Uber's Surge Pricing
A terrorist held people hostage in Sydney, Australia a few days ago. In response to this emergency, Uber jacked up the fare price for its services. This caused a backlash because people don't like to have fare prices jacked up in an emergency. Then a number of journalists decided to explain why this is legit and awesome.
The arguments that unfold when this happens are wrong. Economics 101 lectures from journalists are generally bad, but it's even worse in the Uber surge pricing case because they are mixed with even weaker efforts at normative economic theory.
Olivia Nuzzi had one such article at The Daily Beast yesterday that is worth diving into because it epitomizes some of the worst arguments in the genre. Nuzzi's argument moves in a variety of directions, so I will address the various points in order.
Immorality Is OK
The fact that Uber allowed surge pricing during a hostage crisis may lead you to believe that the company doesn't care about you, and you would be correct. But Uber does not have a responsibility to care about you. Uber is not a government entity, and it is not beholden to the general carless public during an unwelcome drizzle of rain or even a time of great distress.
The premise of the program is simple supply-and-demand: when demand for cars increases and supply decreases, Uber's algorithm inflates the fee for rides accordingly, which the company claims encourages more drivers to work, which puts more cars on the road when people are requesting them most.
This is the most problematic part of surge pricing that always goes unnoticed. In an equal society, jacking prices when demand outstrips supply causes those who need/want the rides the most to get them. In an unequal society, jacking prices when demand outstrips supply causes those who have the most money to get the ride. Despite the taunts of irrationality you read from journalists, it is actually totally "rational" for someone on the bottom end of an unequal economic distribution to prefer keeping the prices low, thereby allocating the rides by lottery, rather than allowing them to be jacked up, thereby allocating the rides by wealth.
But Uber's surges are not price gouging, as some have erroneously claimed. Uber––which is actually not the only method of transportation on Earth, despite what it may seem like––warns passengers about the surge before it allows them to order a car, and if the surge is over two times the normal rate, the app forces users to type it in, just to make sure they really understand what they are getting themselves into.
How does the world owe you a private car, priced as you deem acceptable, that didn't exist five years ago?
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