary, is the lowest which can be taken, not upon every occasion, indeed, but for any considerable time together. The one is upon every occasion the highest which can be squeezed out of the buyers, or which, it is supposed, they will consent to give: the other is the lowest which the sellers can commonly afford to take, and
    at the same time continue their business.”

  9. It’s simple supply and demand. To my knowledge, uber always alerted to surge pricing before you booked (although now you have to type in the surge price to prove you saw it). I’ve seen surge pricing after concerts and spent an hour or two at the bar waiting for it to go down. To call it unethical is comical. It’s one of the most transparent, user friendly service I’ve used.

  10. @joelfreak – if I’m an Uber driver, I’d hang out with friends and family and enjoy the night if I could only get paid standard pricing. The ability to make $500 would provide enough of an incentive to skip the party and put me on the road picking up fares.

  11. @Mike, thats nice, but studies prove that doesn’t happen (see the link I posted higher up). The fallacy that higher pricing means more demand is causing most people in this thread to think its justified. All this does is enriches Uber and perhaps some drivers…but it doesn’t help the market at all. Don’t lie to yourselves with any other thoughts.

  12. The Price seemed high even at 10x. That meant the regular price for a 24 min ride was $48. That sounds high even for Manhattan NYC let alone a regular market.

  13. @joelfreak – took some work to find the actual study and I don’t think it says what the story you linked to claims. In fact, it seems to be the opposite. The study claims surge pricing negatively impacts demand (ride requests) in a surge area. But that’s different than the number of drivers in a surge area. On that front, the study claims surges positively impacting supply (more drivers come in to the area).

    From the study: “This suggests that surge pricing is effective at drawing drivers onto the roads.”

    Based on this one limited study (which seems to focus more on openness/transparency from uber than anything else), it might be fair to say there is no increase – or perhaps a decrease – in rides in a surge area. But, that’s more about whether a rider is willing to pay the premium for the driver, not whether the driver is available.

    The fact surges are short lived or avoided by crossing the street is also proof uber’s algorithm is working to find the sweet spot between the incentive to keep drivers on the road and the premium riders are willing to pay.

  14. I’ve honestly never had it happen to me yet. I guess the app tells you that “surge pricing” is in effect? If the app doesn’t tell you the price (and from what I know the price isn’t known until the ride is over) then it is more than likely price gouging. Do they even give a clue as to the astronomical amount? Or is the only warning that one gets is that “surge pricing is in effect?”

    It is absolutely bad IF there is no forewarning to the possible amount, but then again their are dolts who will agree with a fancy name “surge pricing” and say that it’s all good.

    I just think the various states AG’s offices haven’t caught up to it yet. But they will, all in good time. In Florida, one can file a price gouging complaint online:
    http://myfloridalegal.com/contact.nsf/contact

  15. Uber is not a complete product/service yet. The secret sauce to the Uber ecosystem is not people needing rides, it’s drivers. Uber functions better and is designed to work better with more enrolled drivers. And it doesn’t have enough drivers yet.

    Surge prices and the potential for premium dollars incentivize drivers to enroll.

    People complain as if using uber is not 100% optional.

    Rich

  16. if you have ever watched a matinee at the tgeater, dined at a nice restaurabt for lunch as opposed to dinner or purchased an ‘advance fare’ cheaply for a flight and you also simultaneously think surge pricing is “unethical” then you sir, are a hypocrite.

  17. Adam Smith’s chapter about Uber is one of the most forward-thinking aspects of his work in the 1700s. It’s not quite an efficient market, though, since Uber operates at a significant loss that their investors forgive, due to their insane valuation that is itself based on distortions in the market (bubbles, primarily). If Uber’s pricing were high enough for them to make a profit, people would take taxis instead. There’s a reason Uber didn’t become the dominant force it currently is until they introduced Uber X… Wealthy San Franciscans loved Uber Black, but everyone else thought it was too expensive except for special occasions.

    I’m not against Uber and do use them quite a bit, but the idea that their operation reflects an efficient, unrestricted capitalist market is straight out of their PR handbook. Generally capitalism doesn’t reward money-losing companies, but Uber is considered one of the most valuable companies in the world.

  18. No problem with surge pricing to balance supply and demand. I mean, either you wait out the surge or you are going to wait longer for a driver to get you. And uber has made changes to ensure it’s obvious that surge is in effect so you literally can’t request a ride without acknowledging that you’re paying more. Surge pricing just efficiently allocates rides to the people most willing to exchange money for time. And before anyone complains about being priced out of the market, you can always take a cab or *gasp* the bus.

  19. I am mostly with Lucky on this one. One study does not overturn centuries of Adam Smith and basic economics at work. Since my day job was cut a month ago, I have toyed with driving for Uber, more for the experience than the money. If I saw that rates were $500 (if that were true), I would sure make myself available. And that’s fundamental supply and demand – high prices encourage more supply. True, the real world is not a theoretical ideal, but underpinnings of supply and demand make common sense.

    When it comes to economics, I am quite libertarian. Let a free market work unhindered with unnecessary regulation. Aside from opaque aspects of a market – Uber vehicle safety for example which can be readily ascertained by inspection from the average consumer would be a reasonable regulation – that market should be allowed to operate at whatever price the market will bear. I am a pricing professional and, IMO, there is no such thing as “price gouging.” A price is simply whatever a customer is willing to pay for a product or service and that price reflects the personal valuation they place on the service. Even if Uber were only serving a wealthy clientele, I would ask, “Why does that matter?” There is no right to have access to a service such as this. Customers are willing to pay $X for that service. Under period of high demand, perhaps that price rises to $9.9X. However, since customers are given transparent information on that pricing, they make an INFORMED decision. Why should any of that be prohibited or regulated? Allow the market to regulate it. Even if surge pricing does not add capacity, it will drive away customers. Eventually, that message is delivered to company management and they will lower that pricing that does not attract customers – if that is what is happening. Simply put, if left alone…the free market DOES work more than it does not.

  20. @perry A movie is not public transportation. You NEED to be able to move around in order to exist in society. You do NOT need to be able to see a movie.

  21. @JoelFreak
    My close buddy who drives UBER full time who picked me up from LAX on 12/31 via Uber XL told me he was going back home to a family NYE party. He begged his wife to let him leave the party by 12:30am 1/1 so he could get back on the road. New Years party are big surge opportunities and he was looking to make some money that night. This may be anecdotal but drivers are always looking to surge and that does motivate them to go out on a night that would normally be a stay at home night.

  22. Would you all.. intelligent people.. please ignore the liberal?.. just don’t fall in the game.
    Economy never lies! It just requires some adequate level of intelligence.

  23. @Ben K. No need to explain, it is just plain logic, just common sense required.
    I also have Uber driver friends who move their lazy asses at price surges.

  24. I have an observation on this, with no conclusion.

    I scheduled Utog (a livery service) in NYC at 1:15AM on January 1, 2015. I thought it was a safe bet to avoid the 12:15AM Rush. My driver told me that I was his first fare for the night. He felt that Uber had taken most of the business.

    I also had no trouble obtaining a cab at 7:30PM on December 31, 2015.

  25. Unfortunately the picture was a fake. When you click on the photo and read the comments, the original poster even admits to it and that he only did it for the retweets. Even Time magazine got duped into writing a story About it. Sorry Charlie… Not this time.

  26. No surge pricing when I requested Uber @SFO just after midnight yesterday. However the regular Uber price was > taxi price and they wanted to send a car in 9 minutes v. 2 minutes for the taxi dispatch. It’s pretty clear Uber didn’t really want my business last night so I was happy to take a taxi.

    I visited Manhattan a year ago and every single time I requested an Uber it was always 2-3x surge pricing, day or night, weekday or weekend, various locations. Again, Uber clearly didn’t want my business so I took taxis everywhere (they were fast to hail as well rather than waiting for Uber).

    I am a big fan of Uber and use it all the time in the SF bay area, but there are some times and places that it just isn’t the best option.

  27. @asdfasdf: “Simple capitalistic economics make everyone richer”… um. Simple capitalistic economics DOES NOT make everyone richer.

  28. Cmon guys its so upfront and transparent. If youre impaired enough to take a 400 dollar taxi ride…consider yourself lucky youre home.

  29. @tommyx

    Generations that grew up under the shortages and murders of communists would disagree with you.

  30. @joelfreak yes you do need to move around, but you don’t need to take a private taxi. If you can’t afford it, take a bus or walk. You sound like a massive idiot. The conclusions you drew from the study just shows that you didn’t bother reading it too.

  31. joelfreak yes you do need to move around, but you donā€™t need to take a private taxi. If you canā€™t afford it, take a bus or walk. You sound like a massive idiot. The conclusions you drew from the study just shows that you didnā€™t bother reading it too.

  32. Out of topic, but did you stay at the Park Hyatt in the Maldives or did you try another Hotel this time?
    Greetings from the Conrad Maldives , which is an excellent resort.

  33. Isn’t this the basis of a free-market economy??? I mean – if I were an UBER driver and demand was high, then why shouldn’t I increase my fare cost? I am not forcing you to take my service. At the same time, considering the high rush during festivities, I may be forced to spend a longer time making a journey which may in other situations take a fraction of the time; in essence, I am able to make fewer runs so my business is also lower. Therefore, I would try and make up the cost by increasing my fare. Sooo… the bottom line is check the price before you commit to the cab. And if you cannot do that since you are impaired, well, call a normal cab.

  34. @joelfreak

    you say:

    “@perry A movie is not public transportation. You NEED to be able to move around in order to exist in society. You do NOT need to be able to see a movie.”

    COME ON. One does not “need” to be able to move around in society at 1:00 a.m. on New Years. Nor does one “need” to move around in society other times when there typically is surge pricing. Anyone who gets effed up on New Years, as I at times do, should factor in surge pricing into their decisions – those 8 $10 beers don’t cost $80, they cost $80 plus the surge fare on an uBer.

    Indeed, it is totally selfish to expect that fixed rate cabbies are eager to drive my effed up ass around in the middle of the night without enhanced rates. I cannot imagine I am particularly charming whilst I, in a drunken stupor, bitch and moan about how I did not hook up.

    For those who cannot afford surge pricing, I might suggest not getting effed up.

    Joelfreak, try this on for size, you whiny bitch – if surge pricing is such a gouge, BECOME AN UBER DRIVER and target typical surge pricing times – you know, rainy Saturday nights with a bunch of affluent, drunk, passengers. You will have earned the enhanced fares.

  35. @Lucky, you should keep your blog to writing about high end luxury travel. Turning it into promoting your fundamentalistic GOP views is sad and disgraceful. Maybe it would be better if you just joined the GOP propaganda team as their social media expect (which I’m sure you will excel at) and then you cam rename the blog to ” One Democrate at a time”

  36. It’s price gouging with a veneer of PR over it. Price gouging’s definition is taking advantage of a temporary unbalance of demand and supply (for example after a hurricane).

    If price gouging is unethical (and in most countries it’s considered so), then Uber “surge” is unethical. It’s no different, really!

  37. I think that the idea that’s “unethical” denies the basic reality that Uber rides are something desirable, not a basic need.

    You can argue the validity of Uber’s position that surge pricing induces additional drivers to come online, but, if nothing else, surge pricing undoubtedly decreases demand, which, in turn, increases the availability of rides to those willing to pay.

    A similar conversation is going on here in Colorado around the tolls on the new CO36 toll lanes. Pricing in these lanes varies according to time of day and day of week. The goal is to keep traffic levels down sufficiently to maintain a minimum speed of 55 MPH in the lane (to meet obligations to the local rapid transit district), so the toll can go as high as $16.28 for the 24 mile journey. Some people claim that it’s unethical to charge such a high toll, but if you don’t want to pay the toll, there are other, slower, options.

    So, as long as there’s other options, charging a higher price isn’t, IMHO, unethical.

  38. Those of you complaining about surge pricing should simply call for a taxi whenever the Uber app indicates surge pricing is in effect. Cabs are a service similar to Uber with no surge pricing. You are certainly able to enjoy the efficiency of a system without surge pricing whenever that system better serves your needs.

  39. Good grief. Uber sent all riders a message with a diagram of surge pricing from previous NYEs, encouraging folks to 1) plan to ride during the non-surge periods that evening, and 2) to be aware of how short the periods of surge pricing have been, and how high priced.
    No sympathy for riders unable to adjust their behavior to their budget.

  40. @joelfreak uber is not public transportation, public transportation is public transportation. if you dont like uber, use lyft or call a friend or a cab or wait for a bus or walk.

  41. The fact that someone is willing to pay $400+ dollars for an uberX is proof that surge pricing is an excellent idea. I’m much happier that Uber and the driver have these people’s money instead of them.

  42. It is one thing to have – say double amount for surge times – but 20X surge pricing is completely ridiculous. I will stick with cabs – as we have a top notch cab company in my town. This post is enough for me to skip Uber.

  43. Uber Driver here. Wow. An awful lot of misinformation. The vast majority of drivers are UberX drivers (the least expensive option). In Minneapolis the rate is a ridiculously low .60/mile plus some add-ons. Drivers get roughly 75% (or less) of that. A half hour ride exclusively on the highway would cost about $20 of which the driver would get less than $15. The expenses (gas, wear and tear on the car, insurance, etc.) are on the driver. The miles to get to you and the time to wait for you while you stumble out of the bar you paid (on NYE) $50+ cover charge w/$10 drinks are on the driver. The miles to return from East Overshoe after dropping you off are on the driver. The puke I have to clean up in the back seat is on the driver (BTW Uber shuts you down until the cleanup is complete). The blown speakers because the Uber app allows the riders to play their music on your radio (and allows access to volume controls) is on the driver. The time you spend going through the McDonald’s drive through as part of your route is on the driver. At 10 times surge – which NEVER happens (other than one night a year) you are looking at $200 max. I never hear anyone complaining that Uber prices are too low during the other 364 days of the year. Stop whining and tip your drivers.

  44. Uber is very aware of the negative press surrounding the New Year’s surge pricing. They hound their drivers night and day by text and email to get out there and drive. Of course people do what they want, which is the beauty of being an Uber driver.

    I think maybe the solution would be to put a max on the surge. That way even a drunk person could possibly guestimate the worst fare.

  45. @Kevin

    Kudos to you.

    Please see my above post.

    I rather suspect that I am more affluent than the typical uber driver. If there are times that they get to reclaim something from the upper middle class by being, of all things, responsible, sober, safe, and available drivers GREAT. That is far more fair than other methods of redistributing wealth from the upper middle class to the folks who slog day in day out.

  46. Riders complain, complain, complain! Want something for nothing? Walk! You get in Uber cars, expecting free water. etc. and you don’t even TIP!

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