Travis Kalanick, chief executive officer of Uber Technologies Inc, failed on Thursday to win the dismissal of an antitrust lawsuit accusing him of scheming to drive up prices for passengers who use the popular ride-sharing service.
U.S. District Judge Jed Rakoff in Manhattan said Kalanick must face claims he conspired with drivers to ensure they charge prices set by an algorithm in the Uber smartphone app to hail rides, including “surge pricing” during periods of peak demand.
“In creating Uber, Kalanick organized price-fixing among independent drivers who should be competing with one another on price,” he said. “Today’s decision confirms that apps are not exempt from the antitrust laws.”
This may be one of the dumbest claims I’ve come across with respect to Uber.
If surge pricing is a problem then all of Uber’s pricing is a problem. Uber sets the price in an area for all its drivers. But drivers often work on multiple platforms — and Uber competes on price with Lyft. And cabs. And alternative forms of transportation.
The relevant market here would have to be setting pricing within a firm rather than across firms.
Of course taxi regulators set price for all taxis across firms and the very point is to prevent competition. They also limit the number of cabs to prevent competition. The suit should perhaps argue that federal antitrust ought to preempt state price fixing.
On the other hand Uber consistently lowers prices. That is a complaint of drivers.
So we have an attempt at a class action of people ostensibly harmed by voluntarily accepting rides at a freely agreed-upon price for something that may not have been available otherwise.
And in any case Uber doesn’t raise or lower fares for all drivers — rather whether or not rates change depends on the exact physical location of each ride request, meaning the location of the customer and not even where the driver is located.
New York’s Attorney General doesn’t think surge pricing has anti-trust problems, in fact the attorney general’s office has entered into a formal agreement with Uber that allows while limiting surge pricing during emergencies.
More fundamentally, surge pricing is great.
- It’s never a surprise. It pops up on a customer’s screen. When it’s more than a de minimis amount You even have to type in the multiple to confirm it. You can’t be charged for surge pricing without acknowledging it first.
- Most of the money goes to the driver, not to Uber. Uber takes the same 20% cut during a surge that they do on regular rides.
- It balances requests for rides with available rides. People with a real need get rides, others are encouraged to take alternate forms of transportation or wait for the surge to end.
- It makes more rides available. It brings drivers into the surge area, when they might not be driving at all. Take a snow storm, at regular prices you stay warm at home, at surge prices you provide service if you’re a driver. That benefits drivers and gets riders where they’re going. And when drivers enter the area, the surge ends.
The degree of the surge depends on the imbalance between riders wanting rides and drivers available and willing to provide rides.
I’ve paid surge pricing — arrive at New York Penn Station. 4pm on a Friday. Raining. Shift change. You won’t get a cab on the street. Cab line an hour long. Uber, 1.25x pricing, a few extra bucks and I was on my way to my hotel in about 3 minutes. Bam.
THE ALTERNATIVE TO SURGE PRICING IS NOT ENOUGH RIDES AT ANY PRICE. The alternative ‘surge’ pricing is infinite. Uber adds capacity, provides a service that wouldn’t otherwise exist.
As I’ve written before, economists love surge pricing, people who don’t understand economics hate it.