Over the weekend, Uber -- the fast-growing service for ordering a ride on your phone -- faced another firestorm of outrage over its practice of charging many times its normal price in times of peak demand. Uber has used "surge pricing" on New Years Eve before, but this was the first time it went into effect during a snowstorm in New York, and many customers found themselves stuck with several-hundred-dollar bills for going just a few blocks.
So why does Uber jack up the prices so drastically, if it pisses people off so much? According to chief executive Travis Kalanick, it's the only way to get more drivers on the road -- 80 percent of the surge price goes to the guy behind the wheel, which can mean a profitable if unpleasant night.
"Not surging is saying you shouldn't have the option," Kalanick wrote on Facebook in response to an irate passenger. "Not surging is saying we should be just like a taxi and be unreliable when people need us most."
But is that really true? New York has 13,437 regular cabs, and while they've been able to increase prices to incentivize drivers to work during rush hours and at night, they've never done anything on the scale that Uber's asked its customers to put up with. Bhairavi Desai, leader of the New York City Taxi Workers Alliance, says sending rates through the ceiling doesn't necessarily bring more drivers out -- and thinks it's a sure way to lose customers.
"You'll never see a real surge in the pricing, the way that Uber uses it," Desai says. "The general principle has been that we have steady work, because you're trying to create a steady customer base. And number two, because you have a steady customer base, there's a certain degree of loyalty you show to your customers, and when they need you more, you don't jack up the prices... You can't run an industry where you're preying on the desperation of peoples' transportation needs, and expect them to depend on you in the future."
Of course, it's worth noting the nice thing about algorithmically-driven dynamic pricing: Rates only respond to the number of people who want rides, and decline when people decide they're too high. And as my colleague Tim Lee pointed out, there's no huge problem in a macro sense with rich New Yorkers having to pay more for guaranteed limo service at a time when demand outstrips supply. The city has a very strong street-hail culture, not to mention a robust subway system, which means you almost always have options other than spending several hundred dollars to get across town.
Price surging might get more problematic, however, in less dense cities that rely more on pre-arranged black car service, where Uber is quickly gaining market share.
"If what Uber's able to do is monopolize prearranged service, and therefore begin to minimize the existence of taxi service, then there is no alternative," Desai says. "Uber is just a dominant service, which I think is harmful not only drivers but to customers."
And besides, Desai says, there are better ways to make cabs available than having them charge more at certain times. "Our approach has always been, there's many factors that contribute to the economics of drivers," she says. "Traffic is a major one, because you're able to earn more as you complete a fare faster, and pick up additional passengers." Then there's the ability to charge more per person going to different locations, or for pieces of luggage, which is currently illegal in New York City.
In the meantime, if people want to pay seven times the normal price to be pampered a little bit, that's their prerogative.