Uber Agrees to End Surge Pricing During NY Emergencies, And Why That Means You’ll Never Find a Ride

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)


About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. The Metro in DC charges Surge Pricing.
    Peak times are more; off peak times are less.
    I think that the subway ought to charge the same and run the same number of cars and allow only the same number of people to go thro turnstiles each hour.

  2. @JoelFreak
    Drug Companies charge Surge Pricing
    The new hot drugs cost more and are often NOT covered by your insurance
    The older generics (often made in India and sold here) cost less.

  3. @ffi At this point travel from, for example, LGA to MIA is not a daily trip for you. Taxi rides are part of the DAILY fabric for many, in many cities. Its what gets tourists to their hotels, people to work, and some even to hospitals. It borders on an essential service.

  4. @ffi Drug companies that come out with something that solves an epidemic are controlled, and their patent length is controlled as well. But none the less, I am not arguing about that as much as I am about Uber and others believing they can completely ignore regulation. Insurance rules were ignored until they couldn’t any more. Would you fly an airline that was not regulated for pilot work days?

  5. Once again the government is fixing a problem that does not exist and will have I intended consequences….how stupid when the consumer has the ultimate decision whether or not to buy during surge

  6. @joelfreak – insurance rules weren’t ignored, that’s just false, each state has its own rules with respect to insurance and several states are beginning to regulate uber’s business model. virginia, for instance, had briefly taken the position that anything not expressly permitted is prohibited. fortunately they backed off of that (likely untenable) legal claim!

  7. @33 Jerry — you’re exactly right. Gary isn’t focusing on the statute involved. The specific language in the statute limits price gouging during defined events.

    Late night? Shift change? All fair game for higher prices under the Uber/New York agreement because they don’t fall under the statute.

    Which means that their emergency prices can be higher as well, just not the multiples Uber was charging before.

  8. What we are seeing here is the cycle that has been going on forever in new industries. Something new comes along, people love it at first, then it gets too big, or too greedy, or too dangerous, public opinion tips, regulators step in, and then a generation or two later people who weren’t around for the bad days just see the burden of the regulation and complain about it…a lot of people who have spent their whole life living in a regulated environment, drinking safe water, not having 8 year olds working in coal mines, etc. see the grass as greener on the other side, hence this whole “let people do whatever they want and the market will sort it out” mentality. I’m not saying the taxi system is perfect, far from it, it’s mostly corrupt, but pure unrestrained chaos isn’t a perfect solution either. I don’t know what is.

  9. Interesting that uber is ‘essential public transportation’ in some peoples’ eyes. It’s a miracle then that in the very recent times when uber didn’t exist people managed to get around at all.

    As best I can tell…

    no uber = bad
    lots of uber = good (it’s essential!)
    less uber but > 0 = best

    Sounds pretty reasonable to me, after all I’m totally confident regulators understand all of the relevant nuances with uber after literally months of experience with it.

  10. It’s hard to understand the outrage of everyone here who apparently have never taken an into microeconomics course.

    Uber is providing a substitute option to regulated taxis. If you don’t want to pay the surge pricing, you have the choice to pay normal pricing for a taxi. It’s not price gouging if an alternative exists. Gary’s analysis is spot on.

  11. Gary someone like you with tons of money will ofcourse support surge pricing so you can get a taxi when you want and screw the rest of the regular folks.

  12. @joelfreak

    I find your correlating “essentialness” (which is already debatable) and the need for regulation rather inane in the first instance.

    The prices of bread and in most markets (thankfully) housing are not regulated, but the world has not come to an end.

    Regulation tends to creep in when a regulatory monopoly has been conferred, e.g., gas and electric, where a utility is granted certain eminent domain power in order to operate, but the relevant government maintains some oversight. And even in that context, there is differential pricing for differing levels of service. Almost everywhere, residential electric customers pay lower rates than commercial customers – but commercial customers receive superior response in the event of outages.

    Last, your outrage over surge/peak pricing for transport in this case is downright selfish – you apparently would have drivers supply you services in the snow, rain, on New Years Eve or other surge times but would prefer not to pay them a dime more.

    I rather much makes me hope you get drenched your stingy ass fails to hail a cab in a thunderstorm.

  13. @TK

    I by no means see myself as having tons of money.

    But most uber drivers certainly have less than I do. Were I to oppose their ability to engage in surge pricing, I would effectively have less fortunate people subsidize my convenience. As between me and the average driver, the driver deserves the dollar earned during a surge versus saved in the event that surge pricing is not permitted.

  14. I disagree with you, Gary. The issue is not one of rational market economics; the issue, in this case, is to provide some sort of equity in distribution. Let’s say there’s a hurricane in NYC, and it’s pouring with rain in Manhattan and flooding in the Bronx. Surge pricing will attract more drivers to Manhattan, and fewer to the Bronx, simply because there’s more money in Manhattan, and less in the Bronx. The person in Chelsea trying to get himself to Nobu will be considered more important tot he driver than the person int he Bronx trying to get to high ground. Now, maybe no Uber driver would consider going to the Bronx in this case, regardless. But this certainly levels the field just a little…

  15. 1: Gary’s right, and Lucky (and those of you who agree with Gary) are wrong.

    Uber is a private business, They’re not holding a gun to your head, forcing you to do business with them (unlike the government funded “public transport”, or the government regulated, created, and supported taxi monopolies). What you all are basically saying is “I don’t want to have to pay more during a time of ‘abnormal demand’, so I want to force everyone else to wait with me, rather than allow some people to pay more, and not wait.” Rather bitter and envious of you.

    2: Gary, you’re wrong about this “deal”. It’s meaningless.

    5a is immediately contradicted by 5b. Uber won’t raise their “base fare”, they will simply institute “surge pricing” and allow their drivers to charge more. Which all of their drivers will do.

    5c plus 5d just means that at four separate times over each 60 day period, Uber has raise their rate to whatever max rate they want to have for New York City. A possible schedule:

    Day 1: Set rate at max + $0.01 for 5 seconds at 4 AM.
    Day 15: Set rate at max + $0.02 for 5 seconds at 4 AM.
    Day 30: Set rate at max + $0.03 for 5 seconds at 4 AM.
    Day 45: Set rate at max for 5 seconds at 4 AM.
    Day 1 (AKA day 61): Set rate at max + $0.01 for 5 seconds at 4 AM.

    They have three days were the rate was higher, so the day 45 rate is the max they can charge if there’s an “abnormal event.”

    The shift change bonus if also perfectly legal.

    The deal says “price SET”, not “price CHARGED”. It’s utterly meaningless, other than that the AG gets to milk it for political gain.

  16. It’s easy to agree with Gary here, and I do, but I am very curious about the premise of a utility in general. Gary, since you’re well informed and it’s not your angle here, I’d most like to hear from you on it.

    Here’s my thinking — a bizarro universe, where there is no subway, or taxi utility there might be some added delay in attracting the supply-side drivers to the market, so there might be some added inefficiencies created. It would seem that demand too would be reduced (e.g., from sports games, and other mass-traffic situations) because people would know that it would either cost too much, or it would take too long. If we took a purely conservative point of view, I suspect many of us would not venture out as often. There would be some lost serendipity there, I think.

    With the utility, people wait, but have an a modest expectation and in cases of subway, have a more efficient means of traveling in volume. I’m not sure if it ever makes financial sense to do it, but I do wonder if we let the existing taxi monopolies die, what would it look like? I’m of the bias that it would look pretty good — but it wouldn’t be a utility any longer. Is that okay? Where do we draw the line? I do like subways.

  17. @ed

    If there was no taxi monopoly, do you think that independent taxi drivers wouldn’t show up outside airports, train stations, game stadiums after the game, etc? IOW, do you think it’s the monopoly that’s telling the drivers about these things? Why?

    If not, do you think the monopoly is creating lower prices for the consumers than would exist without the government backed monopoly? Why do you think they’re giving away that money, given that they have the consumers over a barrel (they’re a monopoly. Pre-Uber and Lyft, where else could you go?)

  18. @ Gary – Come on. I didn’t say surge pricing was bad, I simply believe that during “emergencies” that the state has some compelling interests in keeping prices down. If a driver can only get ahead through someone else’s misfortune, they’re unlikely to make it long term anyway.

  19. http://www.bizjournals.com/sanfrancisco/blog/techflash/2014/06/uber-lyft-setback-insurance-czar-backs-puc.html?page=all

    http://www.insurancejournal.com/news/national/2014/06/27/332942.htm

    Both of these articles cover how ridesharing services were ‘stretching’ the insurance system, giving them a definitive benefit over 100% commercial drivers. Was Uber BREAKING the law, probably not, but they were DEFINITELY stretching it…which is fine, but its time that some regulation brings fairness to the market.

    I love how most people here are ignoring that there are private individuals who (I am mostly speaking of NYC here) take out a loan to purchase a medallion, viewing it the same as if they bought a franchise of any store/business. After 1990, owners are even legally REQUIRED to drive their cabs a certain amount of time per year:(http://rules.cityofnewyork.us/sites/default/files/rules/F-TLC-7-22-11-a.pdf)

    Is it a perfect system? Definitely not. But is throwing ALL rules out the answer? Do we want this to be what rides become?

    http://www.businessinsider.com/jerry-seinfelds-wife-spent-415-during-ubers-surge-pricing-2013-12

    There is a NEED for regulation, and there is almost always the feeling that regulation goes too far and stifles business.

  20. @greg I’m not arguing the other side, I am just trying to understand their view. Forget about the monopoly, I’m trying to understand the concept of utility. You’re just saying there is no such thing. I doubt that, even if biased against it.

  21. @joe

    First of all, the only legitimate “compelling interest” the State has is to not screw things up. And if this deal actually “worked”, they’d be violating that interest.

    Person A wants X. Person B says “I will give you X, for Y.” Person C says “I won’t give you X.”

    Who, precisely, is “screwing over” person A, the person who wants a ride during an emergency? Person B, the Uber driver who wants to be properly paid for going out in miserable conditions, or Person C, which is everyone else, including you?

    I can not conceive of a legitimate moral code that ranks the person who’s not willing to got out in that bad weather, and give a ride, as better than the person who is willing to go. Can you?

    And I can’t see any code other than slavery that allows you to tell someone else they must go out and pick up rides, even when they don’t think the pay offered is worth their time and effort. Can you?

  22. This conversation might have moved past this point, but FWIW, Uber should not be compared with NYC taxis but with NYC livery cabs. Livery cabs are regulated, but each company sets its own rates. There are no meters. I can call Company A and get a quote of $50 from home to LGA and call Company B and get a quote of $75. I could also get a quote from Uber for $100.

    (There are the new green outer boro taxis, but for the sake of this discussion they can be ignored as being insignificant.)

    In the NYC context, Uber is essentially a livery cab company that is tech savvy and has an app. Let them charge what they will and the market will respond. If Gary arrives at Penn Station and sees an hour wait for a yellow cab, he could just as easily call Arecibo or Eastern Car Service and they would quote him a price and send him a car. But if he likes the ease of Uber and chooses that, it is the exact same thing.

  23. @ed:

    I’m saying there’s no such thing as a “utility” that acts in the best interest of the customers.

    I’m saying that when someone is competing with a government supported monopoly, there is no reason why the competitor should be bound by the monopoly’s rules. You don’t like what the competitor is doing? Then stick with the monopoly.

    I’m saying that if there wasn’t a government backed monopoly on taxi medallions, you’d get a lot more drivers showing up at that stadium ready to take you home, and the price would end up being less than the current monopoly pricing.

    I’m saying that if you think government monopolies don’t gouge the defenseless, you’ve never looked at a hotel bill, and seen the high hotel taxes, which are there because most hotel visitors aren’t locals, can’t vote in local elections, and so don’t have any political power.

    I’m saying that, given a choice, i will always prefer to deal with a business that has to earn my business, rather than one that has government regulators keeping the competition out.

  24. @Greg D – you and I have a very different view of the role of the State.

    That aside, I don’t think that Uber drivers should be forced to drive against their will, but “properly paid” will depend on the needs and desires of the driver. I simply think that there are times when the “May the highest bidder win” ethos should not be the playing field on which such a transaction should start.

    Every now and then, money needs to be taken out of the equation, just like compelling hospitals to take emergency patients regardless of their ability to pay. The problem is not the requirement, in my view, but the fact that money would even be sought on the patient’s arrival.

  25. @Joe

    I think it’s probably more likely that you and I have very different views about the honesty and self-interest of politicians and bureaucrats. I believe that when you give people power, they will use it to advantage themselves. Giving “the State” more power means giving more power to bureaucrats and politicians. If you’re politically powerful / connected, you will be able to get them to slide some of the benefits your way. But it will always be the case that they will also slide a bunch of the benefits their way.

    See: VA Hospitals and waiting lists.

    For a New York example, during an “emergency” situation, do you think the Mayor is going to have to wait in line for a cab? How about powerful city council members, and / or their family members? How about the people who sit on the commission that regulates the taxi companies?

    “I simply think that there are times when the “May the highest bidder win” ethos should not be the playing field on which such a transaction should start. ”

    As someone who will almost never be the highest bidder, I’d still much rather have that situation, than one where “the most politically connected” win. Which is the situation you have without Uber.

    “Every now and then, money needs to be taken out of the equation”

    Money can never be taking out of the equation, unless you’re forcing people to work for free. All you can fiddle with is who pays, and who controls who pays.

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