Report says Uber surge pricing has a twist: some drivers flee(sfgate.com)
sfgate.com
Report says Uber surge pricing has a twist: some drivers flee
http://www.sfgate.com/business/article/Report-says-Uber-surge-pricing-has-a-twist-some-6597012.php
52 comments
It's not 'supply and demand'; it's centrally-planned dynamic pricing that just happens to be done by a private entity.
The patent is also very specific about how this is done. Sure, some of the terms are broad: That's just how patents work nowadays.
When we filed a patent it was mostly to protect ourselves against other people suing us for violating their patents. The entire system is fundamentally broken.
When we filed a patent it was mostly to protect ourselves against other people suing us for violating their patents. The entire system is fundamentally broken.
The examiner did cite Adam Smith "Wealth of Nations". It needs a citation for centralized planning too.
Claim 1 is breathtakingly broad and is susceptible to an Alice challenge.
Having had some experience recently of applying for patents, it's disappointing to see how much trouble we have to go to in order to justify things like originality and inventive steps to the various patent authorities, and then to see that something like this is apparently still working its way through the process several years after its original filing. I appreciate that such systems have to be seen to be fair, and challenging claims has to be done based on some objective standard and proper documentary evidence. Still, if your first claim has pretty much an entire field with many years of history serving as prior art, you'd think at some point someone would just say "no".
Doesn't the energy market already react exactly the same way? When the price gets above the cost of production for method x, produce for method x, increasing the supply.
Surge pricing is avoided by customers. Solution, never change price on consumer side but have sliding payment to drivers. Increase flat consumer charge / mile by $0.25 and then use algorithms to determine where / when heavy usage is expected and increase pay to drivers during and briefly before. Patent pending, of course.
This is interesting, but as an economist it immediately struck me that something in this argument feels wrong.
Thinking it though, it may work, but there is a potential problem. You're suggesting you expand the supply side in a surge by ensuring the the driver makes more money. So that means the company makes more profit during non-surge. But doesn't that open up an opportunity for a second company to come along and charge lower rates during non-surge periods?
Thinking it though, it may work, but there is a potential problem. You're suggesting you expand the supply side in a surge by ensuring the the driver makes more money. So that means the company makes more profit during non-surge. But doesn't that open up an opportunity for a second company to come along and charge lower rates during non-surge periods?
Oh! I know! Regulate so that only Uber can operate in a given market, maybe issuing coins or tokens or medallions, anyway something so you know the driver is legit and safe to use. Thus keeping the whole industry safe and reasonably profitable for all those involved.
And then let the people who have owned the medallions gouge those who don't by charging them $40,000/year to rent a car they don't even get to keep.
Get rid of any incentive to act in the customer's best interest: Make sure that no drivers are compelled to go to less desirable areas, do a shift change right at rush hour, allow drivers to reject the rides they don't want, create no feedback loop, allow cash payments so they can pretend like the credit card machine is broken for extra tips, allow drivers to rip off visitors who don't know the area by taking longer and less direct routes, and don't increase the number of medallions ever.
Get rid of any incentive to act in the customer's best interest: Make sure that no drivers are compelled to go to less desirable areas, do a shift change right at rush hour, allow drivers to reject the rides they don't want, create no feedback loop, allow cash payments so they can pretend like the credit card machine is broken for extra tips, allow drivers to rip off visitors who don't know the area by taking longer and less direct routes, and don't increase the number of medallions ever.
Not necessarily. Goods & services can be differentiated by qualitative as well as quantitative measures. For example, and just a personal anecdote, I like Lyft more than Uber, as a company, but generally use Uber because it generally has quicker pickup times. I don't have a clue as to what the price differential might be. "Reliability" is an especially important component in this type of market, because you're trying to get somewhere for some reason and willing to pay, so there is less price elasticity overall for this product. A small increase in price for 95% of the time (averaged out over geographical-time units) would not likely be sufficient to outweigh the gain in reliability and convenience.
There are other explanations / scenarios of course. I have a degree in economics, and, well, respectfully this seems more like a business/marketing domain issue. The change I was proposing would be at the same time too small of a price change and too muddled with other (real world, real time) variables to be well-modeled in the realm of economics.
There are other explanations / scenarios of course. I have a degree in economics, and, well, respectfully this seems more like a business/marketing domain issue. The change I was proposing would be at the same time too small of a price change and too muddled with other (real world, real time) variables to be well-modeled in the realm of economics.
> "Reliability" is an especially important component in this type of market, because you're trying to get somewhere for some reason and willing to pay, so there is less price elasticity overall for this product.
Not sure about the low price elasticity. The article argues that demand for uber-rides varies drastically with price.
Not sure about the low price elasticity. The article argues that demand for uber-rides varies drastically with price.
The problems with that approach are:
1) You're limited to a surge rate of ~1.25x, no more. (Maybe a few more percent if you pass through the safe rides fee.) Edit: and, per sibling, you're giving away business if you increase general rates.
2) You're giving up the extra profits you'd make at the very times when your product is most profitable and valuable, crippling the business model. It would be like if Facebook waived the price differential between general vs targeted ads.
1) You're limited to a surge rate of ~1.25x, no more. (Maybe a few more percent if you pass through the safe rides fee.) Edit: and, per sibling, you're giving away business if you increase general rates.
2) You're giving up the extra profits you'd make at the very times when your product is most profitable and valuable, crippling the business model. It would be like if Facebook waived the price differential between general vs targeted ads.
Why is that any better? If I want to go home on New Year's Eve and I can take annoying public transport or a quick Uber at the same time as everybody else, it makes sense that I should have to pay more.
Economics dictates as demand goes up and supply remains the same the price should go up. Once either supply goes up or demand goes down the price goes down. Uber is literally modeling economic theory.
Economics dictates as demand goes up and supply remains the same the price should go up. Once either supply goes up or demand goes down the price goes down. Uber is literally modeling economic theory.
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It is avoided by some customers but not all and that is the point. Sure the frugal among us will not look for a ride when surge pricing is in place but someone still is.
I don't see this as a twist - it appears surge pricing is working exactly as planned. When resources are scarce, it limits demand and ensure that there are drivers available for those who really need it (who will pay).
To elaborate on https://news.ycombinator.com/item?id=10477319:
Uber advertises surge pricing as a strategy to incentivize^H^H^H^H^H^H^H^H encourage drivers to become available in areas with high demand.
But if the study's results reflect reality, the surge pricing does not encourage drivers to go to high-traffic areas, it simply drives demand down until it is aligned with the supply of drivers in the area. Driving demand down also discourages drivers from working the area, and thus some actually leave, lowering supply further.
Is that bad? It depends on how you feel about companies being honest with customers. A more accurate message on the app might be "Demand is through the roof, but there are only enough cars for those who need a ride so much that they are willing pay 1.5x the normal rate. Hurry before there are even fewer cars and the surge price raises to 2x."
Likewise, if you feel companies should be honest with their subcontractors, the message for drivers ought to be "Demand in this area is through the roof, and the lucky few who will get riders before we drive demand down, will earn 2x the normal rate. The rest might not get any riders at all, as riders make other plans or flee the area."
According to the article, they are working on tools to help drivers with the latter proposition, but not the former.
Uber advertises surge pricing as a strategy to incentivize^H^H^H^H^H^H^H^H encourage drivers to become available in areas with high demand.
But if the study's results reflect reality, the surge pricing does not encourage drivers to go to high-traffic areas, it simply drives demand down until it is aligned with the supply of drivers in the area. Driving demand down also discourages drivers from working the area, and thus some actually leave, lowering supply further.
Is that bad? It depends on how you feel about companies being honest with customers. A more accurate message on the app might be "Demand is through the roof, but there are only enough cars for those who need a ride so much that they are willing pay 1.5x the normal rate. Hurry before there are even fewer cars and the surge price raises to 2x."
Likewise, if you feel companies should be honest with their subcontractors, the message for drivers ought to be "Demand in this area is through the roof, and the lucky few who will get riders before we drive demand down, will earn 2x the normal rate. The rest might not get any riders at all, as riders make other plans or flee the area."
According to the article, they are working on tools to help drivers with the latter proposition, but not the former.
I'm curious about what you are communicating with the incentivize/encourage split. I presume from the presentation that you found it meaningful. Given that your entire comment can be summed up as encouraging connotation management, I'm wondering what you see in that word pair.
Oh, it was a sidelong comment on the use of business jargon like “incentivize,” when a perfectly good word like “encourage” already exists.
That's not greater honesty, but simply a natural inference from the available information[1], and one that everyone makes in any supply/demand pricing system. Although it's always a crap shoot whether you'll be able to get new supply to market before others like you bid the price down.
If you consider the price changes "dishonest", how do you feel about every other price change in the market? The problem with arguments against surge pricing is that they almost always become fully-general counterarguments against the very concept of a pricing system.
[1] If I said "not-A OR B", would you say, "It would be more honest to say 'A implies B'"?
If you consider the price changes "dishonest", how do you feel about every other price change in the market? The problem with arguments against surge pricing is that they almost always become fully-general counterarguments against the very concept of a pricing system.
[1] If I said "not-A OR B", would you say, "It would be more honest to say 'A implies B'"?
If we’re having a nerd debate about logic, we both know that many different was of phrasing the same thing are equivalent. But the reason there are copywriters and focus groups and A/B testing and the entire apparatus of marketing is that how you say it has a very real effect on the inferences people draw and the way they behave.
Right, but you're talking about the phrasing of a basic, well-known, ubiquitous dynamic that people deal with all the time. By your standard, it would seem to be likewise dishonest for any store to raise or lower any price without attaching an economics lesson.
Wrong: "Apples are 10% off this week."
Right: "Apples are 10% off this week, indicating that suppliers are generally willing to offer lower prices for apples now and in the near future, so they should redirect near-term production away from bringing them to market, and consumers should look for marginal uses that they can substitute apples into, like snacks or pies."
That's pretty much unexpected anywhere else.
Wrong: "Apples are 10% off this week."
Right: "Apples are 10% off this week, indicating that suppliers are generally willing to offer lower prices for apples now and in the near future, so they should redirect near-term production away from bringing them to market, and consumers should look for marginal uses that they can substitute apples into, like snacks or pies."
That's pretty much unexpected anywhere else.
The story is about drivers wo drive out of a surge pricing area, not about customers ("who will pay").
I think Uber is being smart here. Instead of being suckered into waiting too long for a ride, the user knows it is their decision. I wish restaurants would do this.
Restaurants do this with things like happy hours or early bird specials. The point is to help shift demand to off-peak hours.
If that's the case, it's actually pretty smart. Do you think it could work in other fields (such as restaurants, as you mentioned)? I mean, would people be ok with paying more in a restaurant that's crowded?
Restaurants already do this, but they do it in reverse. Instead of higher prices during peak hours, they offer discounts during off-peak hours.
As someone who never thinks ahead to make reservations, there are definitely times I would pay more to eat now. Though most of the time I would really rather know that they are busy, and just go somewhere else, instead of sitting there waiting for an estimate that could be way off.
Just like the customers and drivers mentioned in the story, if a restaurant decided to unpredictably charge double for their food due to being busy, I would go eat elsewhere and never come back. (Many restaurants do this predictably by charging less for lunch than for dinner, and attract different crowds)
Of course drivers in a surge area flee, they probably have a passenger in their car who wanted to go somewhere.
Drivers disapper from the map when they pick up a passenger, so if the researchers were able to see cars fleeing a surge area, the cars were empty.
Looks like they are setting the price too high
It depends on what the aim is, but if it is to maximise revenue then yes that would be the obvious conclusion. I think the demand is just too small and noisy to accurately price.
I thought that Uber didn't get any of the extra surge price? In that case they're just trying to clear up congestion as quickly as possible so the price might be optimal from their prospective.
Lyft is (was?) the one that doesn't take a cut of surge pricing ("Prime Time" in their vocabulary). Lyft's cut is (was?) based on the standard fare, and the driver got the entirety of the surge bonus.
I've heard that Lyft has since moved to a model where they take a percentage of the surge price, but I can't seem to find any obvious sources corroborating this.
Uber AFAIK has always taken their cut of the surge price.
I've heard that Lyft has since moved to a model where they take a percentage of the surge price, but I can't seem to find any obvious sources corroborating this.
Uber AFAIK has always taken their cut of the surge price.
> “Without surge pricing, Uber is not really Uber — you can’t push a button and get a ride in minutes,” an Uber economist and an Uber data scientist wrote in a blog post last month about a different report on surge.
> It analyzed what happened when a glitch caused surge to stop for 26 minutes in New York City on New Year’s Eve, Uber’s busiest night of the year.
Hmm. Call me crazy, but this exposes a pretty glaring hole in Uber's model: the inability to hail a car by hand. If - at some point far, far in the future - cabs become obsolete, how will you get a ride when either your phone is dead or the Uber network no longer responds?
Unrelated: is it possible that at some point unscrupulous drivers might try to pick up riders late at night in popular areas just by claiming they're Uber, or having an Uber sticker of some kind on their car?
> It analyzed what happened when a glitch caused surge to stop for 26 minutes in New York City on New Year’s Eve, Uber’s busiest night of the year.
Hmm. Call me crazy, but this exposes a pretty glaring hole in Uber's model: the inability to hail a car by hand. If - at some point far, far in the future - cabs become obsolete, how will you get a ride when either your phone is dead or the Uber network no longer responds?
Unrelated: is it possible that at some point unscrupulous drivers might try to pick up riders late at night in popular areas just by claiming they're Uber, or having an Uber sticker of some kind on their car?
>this exposes a pretty glaring hole in Uber's model: the inability to hail a car by hand
This is precisely the privilege a medallion gets you.
This is precisely the privilege a medallion gets you.
For 95% of the US population (i.e., outside the top 10 or so city centers), hailing cab by hand isn't feasible because the density isn't high enough. So you have to pick up a phone and call anyways.
If you want to preserve this ability in those select places, those cities should grant dirt cheap licenses to any driver who passes a background check (or whatever) and allow those folks to put a taxi light on top of their car. If you keep it cheap, then most drivers in those areas will get a license so they can easily supplement their electronic hails with street hails.
If you want to preserve this ability in those select places, those cities should grant dirt cheap licenses to any driver who passes a background check (or whatever) and allow those folks to put a taxi light on top of their car. If you keep it cheap, then most drivers in those areas will get a license so they can easily supplement their electronic hails with street hails.
> " is it possible that at some point unscrupulous drivers might try to pick up riders late at night in popular areas just by claiming they're Uber, or having an Uber sticker of some kind on their car?"
This already happens in NYC with some regularity.
This already happens in NYC with some regularity.
Hum, you get somebody to help you with their phone, and call some Uber competitor. I'm sure civilization won't fall because of such a flaw.
Of course, if taxis are gone, one wouldn't be able to do that now in lots of places. But for how long do you expect passenger transport to go with no competition?
Of course, if taxis are gone, one wouldn't be able to do that now in lots of places. But for how long do you expect passenger transport to go with no competition?
> If - at some point far, far in the future - cabs become obsolete, how will you get a ride when either your phone is dead
far in the future, phones won't ever be dead, unless you are dead. They'll be tiny, and powered by bodyheat or ambient heat or ambient radio waves or something.
So this isn't a concern.
far in the future, phones won't ever be dead, unless you are dead. They'll be tiny, and powered by bodyheat or ambient heat or ambient radio waves or something.
So this isn't a concern.
Nobody goes to that bar anymore. It's too crowded.
Link to the actual paper is down, but this one is still working:
https://consumermediallc.files.wordpress.com/2015/10/chen-im...
https://consumermediallc.files.wordpress.com/2015/10/chen-im...
> Uber responded that the researchers couldn’t really see what was going on with drivers.
This is a great rationalization that can be trotted out at any time for a variety of reasons. That we, as the customer, have no visibility into "what is going on with the drivers" is an issue that needs to be addressed.
This is a great rationalization that can be trotted out at any time for a variety of reasons. That we, as the customer, have no visibility into "what is going on with the drivers" is an issue that needs to be addressed.
If we take Uber on their word that drivers do move towards the surge areas, wouldn't that just create surges in the areas they were previously in?
“We’re data-driven as long as the data reinforces our pre-held ideas.”
https://www.google.com/patents/US20130246207