Uber Makes Economists Sad(bloombergview.com)
bloombergview.com
Uber Makes Economists Sad
http://www.bloombergview.com/articles/2014-07-09/uber-makes-economists-sad
26 comments
It's absolutely no surprise that the majority of people might prefer a particular resource to be allocated by lottery instead of auction, because they can't afford to outbid the wealthy minority for those resources.
That would be rational if the supply was fixed; but since it isn't (the number of drivers increase with the surge pricing), it's far from clear whether the average person is negatively affected by the temporary price increase (as far as I know, surge prices usually last a very short time).
That would be rational if the supply was fixed; but since it isn't (the number of drivers increase with the surge pricing), it's far from clear whether the average person is negatively affected by the temporary price increase (as far as I know, surge prices usually last a very short time).
(the number of drivers increase with the surge pricing)
(as far as I know, surge prices usually last a very short time)
Having talked with many Lyft drivers about it, the drivers are definitely aware of what times pay better rates and many of them choose to schedule their workdays around it. I don't know if it works for one off events like the WC but it definitely increases supply during evenings and late nights.
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He never said there would magically be enough drivers to cover all the demand all the time. But there will be comparatively more drivers at times when their profits are higher.
Might as well wait until I can get public transport in the morning...
Ok then, that's fine. Nobody is claiming Uber to be a magic bullet that solves all transportation problems. It's amazing, the sort of expectations people develop. It's a service that is offered, it's an additional option, if it doesn't meet your needs then just continue doing what you did before Uber existed...
This whole "price gouging" thing - people who don't like it can simply choose to not use Uber and move on with their day as usual. All of this outrage reeks of entitlement.
Might as well wait until I can get public transport in the morning...
Ok then, that's fine. Nobody is claiming Uber to be a magic bullet that solves all transportation problems. It's amazing, the sort of expectations people develop. It's a service that is offered, it's an additional option, if it doesn't meet your needs then just continue doing what you did before Uber existed...
This whole "price gouging" thing - people who don't like it can simply choose to not use Uber and move on with their day as usual. All of this outrage reeks of entitlement.
How does surge pricing work from the perspective of the driver? Do you see current rates in different zones? Do you get an alert?
I know they get information about the surges (and I think alerts as well), but I'm not sure about the specifics.
It has nothing to do with that. Surge pricing negatively affects the reliability of the service. As other people have mentioned, when surge pricing is going into effect, it's a signal to drivers that demand is high and supply is low. So they can cancel rides with few repercussions and just take a fare that pays more. It doesn't matter that you're willing to pay more; you have to book another Uber and hope that the price doesn't continue to rise.
Uber's response would be "so then give the driver a bad rating". Right. That works when the driver is the one who the Uber account belongs to, but if you've ever used Uber in NYC you'll know that a driver will often just rent out his cab + phone to another driver. I'd say the Uber driver who actually picks me up is the same one in the profile maybe 30% of the time. These other drivers don't care about their reputation, so damaging their reputation is a poor deterrent to bad behavior. They see an Uber login as the same thing as a cab medallion; an asset to be rented out for profit.
Edit: Also wanted to add that Uber's business model in NYC is that the service is free to taxi drivers, but in exchange the drivers have to pay $4 whenever they cancel a booking. So Uber's business model in NYC needs to encourage drivers to cancel bookings every so often, hence the surge pricing.
Uber's response would be "so then give the driver a bad rating". Right. That works when the driver is the one who the Uber account belongs to, but if you've ever used Uber in NYC you'll know that a driver will often just rent out his cab + phone to another driver. I'd say the Uber driver who actually picks me up is the same one in the profile maybe 30% of the time. These other drivers don't care about their reputation, so damaging their reputation is a poor deterrent to bad behavior. They see an Uber login as the same thing as a cab medallion; an asset to be rented out for profit.
Edit: Also wanted to add that Uber's business model in NYC is that the service is free to taxi drivers, but in exchange the drivers have to pay $4 whenever they cancel a booking. So Uber's business model in NYC needs to encourage drivers to cancel bookings every so often, hence the surge pricing.
>>That works when the driver is the one who the Uber account belongs to, but if you've ever used Uber in NYC you'll know that a driver will often just rent out his cab + phone to another driver. I'd say the Uber driver who actually picks me up is the same one in the profile maybe 30% of the time. These other drivers don't care about their reputation, so damaging their reputation is a poor deterrent to bad behavior. They see an Uber login as the same thing as a cab medallion; an asset to be rented out for profit.
Isn't this a pretty serious violation of Uber's terms of service, which would result in a suspension of the account?
Also, if you send negative feedback to the driver renting the account, eventually the renting driver will lose their Uber account. So they will either stop renting or have their account shut down all together. This could work as a deterrent.
Isn't this a pretty serious violation of Uber's terms of service, which would result in a suspension of the account?
Also, if you send negative feedback to the driver renting the account, eventually the renting driver will lose their Uber account. So they will either stop renting or have their account shut down all together. This could work as a deterrent.
Yeah, but nobody reports them; and even if you did they'd probably just get a new phone with a fake name and sign up again. There are just too many cabbies in NYC and they're too transient to really police it.
> So they can cancel rides with few repercussions
If there's few repercussions, it's only because the people being cancelled on don't file a complaint. And is this actually true? I haven't heard any stories of this happening before.
As far as I'm aware, it's a violation of Uber policies for a driver to cancel without a good reason. My believe was that Uber checks up on every driver cancellation, but perhaps they only do that if the customer complains. Certainly I've complained before when I got cancelled on (unrelated to surge pricing).
> That works when the driver is the one who the Uber account belongs to, but if you've ever used Uber in NYC you'll know that a driver will often just rent out his cab + phone to another driver.
Really? Wow, I've never seen that happen before.. I would expect that to be an extremely serious violation of Uber's terms of services, as jljljl said. Certainly if I ever got picked up by a driver that was not the one listed in the Uber app, I'd file a complaint with Uber, and would consider not even getting in the car.
> Also wanted to add that Uber's business model in NYC is that the service is free to taxi drivers
Are you talking about the Taxi calling functionality in Uber, rather than the actual Uber or UberX service? Because that's quite different. I didn't think surge pricing even affected the regular taxi functionality. Of course, my experience with Uber is in SF, so it's certainly plausible that the model works differently in NYC, though I would be surprised to hear that. Also, $4 when they cancel a booking? That doesn't sound like a good model, are you sure that's how it works? In SF with the taxi functionality my understanding was they simply charged a flat fee for each taxi ride (which is taken out of the guaranteed 20% tip to the driver).
If there's few repercussions, it's only because the people being cancelled on don't file a complaint. And is this actually true? I haven't heard any stories of this happening before.
As far as I'm aware, it's a violation of Uber policies for a driver to cancel without a good reason. My believe was that Uber checks up on every driver cancellation, but perhaps they only do that if the customer complains. Certainly I've complained before when I got cancelled on (unrelated to surge pricing).
> That works when the driver is the one who the Uber account belongs to, but if you've ever used Uber in NYC you'll know that a driver will often just rent out his cab + phone to another driver.
Really? Wow, I've never seen that happen before.. I would expect that to be an extremely serious violation of Uber's terms of services, as jljljl said. Certainly if I ever got picked up by a driver that was not the one listed in the Uber app, I'd file a complaint with Uber, and would consider not even getting in the car.
> Also wanted to add that Uber's business model in NYC is that the service is free to taxi drivers
Are you talking about the Taxi calling functionality in Uber, rather than the actual Uber or UberX service? Because that's quite different. I didn't think surge pricing even affected the regular taxi functionality. Of course, my experience with Uber is in SF, so it's certainly plausible that the model works differently in NYC, though I would be surprised to hear that. Also, $4 when they cancel a booking? That doesn't sound like a good model, are you sure that's how it works? In SF with the taxi functionality my understanding was they simply charged a flat fee for each taxi ride (which is taken out of the guaranteed 20% tip to the driver).
Their business model is different in every city because the laws are different in every city. I only know this because I asked my Uber driver; so I don't know the reasoning behind it in NYC. I would suspect that it's something like dispatch services are not allowed to charge drivers per-ride.
NYC in general has a very different attitude towards cab drivers than SF. The city also has rules that the driver is supposed to put his taxi license in the window, and guess what? Half the time it's either not there or it's someone else's license in the window. It's hard enough to get a taxi many places in NYC that if you refused to ride with these guys, you'd just never get a ride. But basically, the city's enforcement of the rules is lax enough that the drivers ignore any rules placed on them and their customers don't expect them to be followed.
NYC in general has a very different attitude towards cab drivers than SF. The city also has rules that the driver is supposed to put his taxi license in the window, and guess what? Half the time it's either not there or it's someone else's license in the window. It's hard enough to get a taxi many places in NYC that if you refused to ride with these guys, you'd just never get a ride. But basically, the city's enforcement of the rules is lax enough that the drivers ignore any rules placed on them and their customers don't expect them to be followed.
NYC already has plenty of taxis. I would expect Uber to only really be used there either as a) a luxury black car service, or b) a convenient taxi dispatch service. It sounds like you're talking about them as if they're purely the latter. Surely they're acting as both? They could also be c) a cheaper alternative to cabs (as UberX), which is what UberX actually is here in SF, but I don't know if UberX exists everywhere or operates the same way everywhere (laws regarding car services are likely to not be that different everywhere, but UberX exists in a much more grey area that I can very much believe doesn't work everywhere; plus, it doesn't make as much sense when there's already enough taxis to go around).
As a luxury black car service, everything I've already said stands.
Ax a taxi dispatch service, I wouldn't expect really anything I know about Uber to apply. But I wouldn't expect surge pricing to apply either, because when Uber acts as a taxi dispatch service, you're still just paying the regular taxi fare (with the caveat that Uber guarantees a 20% (I think) tip instead of leaving it up to the passenger). And if surge pricing doesn't apply, then neither does the claim that drivers cancel when surge pricing is going up.
As far as I'm aware, the main reason for a taxi to cancel is because of laws requiring that taxis can't say no to a street fare, even if they're being dispatched to pick up someone else. This is the same reason why it can take a while to get a taxi to show up when calling the dispatcher directly, and using Uber to request a pickup shouldn't alter that at all. Of course, I could be misinformed about how that law works, but that's my understanding of it. (And of course the taxi driver could have other personal reasons for canceling, but surge pricing isn't one of them).
On this note, the $4 for canceling fee actually makes some sense, if we assume Uber was unable to successfully recruit enough cab drivers with the model of Uber being paid a flat fee for each ride. Uber still benefits by having taxi dispatch services in its app, because that means it becomes the one-stop app for people who need car-based transportation, and once you have them in the app you might convince them to go with the real Uber services. And the $4 cancellation penalty encourages drivers to not cancel, which in the absence of a rating system (which I don't believe Uber has for taxis, nor could it really enforce due to e.g. taxis being driven by someone other than the owner) is the only real way to incentivize drivers to not cancel.
As a luxury black car service, everything I've already said stands.
Ax a taxi dispatch service, I wouldn't expect really anything I know about Uber to apply. But I wouldn't expect surge pricing to apply either, because when Uber acts as a taxi dispatch service, you're still just paying the regular taxi fare (with the caveat that Uber guarantees a 20% (I think) tip instead of leaving it up to the passenger). And if surge pricing doesn't apply, then neither does the claim that drivers cancel when surge pricing is going up.
As far as I'm aware, the main reason for a taxi to cancel is because of laws requiring that taxis can't say no to a street fare, even if they're being dispatched to pick up someone else. This is the same reason why it can take a while to get a taxi to show up when calling the dispatcher directly, and using Uber to request a pickup shouldn't alter that at all. Of course, I could be misinformed about how that law works, but that's my understanding of it. (And of course the taxi driver could have other personal reasons for canceling, but surge pricing isn't one of them).
On this note, the $4 for canceling fee actually makes some sense, if we assume Uber was unable to successfully recruit enough cab drivers with the model of Uber being paid a flat fee for each ride. Uber still benefits by having taxi dispatch services in its app, because that means it becomes the one-stop app for people who need car-based transportation, and once you have them in the app you might convince them to go with the real Uber services. And the $4 cancellation penalty encourages drivers to not cancel, which in the absence of a rating system (which I don't believe Uber has for taxis, nor could it really enforce due to e.g. taxis being driven by someone other than the owner) is the only real way to incentivize drivers to not cancel.
NYC may have plenty of taxis, but in the outer boroughs it can be hard to find one when you need one.
I don't know it would be fair to call them a "luxury" black car service -- there are plenty of black car services in NYC already, very few of them could be called "luxury". The black car services are basically just pre-negotiated taxis. Uber lets them pick up bookings when they don't have one scheduled.
They actually just enabled UberX this week in NYC -- it's been a disaster. A lot of the taxi and black car drivers are boycotting Uber because UberX undercuts their prices (which are largely regulated by the city, so they can't cut prices in response), and they can still get plenty of fares without Uber. So it's been quite hard to get a car via Uber in NYC this week.
I don't know it would be fair to call them a "luxury" black car service -- there are plenty of black car services in NYC already, very few of them could be called "luxury". The black car services are basically just pre-negotiated taxis. Uber lets them pick up bookings when they don't have one scheduled.
They actually just enabled UberX this week in NYC -- it's been a disaster. A lot of the taxi and black car drivers are boycotting Uber because UberX undercuts their prices (which are largely regulated by the city, so they can't cut prices in response), and they can still get plenty of fares without Uber. So it's been quite hard to get a car via Uber in NYC this week.
Do these black car services cost more than a taxi? That's pretty much my basic definition of a luxury car service; if you can get equivalent behavior (i.e. transportation from point A to point B) at a cheaper price by using a taxi, then it's a luxury. But if it's not necessarily cheaper to use a taxi, then I would agree it's not necessarily a luxury service.
Uber (the black car option) in SF is significantly more expensive than a taxi (or UberX, which is cheaper than a taxi, even at low surges). My belief was the Uber black car service was roughly equivalent everywhere. Are you saying an Uber black car in NYC is not actually necessarily more expensive?
I am surprised to hear they enabled UberX in NYC. I would expect it to be a disaster, just as you said. Originally UberX was either an appeal to being green (due to hybrids), or simply a cheaper alternative to Uber, but it started out intentionally more expensive than taxis (they even raised the price at one point, citing the fact that it was unintentionally cheaper than taxis for some rides). But they've since changed course, turning UberX into the cheapest service they can. I'm not really sure what their goal is with that, but I can't imagine it makes taxi companies happy. So I assumed they were only doing it in cities where they didn't rely on taxis to fill rides. But as per your earlier comments, it sounds like being a taxi dispatch service is a big part of Uber's NYC offerings, and it's pretty obvious that UberX would interfere with that. And given the large number of cabs already in NYC, it's hard to argue that customers will eschew cabs in favor of UberX, when UberX is the brand new service and cabs are the existing regulated service that already fills their needs.
My best guess here is that Uber's CEO is intentionally trying to replace taxis with the UberX service, because that's the only thing that really explains introducing UberX into a market like NYC. But that seems rather foolish to me. It certainly works in SF where the cabs are so scarce, but I can't imagine it working in NYC, or e.g. London (where AIUI cab drivers have to pass an extremely rigorous knowledge test, a test that UberX drivers would presumably fail quite horribly, so passengers are already used to cab drivers knowing how to get places that UberX wouldn't know).
Uber (the black car option) in SF is significantly more expensive than a taxi (or UberX, which is cheaper than a taxi, even at low surges). My belief was the Uber black car service was roughly equivalent everywhere. Are you saying an Uber black car in NYC is not actually necessarily more expensive?
I am surprised to hear they enabled UberX in NYC. I would expect it to be a disaster, just as you said. Originally UberX was either an appeal to being green (due to hybrids), or simply a cheaper alternative to Uber, but it started out intentionally more expensive than taxis (they even raised the price at one point, citing the fact that it was unintentionally cheaper than taxis for some rides). But they've since changed course, turning UberX into the cheapest service they can. I'm not really sure what their goal is with that, but I can't imagine it makes taxi companies happy. So I assumed they were only doing it in cities where they didn't rely on taxis to fill rides. But as per your earlier comments, it sounds like being a taxi dispatch service is a big part of Uber's NYC offerings, and it's pretty obvious that UberX would interfere with that. And given the large number of cabs already in NYC, it's hard to argue that customers will eschew cabs in favor of UberX, when UberX is the brand new service and cabs are the existing regulated service that already fills their needs.
My best guess here is that Uber's CEO is intentionally trying to replace taxis with the UberX service, because that's the only thing that really explains introducing UberX into a market like NYC. But that seems rather foolish to me. It certainly works in SF where the cabs are so scarce, but I can't imagine it working in NYC, or e.g. London (where AIUI cab drivers have to pass an extremely rigorous knowledge test, a test that UberX drivers would presumably fail quite horribly, so passengers are already used to cab drivers knowing how to get places that UberX wouldn't know).
In NYC, the difference between a black car and a taxi is guaranteed booking (e.g. you can schedule a black car and they'll actually show up). Generally yes, it is more expensive than a taxi, but it's a pre-negotiated rate.
I'm still not sure how UberX works in NYC from a legal perspective (though I'm sure Uber has an army of lawyers who figured out some loophole).
I'm still not sure how UberX works in NYC from a legal perspective (though I'm sure Uber has an army of lawyers who figured out some loophole).
Why don't we use lotteries for airline tickets then?
When supply isn't constrained, auctions benefit everyone. Not just the 'wealthy minority'. If we fixed airline tickets at $400 each and apportioned them lottery style we are ignoring that many business travelers would happily pay $600 for a certainty of getting a ticket and people of limited means would gladly trade time/travel flexibility for a $200 ticket.
Similar forces are at play with taxis. If you line up everyone waiting for a fixed number of taxis at a fixed price, you are ignoring that many people would pay more to skip the line. Paying more will increase the total number of available cars. Shortening the wait time for everyone.
People look at variable pricing as a way for 'rich people to get everything' when it's really about letting some people pay more to subsidize others who pay less.
When supply isn't constrained, auctions benefit everyone. Not just the 'wealthy minority'. If we fixed airline tickets at $400 each and apportioned them lottery style we are ignoring that many business travelers would happily pay $600 for a certainty of getting a ticket and people of limited means would gladly trade time/travel flexibility for a $200 ticket.
Similar forces are at play with taxis. If you line up everyone waiting for a fixed number of taxis at a fixed price, you are ignoring that many people would pay more to skip the line. Paying more will increase the total number of available cars. Shortening the wait time for everyone.
People look at variable pricing as a way for 'rich people to get everything' when it's really about letting some people pay more to subsidize others who pay less.
Uh, its not like surge pricing is optional to get a faster car. If they price increases, there is no subsidizing going on. To take advantage of the theoretically larger supply, I will have to pay the higher price, and when the price decreases, there is no guarantee that the supply will remain high so I may still be unable to get a cab at the lower 'subsidized' price.
You are ignoring marginal cost. If surge pricing covers relatively-fixed expenses of car mainetance etc, it enables slow-business hours to be marginally profitable at a lower price than otherwise.
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A lottery instead of an auction makes some amount of sense when talking about a necessary item (like general transportation in an emergency, or milk/other foodstuffs, etc). It doesn't make so much sense when talking about a luxury item.
So the question is, how do you see Uber? I love Uber because it's practically impossible to get a cab in SF, but I don't view Uber as a necessity. It's still basically a luxury car service, no matter how popular it is. If it gets large enough to cause the regular cabs to actually start disappearing, then I'll agree it's moving into the "necessity" space (as it will be supplanting the existing regulated supply of transportation), but until that happens, I don't think it makes sense to demand an auction.
As an analogy, if a natural disaster hits and prevents stores from restocking their milk, AIUI the existing laws prevent them from raising the price on milk in return (as it's generally considered a necessity). But what about the hippy organic store down the block, that sells more expensive cruelty-free, organic, locally-sourced milk? Seems like a bit of a luxury good to me, and I would not have a problem with prices being raised on that particular milk, because I can always go to the grocery store and buy the regular milk like everyone else. Of course, I don't know how the law actually treats this particular scenario (and I am rather curious).
So the question is, how do you see Uber? I love Uber because it's practically impossible to get a cab in SF, but I don't view Uber as a necessity. It's still basically a luxury car service, no matter how popular it is. If it gets large enough to cause the regular cabs to actually start disappearing, then I'll agree it's moving into the "necessity" space (as it will be supplanting the existing regulated supply of transportation), but until that happens, I don't think it makes sense to demand an auction.
As an analogy, if a natural disaster hits and prevents stores from restocking their milk, AIUI the existing laws prevent them from raising the price on milk in return (as it's generally considered a necessity). But what about the hippy organic store down the block, that sells more expensive cruelty-free, organic, locally-sourced milk? Seems like a bit of a luxury good to me, and I would not have a problem with prices being raised on that particular milk, because I can always go to the grocery store and buy the regular milk like everyone else. Of course, I don't know how the law actually treats this particular scenario (and I am rather curious).
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I don't have a problem with surge pricing, but what I do have a problem with is when a driver cancels my ride so they can get a higher surge rate. Example, I was in LA trying to go from Downtown to Venice, I got an Uber for 1.75x normal rate. Waited about 10 minutes while watching the driver head in a different direction on the map, and then all of a sudden, they cancel. I go back to reserver another driver, and what do you know, it's now 3.25x rate.
That shouldn't be allowed. You should be locked into the first rate that you request a driver at. If the driver cancels, and the area now has a higher surge rate, Uber should recoup the difference in cost from the drivers next trip because they fucked a customer over.
That shouldn't be allowed. You should be locked into the first rate that you request a driver at. If the driver cancels, and the area now has a higher surge rate, Uber should recoup the difference in cost from the drivers next trip because they fucked a customer over.
Yeah, that's completely horseshit. At a minimum the rate ought to stay locked in for you by virtue of the agreement to take your fare, and the difference should come from the offending driver's next fare as a disincentive.
You always have the option of not choosing Uber.... You can even start a blog and inform others of this practice. Finally, you can complain to everyone you know and encourage people not to use Uber...
Or just ask the government for more legislature I guess...
Or just ask the government for more legislature I guess...
Or, a customer service flaw that disincentives use of Uber's service due to the unreliability of their contractors could be addressed by Uber, as a cost to those unreliable contractors, as I suggested. What part of my post (or any other posts I've made on this topic, for that matter) suggests I feel government legislation would be appropriate here?
EDIT: Furthermore, this is already something Uber does with their star rating system. This would just be a logical extension of that.
EDIT: Furthermore, this is already something Uber does with their star rating system. This would just be a logical extension of that.
Did you file a complaint with Uber? As far as I'm aware, what that driver did is a violation of Uber policies (both canceling without a good reason, and waiting 10 minutes before said cancellation). I think that Uber should proactively check up on all driver cancellations, but they probably only check up on complaints, so go ahead and complain when that happens.
If people complain when their drivers cancel, drivers won't cancel anymore (without a valid reason). The only way they can get away with it is if you say nothing.
If people complain when their drivers cancel, drivers won't cancel anymore (without a valid reason). The only way they can get away with it is if you say nothing.
I wrote a really long complaint email and they "resolved" it by crediting my account with $20 credit. I ended up paying like $110 for that ride. It would have been about half at the 1.75x rate, and about a third without the surge pricing.
Uber never tells customers when they penalize drivers, so I hope you aren't assuming that the $20 credit was the sole response to your complaint. I expect that the driver was disciplined in some fashion, and that if they accrue repeated complaints for canceling they would be suspended (similar to how drivers that get repeated sub-5-star ratings do).
Does the EULA say they can cancel rides after you commit? If so, they aren't such a better choice than a taxi.
New York didn't kill surge pricing. They limited how high surge pricing can go during emergencies. A pretty huge difference.
Uber will not totally eliminate dynamic pricing during emergencies but will instead cap how high its rates can go based on what it charged consumers over the previous two months.
http://www.slate.com/blogs/moneybox/2014/07/08/uber_price_go...
Uber will not totally eliminate dynamic pricing during emergencies but will instead cap how high its rates can go based on what it charged consumers over the previous two months.
http://www.slate.com/blogs/moneybox/2014/07/08/uber_price_go...
What are the minimum requirements for a situation to be considered an emergency?
From the AG's announcement (and Uber's announcement promises to abide by this definition):
New York’s law against price gouging (General Business Law §396-r), was passed in the winter of 1978-79 in response to escalating heating oil prices. It defines an “abnormal disruption of the market” as “any change in the market, whether actual or imminently threatened, resulting from stress of weather, convulsion of nature, failure or shortage of electric power or other source of energy, strike, civil disorder, war, military action, national or local emergency, or other cause of an abnormal disruption of the market which results in the declaration of a state of emergency by the governor.”
New York’s law against price gouging (General Business Law §396-r), was passed in the winter of 1978-79 in response to escalating heating oil prices. It defines an “abnormal disruption of the market” as “any change in the market, whether actual or imminently threatened, resulting from stress of weather, convulsion of nature, failure or shortage of electric power or other source of energy, strike, civil disorder, war, military action, national or local emergency, or other cause of an abnormal disruption of the market which results in the declaration of a state of emergency by the governor.”
So now they can't do surge pricing when it rains? The main reason I like Uber in NYC is because it is impossible to get a taxi when it's raining. Seems like this would ruin a big chunk of their value proposition.
It doesn't say they can't do surge pricing; they just have a cap on how high it can go during an emergency.
Who decides when a marked disruption is 'abnormal'?
Exactly. New York could argue that things like rainstorms (which cause taxi usage surges) are "emergencies".
Thank you for bringing facts to a mindless rage party.
>> that price gouging actually makes everyone better off by ensuring greater supply and allocating the supply to (approximately) those with the greatest demand
I think the issue is that it's not those with the "greatest demand" but those with "the greatest demand and can afford higher prices" i.e. the service isn't equally available to people during surge pricing, it skews heavily towards the wealthier, "(approximately)" massively understates the significance of this.
I think the issue is that it's not those with the "greatest demand" but those with "the greatest demand and can afford higher prices" i.e. the service isn't equally available to people during surge pricing, it skews heavily towards the wealthier, "(approximately)" massively understates the significance of this.
The idea is a rich guy can still quickly get to the beautician during a disaster. He's earned this right and is basically just cashing in on years of hard work skimming off the top of workers's 401K trading fees--these workers were forced to select from a few mutual funds chosen based on family ties with the executives, but he worked damn hard to be born to the right board member.
Highest bidder would work great and allow excellent prioritization if everyone had roughly the same means. This is a bit like economist worship of the Coase Theorem--it completely falls apart when you factor in marginal utility of additional dollars to individuals at different levels of wealth.
Highest bidder would work great and allow excellent prioritization if everyone had roughly the same means. This is a bit like economist worship of the Coase Theorem--it completely falls apart when you factor in marginal utility of additional dollars to individuals at different levels of wealth.
No, that's not the idea. If surge pricing was in effect all the time --- if travel pricing was always an auction and drivers were kept scarce to keep prices up --- then Uber rides would be a service for the rich. But disasters are rare, and the surge multiple is merely the equivalent of several Uber rides instead of one. Meanwhile, the alternative to surge pricing is a high likelihood of not getting a ride at all, because disasters suppress demand. It's hard to see the class-warrior logic in this situation.
(Later, you edited your comment)
It's a caricature to suggest that "Coase" is, to economists, a license to apply the free market to every public policy problem.
Meanwhile: you have to actually make the case that there's a distributional problem with surge pricing for Uber rides. If the alternative is no rides at all, then surge pricing makes some people --- not all of them rich --- better off while making nobody worse off.
(Later, you edited your comment)
It's a caricature to suggest that "Coase" is, to economists, a license to apply the free market to every public policy problem.
Meanwhile: you have to actually make the case that there's a distributional problem with surge pricing for Uber rides. If the alternative is no rides at all, then surge pricing makes some people --- not all of them rich --- better off while making nobody worse off.
Yep. Instead of "expensive Uber rides" during a snowstorm, you get "no Uber rides." (A shortage, in other words.)
Thanks, Albany! Well-done.
Thanks, Albany! Well-done.
If rich people getting more stuff bothers you then take money away from rich people and give it to poor people http://en.wikipedia.org/wiki/Basic_income don't try to solve the problem from scratch with each category of stuff, that just leads to price-distorting crap like we're seeing here.
I didn't try to solve anything; basic income, zero income tax, zero investment tax, highly progressive consumption tax -- that's my my current ideal but unfortunately a progressive consumption tax isn't very workable.
You're attempting to compensate for an external inequity (some people are rich, some for reasons not pertaining to their own merit) by reducing the availability of a scarce resource in favor of mandating a free-for-all that will occasionally benefit a lucky lower income individual.
This is, unfortunately, one of the most inefficient and expensive ways to institute social reform. It is also being applied to a system for which there is also a far more regulated counterpart in the taxi system. Except, guess what? Dispatch says you won't be getting a cab for hours because they're already booked.
This is, unfortunately, one of the most inefficient and expensive ways to institute social reform. It is also being applied to a system for which there is also a far more regulated counterpart in the taxi system. Except, guess what? Dispatch says you won't be getting a cab for hours because they're already booked.
This argument is pretty disingenuous. Some wealthy individuals were born into very privileged families and some poor people remain poor due to exploitation, but that certainly does not apply universally.
>Highest bidder would work great and allow excellent prioritization if everyone had roughly the same means.
I'm not sure why this system only works well when everyone has the same means. As the article points out, a price increase for a good or service can actually incentivize people to increase supply (people who initially decided to take the night off from driving now decide to work in order to cash in since demand is high). In other industries this can lead to more competition and innovation as well.
>Highest bidder would work great and allow excellent prioritization if everyone had roughly the same means.
I'm not sure why this system only works well when everyone has the same means. As the article points out, a price increase for a good or service can actually incentivize people to increase supply (people who initially decided to take the night off from driving now decide to work in order to cash in since demand is high). In other industries this can lead to more competition and innovation as well.
>Some wealthy individuals were born into very privileged families ... certainly does not apply universally
Sure I agree--like the guy who came up with processing debit transactions in order of dollar-amount instead of in order of transaction-time when calculating overdraft fees.. like that guy probably got a huge bonus for coming up with the scheme, and he probably didn't get the idea from his grandpa's will.
Sure I agree--like the guy who came up with processing debit transactions in order of dollar-amount instead of in order of transaction-time when calculating overdraft fees.. like that guy probably got a huge bonus for coming up with the scheme, and he probably didn't get the idea from his grandpa's will.
I sympathize with the resentment of those who got unfair advantages from exploiting others, but preventing goods from being economized based on price signals entirely is not the right response.
From the fact that some wealth is unjustly acquired, it doesn't follow that we should expect everything to cost the same and be allocated by queuing.
From the fact that some wealth is unjustly acquired, it doesn't follow that we should expect everything to cost the same and be allocated by queuing.
An actually rich guy will just call his driver.
> it skews heavily towards the wealthier
I'd say it skews heavily toward those with the greatest demand, as the previous post said.
If you have average financial resources and needed to get to the hospital in the middle of a snowstorm, you stood a better chance under Uber's previous model that allowed a market-clearing price. Now that some NY politicians have outlawed that process, the price that they permit will be below the market-clearing price and the likelihood of shortages will increase. Put another way, Uber drivers will (sensibly) venture out in snowstorms only if they can make significant $$$.
Hope you're well enough to walk to that hospital! Thanks, Albany!
(Note I'm not an interested party here: I own a late-model car, I don't live in NYC, and I've used Uber and similar services < 5 times this year. But someone was wrong on the Internet and clearly needed to be corrected.) :)
I'd say it skews heavily toward those with the greatest demand, as the previous post said.
If you have average financial resources and needed to get to the hospital in the middle of a snowstorm, you stood a better chance under Uber's previous model that allowed a market-clearing price. Now that some NY politicians have outlawed that process, the price that they permit will be below the market-clearing price and the likelihood of shortages will increase. Put another way, Uber drivers will (sensibly) venture out in snowstorms only if they can make significant $$$.
Hope you're well enough to walk to that hospital! Thanks, Albany!
(Note I'm not an interested party here: I own a late-model car, I don't live in NYC, and I've used Uber and similar services < 5 times this year. But someone was wrong on the Internet and clearly needed to be corrected.) :)
Yeah this
it also allows you to be sure that you will be able to get a taxi on New Year’s Eve
as long as you’re willing to pay extra.
You have a good point, but is there a problem with it being more available to wealthier people?
Everything else being equal, say person A watches Breaking Bad for 7 hours and works for 1, having less money in pocket compared to person B who worked 8 hours that same day. Should both people have equal spending ability?
Everything else being equal, say person A watches Breaking Bad for 7 hours and works for 1, having less money in pocket compared to person B who worked 8 hours that same day. Should both people have equal spending ability?
Do you honestly think that poorer people are poorer because they sit around watching Breaking Bad all day? Have you perhaps ever met someone who works hard at three jobs at minimum wage and can't make ends meet, especially in an incredibly expensive city like NYC? I mean what planet are you living on?
In most parts of society, wealth has little to do with the time spent working.
There might or might not be a moral case for this. But to say that this allows the market to act like Marx's utopia of to each according to their need is not only wrong, but a lie anyone with the minimum one week in an undergraduate economics course should see.
But this is true even without surge pricing.
Richer people can afford more stuff, more news at 11.
I live in New York and use Uber a lot. Last week during the tropical storm, I opened the app to use it but found the surge pricing to be too rich for my blood. I hopped on the train instead (it was only 2 blocks away anyway).
Surge pricing works! That car I would have used stayed available for someone that needed it a lot more than I did.
Surge pricing works! That car I would have used stayed available for someone that needed it a lot more than I did.
That car I would have used stayed available for someone that needed it a lot more than I did.
That car stayed available for someone willing to pay more money. Between two people of roughly equal means, that's a good proxy for "needs it more." Between two people of vastly disparate means it's not.
That car stayed available for someone willing to pay more money. Between two people of roughly equal means, that's a good proxy for "needs it more." Between two people of vastly disparate means it's not.
Right, but that's a fundamental feature of capitalism. If equality of access to a non-essential luxury between those of disparate means concerns you, don't worry about the symptom, worry about the underlying system. On the other hand, if unequal access to, say, 5 star hotels in Times Square on New Years Eve doesn't bother you, then neither should surge pricing.
I'm not sure taxi service qualifies as a "non-essential luxury"; there are times when it isn't (a rainstorm, for instance) and I think that's why it draws the political interest that it does.
PS I inadvertently downvoted you, unfortunately there doesn't seem to be a way to upvote it back. Sorry...
PS I inadvertently downvoted you, unfortunately there doesn't seem to be a way to upvote it back. Sorry...
No worries on the inadvertent downvote. I do, however, have to take issue with the characterization of a taxi as an essential. :)
Seriously, though, even in a rainstorm a taxi is a non-essential. It's nice, and I'd certainly prefer one if it's raining, but it isn't essential. There always exist alternate modes of transportation that are going to be less expensive (public transit, Zipcar, your own car, or an umbrella and your own two feet). It's not as though one, bereft of an affordable taxi, can never reach one's destination.
I just don't see how Uber can possibly be construed as an essential, except maybe in highly exceptional circumstances. You're hiring someone to chauffeur you to your destination with an expensive computing device, via a similarly expensive data connection. How is that anything but the definition of a non-essential, luxury good?
Seriously, though, even in a rainstorm a taxi is a non-essential. It's nice, and I'd certainly prefer one if it's raining, but it isn't essential. There always exist alternate modes of transportation that are going to be less expensive (public transit, Zipcar, your own car, or an umbrella and your own two feet). It's not as though one, bereft of an affordable taxi, can never reach one's destination.
I just don't see how Uber can possibly be construed as an essential, except maybe in highly exceptional circumstances. You're hiring someone to chauffeur you to your destination with an expensive computing device, via a similarly expensive data connection. How is that anything but the definition of a non-essential, luxury good?
You're a mother carrying groceries and a kid and you have to walk ten blocks. Is it as essential as medical treatment? No, but it's a substantial degradation of your quality of life if you get priced out of it. I think the political attention on the topic speaks for itself as to how essential the public views it. And we're not just talking about Uber here, we're talking about taxis in general: if Uber drives taxis out of business by undercutting them during ordinary circumstances, there won't be any around to undercut Uber during a surge.
I didn't say it bothers me, just that concluding "needs it more" from "willing and able to pay more" is fallacious.
Completely wrong. THis comment betrays how people completely fail to understand resource allocation in a market economy. Willing to pay more means their time is worth more. Their time is worth more because they create more value per unit time than others. We want productive people to become even more productive, that's how the world gets better. The internet didn't improve the world by starting with connecting Indian villages. It improved the productivity of those who were already leading productive lives in first world economies.
Rather than simply downvoting you because I disagree, which is a lazy practice that undermines the purpose of having a comment system, let me address your point. You said:
Willing to pay more means their time is worth more.
No, it may simply mean that money is worth less to them. A common reason for this is having a lot of it, and there are many possible reasons for someone to be wealthy; being socially productive is only one of many. They might have been born with it, they might simply be lucky, or they may be actively dishonest. None of which need any additional incentives.
Willing to pay more means their time is worth more.
No, it may simply mean that money is worth less to them. A common reason for this is having a lot of it, and there are many possible reasons for someone to be wealthy; being socially productive is only one of many. They might have been born with it, they might simply be lucky, or they may be actively dishonest. None of which need any additional incentives.
> No, it may simply mean that money is worth less to them.
You started your sentence with "No", and then literally stated the exact same thing in different words. Saying "a unit of their time is worth more of their money than the equivalent for person X" is exactly equivalent to "a unit of their money is worth less time than the equivalent for person X". The only difference between your statement and the statement you think you're disagreeing with is whether you choose to denominate "worth" in time or money: the end result however, is identical.
You started your sentence with "No", and then literally stated the exact same thing in different words. Saying "a unit of their time is worth more of their money than the equivalent for person X" is exactly equivalent to "a unit of their money is worth less time than the equivalent for person X". The only difference between your statement and the statement you think you're disagreeing with is whether you choose to denominate "worth" in time or money: the end result however, is identical.
If you read the rest of my comment, you'll see that it is not identical at all. For instance, why would a lottery winner value their time more highly? Their time doesn't earn them anything. And you went beyond saying that the individual values their time more, you implied that society should also value it more to encourage productivity. But again, what kind of productivity are we encouraging from a lottery winner, a trust fund baby, or a con artist?
> For instance, why would a lottery winner value their time more highly? Their time doesn't earn them anything.
You're still not understanding what the point of my comment was. There's no platonic unit that we're comparing both time and money too such that one of them can change and the other doesn't; the "value" of time and money is relative to the other thing.
A person who has won the lottery _absolutely_ values their time more highly than they did before. Or are you suggesting that if someone was poor and then wins the lottery they'd be exactly as likely to take cabs vs a much slower/cheaper public transit route? Exactly as likely to hire house cleaners, or order delivery at the same frequency instead of cooking dinner? Valuing a unit of money less simply _means_ valuing time more; this isn't an empirical consequence, it's practically definitional. If a dollar means less to you because you have so much more $$, and an hour of your time means the same amount to you, _that literally mathematically means that an hour is worth more dollars to you_. This concept is so incredibly basic that I am actually running out of different ways to phrase it.
> And you went beyond saying that the individual values their time more, you implied that society should also value it more to encourage productivity.
What....the hell? Where did I say anything like this? My only contribution to this subthread was pointing out how you misunderstood the concept of two things being valued relative to each other. There was no commentary at all on whether society _should_ do anything (and any implication came purely from your imagination); in fact I personally happen to think that extremely high estate taxes are an excellent idea; chance, inheritance, and the fact that markets aren't perfect reflectors of value all do a pretty good job of decoupling wealth from any notion of "deserving-ness".
You're still not understanding what the point of my comment was. There's no platonic unit that we're comparing both time and money too such that one of them can change and the other doesn't; the "value" of time and money is relative to the other thing.
A person who has won the lottery _absolutely_ values their time more highly than they did before. Or are you suggesting that if someone was poor and then wins the lottery they'd be exactly as likely to take cabs vs a much slower/cheaper public transit route? Exactly as likely to hire house cleaners, or order delivery at the same frequency instead of cooking dinner? Valuing a unit of money less simply _means_ valuing time more; this isn't an empirical consequence, it's practically definitional. If a dollar means less to you because you have so much more $$, and an hour of your time means the same amount to you, _that literally mathematically means that an hour is worth more dollars to you_. This concept is so incredibly basic that I am actually running out of different ways to phrase it.
> And you went beyond saying that the individual values their time more, you implied that society should also value it more to encourage productivity.
What....the hell? Where did I say anything like this? My only contribution to this subthread was pointing out how you misunderstood the concept of two things being valued relative to each other. There was no commentary at all on whether society _should_ do anything (and any implication came purely from your imagination); in fact I personally happen to think that extremely high estate taxes are an excellent idea; chance, inheritance, and the fact that markets aren't perfect reflectors of value all do a pretty good job of decoupling wealth from any notion of "deserving-ness".
Or are you suggesting that if someone was poor and then wins the lottery they'd be exactly as likely to take cabs vs a much slower/cheaper public transit route?
No, I'm saying their desire to take a cab wouldn't change. The fact that I can't afford to buy the Hope Diamond doesn't mean I value it at zero. Likewise, the fact that I can't afford to buy myself an extra ten minutes by getting a taxi doesn't mean that I place no value on those ten minutes.
> And you went beyond saying that the individual values their time more, you implied that society should also value it more to encourage productivity. What....the hell? Where did I say anything like this?
I think it was this bit, where you say wealthy people's time is worth more because they're more productive and we should encourage such productivity:
"Their time is worth more because they create more value per unit time than others. We want productive people to become even more productive, that's how the world gets better."
No, I'm saying their desire to take a cab wouldn't change. The fact that I can't afford to buy the Hope Diamond doesn't mean I value it at zero. Likewise, the fact that I can't afford to buy myself an extra ten minutes by getting a taxi doesn't mean that I place no value on those ten minutes.
> And you went beyond saying that the individual values their time more, you implied that society should also value it more to encourage productivity. What....the hell? Where did I say anything like this?
I think it was this bit, where you say wealthy people's time is worth more because they're more productive and we should encourage such productivity:
"Their time is worth more because they create more value per unit time than others. We want productive people to become even more productive, that's how the world gets better."
My claim has nothing to do with resource allocation in a market economy. It is merely that one cannot derive "needs it more" from "willing and able to pay more." It may well be that adopting "willing and able to pay more" as the standard for resource allocation yields the highest possible level of human flourishing. It might even be true that statist capitalism unfolding from the starting conditions of the world as it exists today is what will yield the highest possible level of human flourishing (though I doubt it.)
Even if all that is true, the most one can say if a rich person outbids a poor person for a good is that the transaction proceeded according to a principle that will tend to maximize human flourishing.
To say that it demonstrates that the other person needs it more, or values it more, is simply a category error.
Even if all that is true, the most one can say if a rich person outbids a poor person for a good is that the transaction proceeded according to a principle that will tend to maximize human flourishing.
To say that it demonstrates that the other person needs it more, or values it more, is simply a category error.
Are there these large armies of people who can afford and pay for taxis over public transportation at 1x but not exceptionally during a topical storm at 5x or 10x? A taxi is already a luxury good.
Most New Yorkers don't own cars, but there are still trips that are very inconvenient by public transit (especially with kids or luggage or ...). So it makes a lot of financial sense for a lot of people of all means to use taxis/car services occasionally to supplement mass transit, as opposed to buying (and very expensively insuring!) a car for the occasional trip that's hard to take transit for.
Are there large armies of people who make >$100k/year but <$1M? Yes.
200 dollars is not a big emergency expense for someone who makes more than $100k per year.
Depending on your definition of emergency, it is when you live in NYC and your rent costs $2k/month. If by emergency you mean "hurricane" - sure. But surge pricing happens every time there's a rainstorm.
Following that argument, the price should be zero, so it is equally affordable to everyone.
It may not be a good proxy between two people of vastly disparate means, but what would be better? It's bad, but still, it seems, the best available.
I guess the car can take the guy who couldn't get on the train because you got on it.
The problem with Uber surge pricing is that it's not just the drivers who get paid more; Uber gets paid more too. That doesn't make sense because surge pricing is actually indicative of a failure on Uber's part (they weren't able to recruit enough drivers). From an economics perspective, all of the surge price increase should go to the drivers and Uber should be paid the same or even less. That would also make surge pricing much easier for Uber to defend politically.
No, Uber didn't fail anyone. To the extent there's a failure somewhere, it's the monopoly the municipality holds on taxi medallions, which artificially limits supply of taxis overall.
Municipalities and states hold "monopolies" on licenses of all sorts; the argument that says medallions are bad public policy because they're monopolistic applies equally to many other forms of licensure, for instance zoning.
While this is true, what makes taxi medallions so unique is the price discovery. This is one of those rare things where you can see, quite unambiguously, the direct effect of the monopolistic behavior. Other things like zoning tend to be very complex and ambiguous, but taxi medallions are simple. The effect? NYC taxi medallion prices have grown by 29% annually over 30 years. As someone in the investment world, that might be the single best performing asset class I can think of, all for the privilege of taking someone from point A to point B. I noticed airlines don't need medallions - how has that worked out?
http://www.theatlantic.com/business/archive/2011/10/the-amaz...
http://www.theatlantic.com/business/archive/2011/10/the-amaz...
Did you just suggest that it's easier to start a commercial airline than it is to get a taxi medallion? Have you ever paid attention to the drama about who gets what gates at which airports? Or watched local political battles over the addition of new runways at an airport?
No. One's supply limited by the government, the other's is not. At the end of the day they both just transport people from point A to point B. Owners of planes have gone bankrupt 1,000 times since 1980, while owners of taxis have the single best returning asset I can think of. Do you really think government meddling (or medallioning, heh heh) hasn't been about 85% responsible for this otherwise incomprehensible result?
> Do you really think government meddling (or medallioning, heh heh) hasn't been about 85% responsible for this otherwise incomprehensible result?
Its 100% responsible, from one perspective, because "bankruptcy" is one form of government "meddling" in economic markets.
Its 100% responsible, from one perspective, because "bankruptcy" is one form of government "meddling" in economic markets.
Where do you get the 29% annual growth from? The article you linked to states 1,900% increase over 30 years. That works out to about 10.5% annual growth. That is still a decent increase, but no longer that extra-ordinary.
> NYC taxi medallion prices have grown by 29% annually over 30 years.
I agree that NYC has not increased the number of medallions in a manner commensurate with its growth since 1970. But this is like referring to the sale prices of commercial condos - you don't need to own a storefront in order to have a retail store (most business owners don't). Likewise, you don't need to own a medallion, just have access to one (ie, rent it, which is what most taxi drivers in NYC do).
I agree that NYC has not increased the number of medallions in a manner commensurate with its growth since 1970. But this is like referring to the sale prices of commercial condos - you don't need to own a storefront in order to have a retail store (most business owners don't). Likewise, you don't need to own a medallion, just have access to one (ie, rent it, which is what most taxi drivers in NYC do).
Yes, yes it does.
If Uber could help usher in the end of some of the other government monopolies, we'd be looking at some huge steps forward.
If Uber could help usher in the end of some of the other government monopolies, we'd be looking at some huge steps forward.
I think it's time to reconsider a lot of state licensing regimes. But the fact that they're licensing regimes isn't what makes them bad. Licensing regimes are a perfectly reasonable way for the state to control behavior that involves negative externalities. I think almost everyone agrees that governments shouldn't allow factories to be created in residential areas, or allow drivers to drive without liability insurance.
Careful: ancaps, hardly an Internet endangered species, definitely don't agree with this.
And we don't necessarily have to take every single view seriously. The vast majority of people don't want a massive polluting factory built next to their single-family home. The fact that a few people disagree doesn't mean that every project get bogged down in a discussion of the legitimacy of zoning as a concept.
Ancaps simply have more efficient ways of keeping the polluting factories away from homes than existing zoning processes can achieve.
[deleted]
>I think almost everyone agrees that governments shouldn't allow factories to be created in residential areas, or allow drivers to drive without liability insurance.
Zoning is not needed for the former.
Zoning is not needed for the former.
I think it only makes sense to argue on a case by case basis. Saying one unreasonable practice is ok because there are other unreasonable practices is hardly constructive.
For example there is a fixed limit on available land, therefore it makes sense to regulate its use for the common good. The problem with licensing taxis isn't that they are licensed, it's that the number of licenses is fixed arbitrarily without regard to the actual need for taxis.
For example there is a fixed limit on available land, therefore it makes sense to regulate its use for the common good. The problem with licensing taxis isn't that they are licensed, it's that the number of licenses is fixed arbitrarily without regard to the actual need for taxis.
So you're saying there is a valid public policy case for limiting the number of taxis, and you just think San Francisco got the number wrong? (For what it's worth: that's what I think too).
>the argument that says medallions are bad public policy because they're monopolistic applies equally to many other forms of licensure, for instance zoning.
True; many of those other forms of licensure are also bad.
True; many of those other forms of licensure are also bad.
Zoning is not a fair comparison. Land use has very different kinds of externalities than for-hire transportation. If I build a munitions plant next to your house that impacts you in ways that my getting paid to drive someone from A to B does not.
Two responses.
First, land use has different externalities, but for-hire cars still have obvious externalities. And because of the civic role that taxis have assumed over the last 50 years, decisions about the management of the taxi market have still more externalities.
Second, my point wasn't that land use and taxis have the same issues, but rather that the logic that taxi medallions were bad public policy because "monopoly" was flimsy. Which, it is.
First, land use has different externalities, but for-hire cars still have obvious externalities. And because of the civic role that taxis have assumed over the last 50 years, decisions about the management of the taxi market have still more externalities.
Second, my point wasn't that land use and taxis have the same issues, but rather that the logic that taxi medallions were bad public policy because "monopoly" was flimsy. Which, it is.
> for-hire cars still have obvious externalities
Like what? Note that, for example, "They take up space on the road and pollute the air" doesn't count because not-for-hire cars do the exact same thing. It has to be an externality that is caused by the fact that the ride is for-hire. There may be such externalities, but I think they are far from obvious.
> the logic that taxi medallions were bad public policy because "monopoly" was flimsy
It's not the medallions per se that are the bad public policy, it's artificially limiting the supply (and then compounding the problem by making them transferrable). That's what the OP (almost surely) meant by "monopoly". Zoning also artificially constrains the supply of land available for certain uses, but that is clearly justifiable because of the (actually obvious) externalities of land use. The externalities of paying someone for a ride are far less clear.
Like what? Note that, for example, "They take up space on the road and pollute the air" doesn't count because not-for-hire cars do the exact same thing. It has to be an externality that is caused by the fact that the ride is for-hire. There may be such externalities, but I think they are far from obvious.
> the logic that taxi medallions were bad public policy because "monopoly" was flimsy
It's not the medallions per se that are the bad public policy, it's artificially limiting the supply (and then compounding the problem by making them transferrable). That's what the OP (almost surely) meant by "monopoly". Zoning also artificially constrains the supply of land available for certain uses, but that is clearly justifiable because of the (actually obvious) externalities of land use. The externalities of paying someone for a ride are far less clear.
>Like what? Note that, for example, "They take up space on the road and pollute the air" doesn't count because not-for-hire cars do the exact same thing. It has to be an externality that is caused by the fact that the ride is for-hire. There may be such externalities, but I think they are far from obvious.
More specifically, the externality argument about taxis is that they take up space while hunting for fares, while private cars only drive when actually being used to get somewhere.
I agree though, that the point is irrelevant to Uber, since it's strictly a by-request car service that is not hailed from the street, and so doesn't cause the congestion that typical fare hunters would.
More specifically, the externality argument about taxis is that they take up space while hunting for fares, while private cars only drive when actually being used to get somewhere.
I agree though, that the point is irrelevant to Uber, since it's strictly a by-request car service that is not hailed from the street, and so doesn't cause the congestion that typical fare hunters would.
Not necessarily a failure. One of the purposes of medallions is to control the number of taxis on the road. It's a conscious choice, and the fallout is accepted in exchange for less taxi congestion.
On the other hand, the limit on taxi medallions protects a common resource, room on the streets. Maybe the balance isn't right, but you're going to need some artificial limitation or else you're going to have a classic tragedy of the commons.
There does not need to be an "artificial limitation" to protect every 'commons'.[1] Many have made the case that services like Uber and Lyft actually free up street space, and allow more people to get to work faster, because less parking spaces are required, and these services usually allow ride-sharing, which is banned (or effectively prevented) by many cities which license taxis and taxi companies.
[1] http://en.wikipedia.org/wiki/Elinor_Ostrom
[1] http://en.wikipedia.org/wiki/Elinor_Ostrom
Thanks for the link to Elinor Ostrom.
It seems like what she was saying is that if the people who own and use the common resource have the ability to create rules and enforce them, then they can avoid a tragedy of the commons. I'd totally agree with that, you need some way to govern the resource.
About freeing up street space, I'd be curious to see some kind of statistics about how many lyft drivers were headed that way anyway and just pick up passengers vs. how many are providing a taxi-like service. Is there a way in the lyft or uber software as a driver to say that you're only looking for passengers going from one location to another location?
It seems like slugging is more likely to provide those benefits.
It seems like what she was saying is that if the people who own and use the common resource have the ability to create rules and enforce them, then they can avoid a tragedy of the commons. I'd totally agree with that, you need some way to govern the resource.
About freeing up street space, I'd be curious to see some kind of statistics about how many lyft drivers were headed that way anyway and just pick up passengers vs. how many are providing a taxi-like service. Is there a way in the lyft or uber software as a driver to say that you're only looking for passengers going from one location to another location?
It seems like slugging is more likely to provide those benefits.
Using ownership of a resource to give an incentive for preservation and long-term thinking has its roots at least as far back as Armen A. Alchian.[1] Ostrom's achievement was finding that many cultures had alternative solutions, and that these solutions were very effective.
I am sorry to say that I do not have the statistics that you are looking for.
[1] http://www.econlib.org/library/Enc/PropertyRights.html
I am sorry to say that I do not have the statistics that you are looking for.
[1] http://www.econlib.org/library/Enc/PropertyRights.html
This isn't necessarily the case though. I am in no way going to argue that the "tragedy of the commons" is a real phenomenon. But their is a natural counterbalance to the streets filling up with taxis.
People operate taxis to make money. If the number of taxis becomes such that the roads fill with taxis, then the number or taxis should lower itself for two reasons. A.) If the taxis can't get anywhere either then people won't pay for them. B.) The ability of any single taxi to turn a positive profit will approach 0.
People operate taxis to make money. If the number of taxis becomes such that the roads fill with taxis, then the number or taxis should lower itself for two reasons. A.) If the taxis can't get anywhere either then people won't pay for them. B.) The ability of any single taxi to turn a positive profit will approach 0.
So I'm a bit confused by your phrasing. Are you saying that the tragedy of the commons isn't something that actually happens?
I agree with your point that there are natural pressures that would keep the number of taxis down if the artificial limitation was removed. It's just that I don't think that the natural equilibrium point financially is going to be the optimal level in terms of getting people where they want to go efficiently. In my mind, the entire transportation system is useful to provide a service to individuals and other sectors of the economy, and if it's not doing that well it doesn't matter much if the people working in transportation are at a natural equilibrium.
I'm also not saying that the medallion system is the right way to handle the situation. A taxi or car on the road uses up some common, limited resource (space on the road). Maybe you'd have more luck charging for that resource more directly, like a congestion charge?
I agree with your point that there are natural pressures that would keep the number of taxis down if the artificial limitation was removed. It's just that I don't think that the natural equilibrium point financially is going to be the optimal level in terms of getting people where they want to go efficiently. In my mind, the entire transportation system is useful to provide a service to individuals and other sectors of the economy, and if it's not doing that well it doesn't matter much if the people working in transportation are at a natural equilibrium.
I'm also not saying that the medallion system is the right way to handle the situation. A taxi or car on the road uses up some common, limited resource (space on the road). Maybe you'd have more luck charging for that resource more directly, like a congestion charge?
I think you misunderstand what surge pricing _is_. Part of the reason Uber can't recruit more drivers is that the price isn't worth it for them; and for all the times where they don't _need_ more drivers, this is completely fine. When there is a sudden need for more drivers, they can quickly recruit more by raising the prices...this is exactly what surge pricing is.
Modeless is actually in agreement with you, as I understand it. The distinction they're making is a bit of a fine one, but they're basically saying Uber ought to allocate all of the increase from the surge pricing to drivers rather than taking a cut. By not taking a cut Uber would more efficiently incentivize drivers to get out and take rides, and more rapidly affect an increase in supply and the corresponding price rebalancing. This would also have the happy side effect of making surge pricing wholly defensible, since Uber sees no benefit from it.
Whether or not that is feasible under Uber's business model is, of course, a totally different question.
Whether or not that is feasible under Uber's business model is, of course, a totally different question.
What incentive is there for Uber to do this? Remember, they're a for-profit company, not a public service. If Uber didn't take a surge pricing cut, then the only reason they have to use surge pricing is to maximize the number of rides on the road. And that's certainly something they could do, as more rides == more money. But they'd be leaving money on the table that way, and as a for-profit company, there's very little incentive to do that. You stated that it would make surge pricing more defensible, which is basically the only reasonable incentive I can think of, but obviously Uber believes that it's in their interests to make more money than to have a stronger moral defense for surge pricing.
So I guess the real question is, for those of you who believe Uber should behave this way (and, w4, I recognize that you're merely explaining modeless's argument, not claiming you agree with it), do you believe Uber should be expected to behave this way, given that they are a for-profit company, or do you believe that it is merely the *right thing to do (for some ambiguously-defined moralistic definition of "right")? I suspect that what you really believe is that it's what you personally think should happen, because it would result in lower surge prices for the same supply, and you would like to pay less money. And that's not a very compelling argument.
So I guess the real question is, for those of you who believe Uber should behave this way (and, w4, I recognize that you're merely explaining modeless's argument, not claiming you agree with it), do you believe Uber should be expected to behave this way, given that they are a for-profit company, or do you believe that it is merely the *right thing to do (for some ambiguously-defined moralistic definition of "right")? I suspect that what you really believe is that it's what you personally think should happen, because it would result in lower surge prices for the same supply, and you would like to pay less money. And that's not a very compelling argument.
Well, I mean, I do see the argument that it's a more efficient outcome.
Imagine for a moment that surge pricing were kept the same. The only difference is that, now, Uber takes no cut whatsoever. This would result in greater profits for Uber's drivers during a surge, better incentivizing drivers to get out on the street and start accepting fares. This increase in the incentive would, one can assume, result in an even greater increase in supply during a price surge than is produced under the current system, and more effectively address the supply and demand imbalance that creates the need for surge pricing in the first place.
Now, does Uber have a moral obligation to do this? Fuck no. However, it's certainly disingenuous to suggest that surge pricing is just all about addressing supply and demand imbalances.
(I'm not saying you say that's what it's all about; you don't. That is, however, what wutbrodo and a lot of other posters seem to be suggesting).
EDIT: As an aside, Uber's incentive (besides defensibility) for not taking a cut of the surge is clear: by making the incentive for drivers to get on the road as powerful as possible, Uber would all but guarantee that its users can get a ride at any time, any day, in any conditions. That would solidify Uber's primacy over other, less reliable transportation options. However, given that their product is already so superior to the alternatives, it doesn't seem to be the case that they need to look at doing anything like that for the time being.
Imagine for a moment that surge pricing were kept the same. The only difference is that, now, Uber takes no cut whatsoever. This would result in greater profits for Uber's drivers during a surge, better incentivizing drivers to get out on the street and start accepting fares. This increase in the incentive would, one can assume, result in an even greater increase in supply during a price surge than is produced under the current system, and more effectively address the supply and demand imbalance that creates the need for surge pricing in the first place.
Now, does Uber have a moral obligation to do this? Fuck no. However, it's certainly disingenuous to suggest that surge pricing is just all about addressing supply and demand imbalances.
(I'm not saying you say that's what it's all about; you don't. That is, however, what wutbrodo and a lot of other posters seem to be suggesting).
EDIT: As an aside, Uber's incentive (besides defensibility) for not taking a cut of the surge is clear: by making the incentive for drivers to get on the road as powerful as possible, Uber would all but guarantee that its users can get a ride at any time, any day, in any conditions. That would solidify Uber's primacy over other, less reliable transportation options. However, given that their product is already so superior to the alternatives, it doesn't seem to be the case that they need to look at doing anything like that for the time being.
I Shouldve added a quote since it's a bit unclear, but I was responding to the claim that surge pricing represent a "failure" go recruit enough drivers on ubers part (and thus that it's not fair for them to make more in those situations).
It is a 'please get out of bed' payment, to try and manage shortages of drivers.
If they could do this without tacking it onto price, by making an explicit 'please get out of bed' payment from uber to a fresh driver on their first fare during a shortage, they may be able to create the same economic incentive to the driver without being seen to price gouge. Of course, this would involve raising prices slightly overall to pay for it, but you get rid of the swings in price.
If they could do this without tacking it onto price, by making an explicit 'please get out of bed' payment from uber to a fresh driver on their first fare during a shortage, they may be able to create the same economic incentive to the driver without being seen to price gouge. Of course, this would involve raising prices slightly overall to pay for it, but you get rid of the swings in price.
At first glance you seem to have a reasonable point, but it actually doesn't work out. Surge pricing doesn't merely raise supply to meet demand, it also suppresses demand to meet supply. In the latter case, there are fewer rides going around than there would with an infinite supply, so if Uber doesn't take a cut of the surge pricing themselves, then they're missing out on money they would have had without the suppressed demand.
Perhaps you think they deserve to make less money, but as wutbrodo pointed out, the lack of supply at these times does not mean Uber has failed at recruiting drivers. After all, having extra drivers sitting around idle is not helpful to anyone (not to Uber, not to the drivers themselves, and not to the passengers). The only mechanism Uber has for putting more drivers on the road when demand increases is to adjust prices. Theoretically they could merely reduce their cut to put more drivers on the road without increasing the cost to passengers, but there's no incentive for them to do that.
Ultimately, what you said would make sense if drivers were actually Uber employees that operated at the direction of Uber. In that scenario, Uber could order more drivers onto the road without surge pricing. But that's not the case, drivers are voluntary contractors that make the decision themselves about whether to start working. The only tool Uber has to influence how many drivers start working is to increase their pay, and the only way to do that* is to turn on surge pricing. And since surge pricing acts to reduce demand in addition to increasing supply, the only way Uber itself has an incentive to use surge pricing is if Uber itself gets more money that way (which means taking a cut of the surge-boosted price instead of the original price).
I'll grant you that if Uber was a regulated service operating on behalf of the public, then perhaps it makes sense to penalize them for not adequately meeting demand. And in such a scenario, surge pricing can't be justified anyway, so the natural penalty of not filling as many rides as there is demand for would suffice. But Uber is a for-profit company, offering what is essentially a luxury good, and the only arguments that really have any bearing on Uber's behavior are economic ones.
it's possible that there are times when it makes sense to do that, e.g. when surge pricing is already on and raising it further will suppress demand enough that they won't make as much money. It's possible that reducing their cut could increase driver supply enough to make up for the difference (due to more rides happening). But I don't know if this is ever true in practice.
*short of reducing their cut, as mentioned previously, but there's no incentive to do this instead of surge pricing
Perhaps you think they deserve to make less money, but as wutbrodo pointed out, the lack of supply at these times does not mean Uber has failed at recruiting drivers. After all, having extra drivers sitting around idle is not helpful to anyone (not to Uber, not to the drivers themselves, and not to the passengers). The only mechanism Uber has for putting more drivers on the road when demand increases is to adjust prices. Theoretically they could merely reduce their cut to put more drivers on the road without increasing the cost to passengers, but there's no incentive for them to do that.
Ultimately, what you said would make sense if drivers were actually Uber employees that operated at the direction of Uber. In that scenario, Uber could order more drivers onto the road without surge pricing. But that's not the case, drivers are voluntary contractors that make the decision themselves about whether to start working. The only tool Uber has to influence how many drivers start working is to increase their pay, and the only way to do that* is to turn on surge pricing. And since surge pricing acts to reduce demand in addition to increasing supply, the only way Uber itself has an incentive to use surge pricing is if Uber itself gets more money that way (which means taking a cut of the surge-boosted price instead of the original price).
I'll grant you that if Uber was a regulated service operating on behalf of the public, then perhaps it makes sense to penalize them for not adequately meeting demand. And in such a scenario, surge pricing can't be justified anyway, so the natural penalty of not filling as many rides as there is demand for would suffice. But Uber is a for-profit company, offering what is essentially a luxury good, and the only arguments that really have any bearing on Uber's behavior are economic ones.
it's possible that there are times when it makes sense to do that, e.g. when surge pricing is already on and raising it further will suppress demand enough that they won't make as much money. It's possible that reducing their cut could increase driver supply enough to make up for the difference (due to more rides happening). But I don't know if this is ever true in practice.
*short of reducing their cut, as mentioned previously, but there's no incentive to do this instead of surge pricing
From an economics perspective there was money left on the table an Uber is taking it, and that's the end of it. However, economics will also tell you that this doesn't seem to be an equilibrium situation, and therefore competitors will start entering the market until Uber's profits are razor thin, unless the regulators get in the way and screw the whole pricing scheme up.
Start an Uber competitor that only gives surge pricing charges to drivers. Your rates should be lower.
As long as monopoly abuses are prevented, this problem will work itself out.
As long as monopoly abuses are prevented, this problem will work itself out.
And that's caused by lack of competition.
Wow.
This mis-characterizes the Economist's wonder at price mechanisms - as though this one characteristic in a vacuum should be a shining example of the "invisible hand" (subtext mine).
The key market assumption that is missing that would make this a wholly positive pricing activity, is that the marginally increased demand also comes with a marginally increased supply at a marginally higher cost, which it doesn't in these cases. The supply market does not expand in order to cover more customers in most cases, with everyone paying a slight penalty for the transaction/logistical cost, all it does is take a saturated supply market and price out the lower tier.
So if Uber was able to dispatch MORE drivers for a slightly higher cost at surge times (arguably easier with Uber than with traditional taxi companies), that would actually be closer to the Pareto efficiency that economists like. Perhaps I am wrong but it doesn't look like that is what happens in the case of Uber.
The key market assumption that is missing that would make this a wholly positive pricing activity, is that the marginally increased demand also comes with a marginally increased supply at a marginally higher cost, which it doesn't in these cases. The supply market does not expand in order to cover more customers in most cases, with everyone paying a slight penalty for the transaction/logistical cost, all it does is take a saturated supply market and price out the lower tier.
So if Uber was able to dispatch MORE drivers for a slightly higher cost at surge times (arguably easier with Uber than with traditional taxi companies), that would actually be closer to the Pareto efficiency that economists like. Perhaps I am wrong but it doesn't look like that is what happens in the case of Uber.
Why do you think Uber doesn't dispatch more drivers? As far as I know, one of the reasons for the surge pricing is to get more Uber drivers on the street, increasing the supply.
That may be the intention, but where's the evidence that it actually has that effect? Do they publish stats of number of drivers on shift vs pricing? I work for a similar business and I've seen evidence that supply is not all that elastic.
One of the stated reasons. We've yet to see any evidence that this effect actually occurs and is significant.
This is the same company that tried to eliminate its competition by ordering cars and canceling them at the last moment. I like their product enough, but their business practice track record suggests that they are not on the up and up.
Particularly in NYC where surge isn't just long events like New Year's - surge kicks in during half hour rainstorms as well. I highly doubt there's any significant supply change in that kind of time frame - in which case Uber is simply price gouging without any of the claimed positive supply effect.
This is the same company that tried to eliminate its competition by ordering cars and canceling them at the last moment. I like their product enough, but their business practice track record suggests that they are not on the up and up.
Particularly in NYC where surge isn't just long events like New Year's - surge kicks in during half hour rainstorms as well. I highly doubt there's any significant supply change in that kind of time frame - in which case Uber is simply price gouging without any of the claimed positive supply effect.
> Particularly in NYC where surge isn't just long events like New Year's - surge kicks in during half hour rainstorms as well.
Surge pricing also encourages uber drivers (who decide their own hours) that are about to end their shift to end a bit later to take advantage of the surge.
Surge pricing also encourages uber drivers (who decide their own hours) that are about to end their shift to end a bit later to take advantage of the surge.
Sure, all of this is logical and works in a thought-experimenty way. I'd like to see some data that backs this up though.
Market reality and what looks great on paper are often two very separate things - we in startups should know this better than anyone else.
How many extra cars get on the road during these short surge events? Is it worth charging everyone 2X if it brings an extra 1% of supply? 5%?
One thing you get used to after dealing with startups for a while is to listen to what they're not saying as well as what they're saying. Uber, along with all other "sharing economy" startups, like to trumpet their social-good side (see: AirBnb and the "helping poor New Yorkers pay rent" narrative). The fact that they've released nothing even remotely resembling data regarding the supply-boosting effects of surge pricing is suspicious. My suspicion is that the effect is not substantial unless during extended surge events (say, New Year's), certainly not substantial enough to placate people looking at 2X, even 3X fares.
Market reality and what looks great on paper are often two very separate things - we in startups should know this better than anyone else.
How many extra cars get on the road during these short surge events? Is it worth charging everyone 2X if it brings an extra 1% of supply? 5%?
One thing you get used to after dealing with startups for a while is to listen to what they're not saying as well as what they're saying. Uber, along with all other "sharing economy" startups, like to trumpet their social-good side (see: AirBnb and the "helping poor New Yorkers pay rent" narrative). The fact that they've released nothing even remotely resembling data regarding the supply-boosting effects of surge pricing is suspicious. My suspicion is that the effect is not substantial unless during extended surge events (say, New Year's), certainly not substantial enough to placate people looking at 2X, even 3X fares.
I'm not affiliated with Uber so I don't know how their internals work - it may just be a logistical problem given elasticity of supply.
For all that I know however, they are dispatching more, but given the uproar it would appear that they are not.
For all that I know however, they are dispatching more, but given the uproar it would appear that they are not.
Because when demand rises due to certain events or circumstances, potential drivers are also often part of that.
Want more drivers on 4th July do get drunk people home from bars? Guess what - a lot of potential drivers just got shitfaced at bars themselves.
Want more drivers on 4th July do get drunk people home from bars? Guess what - a lot of potential drivers just got shitfaced at bars themselves.
They "get out on the street" by turning off their regular cab dispatch radio that they've been taking calls on and picking up the Uber phone instead.
Presto! More cars on the street!
See also: lifting yourself by your own bootstraps.
Presto! More cars on the street!
See also: lifting yourself by your own bootstraps.
Surge pricing also prevents an existing supply from eroding. When there was flooding in NY, the taxi shortage wasn't just caused by more people needing taxis, it was also caused by existing taxi drivers staying home.
Second: I agree. Uber should try to recruit more drivers before a predicted surge. They could, say, run ads on local TV.
Second: I agree. Uber should try to recruit more drivers before a predicted surge. They could, say, run ads on local TV.
If you want to hear two libertarian-leaning econ professors talking about Uber, including some novel arguments against it (they both support Uber, of course, particularly the surge pricing), check out this week's EconTalk:
http://www.econtalk.org/
http://www.econtalk.org/
Direct link: http://www.econtalk.org/archives/2014/07/michael_munger.html
The episode is pretty good. It's fun to listen to economists' perspective on these services after being absorbed in the tech.
The episode is pretty good. It's fun to listen to economists' perspective on these services after being absorbed in the tech.
I liked it fine, but I found the economics to be extremely predictable and the public policy analysis to be very shallow. For instance, Airbnb is to Mike Munger an unalloyed good; I found myself yelling at the car radio "but what about the mob hotels?"
You knew Roberts and Munger were going to like Uber, and, of course, they do.
You knew Roberts and Munger were going to like Uber, and, of course, they do.
I think that was to be expected, based on the fact that they are both professed libertarians. There are other episodes where the guest doesn't share Roberts' ideologies though.
The problem with this is that the people who get the rides in surge pricing are not the ones with the most demand, but those with the most resources. It's an inherently classist system. The surge price, to that rich person coming out of work to catch a cab to that upscale restaurant for dinner is pennies. But the surge price to the single mother who desperately needs the cab to get to school to pick up her kids on time before the school closes and they have to walk home in the rain with out jackets is breaking the bank.
This does not make things "better for everyone" as the article argues. It only ensures that the wealthy always have it good, instead of having to compete for the limited service with everyone else. And it doesn't give the rides to those who truly need them most.
This does not make things "better for everyone" as the article argues. It only ensures that the wealthy always have it good, instead of having to compete for the limited service with everyone else. And it doesn't give the rides to those who truly need them most.
> single mother who desperately needs the cab to get to school to pick up her kids
Now, the single mother can get a very reasonable price on an Uber car that isn't available (because she didn't win the lottery.)
Yay for solving the class problem!
Now, the single mother can get a very reasonable price on an Uber car that isn't available (because she didn't win the lottery.)
Yay for solving the class problem!
So let's do this for housing as well. Let's assign the best houses by lottery for a fixed price so that the poor mother of two has a fair chance, as opposed to a rich person housing their lover on the side.
I think symbolic legislation around feel-good examples like cabs allows society to maintain the fiction that somehow it's not already completely capitalistic. It's like a safety valve.
I think symbolic legislation around feel-good examples like cabs allows society to maintain the fiction that somehow it's not already completely capitalistic. It's like a safety valve.
Complaining about pricing of cabs is rich people wanting their bit of capitalism to feel fair to them.
For many people a cab is something you use when all other transport options have failed and you need to get somewhere now even if it means eating just beans on toast for the next week.
For many people a cab is something you use when all other transport options have failed and you need to get somewhere now even if it means eating just beans on toast for the next week.
Yes. I had a friend once who took a cab to work when her bus didn't arrive, even though it meant she would have a net negative income for that day, so she wouldn't lose her job.
The author appears to have little or no grasp of human psychology. People object to cash being the only tool utilized to increase supply which is totally reasonable. Why doesn't Uber try =any= other incentives? There's not a huge difference between "no one getting ice" and "a few rich people getting ice". That is what people object to and it has nothing to do with politics.
Also, my read of Uber's agreement was that it would only cap surge pricing during natural disaster-type problems based on some formula for recent surges.
So the economists will only miss studying true price gouging.
Also, my read of Uber's agreement was that it would only cap surge pricing during natural disaster-type problems based on some formula for recent surges.
So the economists will only miss studying true price gouging.
> There's not a huge difference between "no one getting ice" and "a few rich people getting ice".
The idea behind demand pricing is that people who need it the most will be the most willing to pay; pricing is the only real general mechanism we have to express need/desire. With Uber, I sometimes take Ubers even though my destination is straight down a bus line (to avoid waiting at the bus stop, if the weather is bad, etc). If the price was high enough, I may decide to just take the bus, which means the Uber is freed up for someone taking a trip that's less amenable to purely taking transit.
You are of course right that this effect is distorted by the fact that the wealthier you are, the less valuable money becomes, so you're willing to pay more for things that are less important. It just seemed like you were being a little reductive and ignoring the actual intent (and partial result) of demand pricing.
The idea behind demand pricing is that people who need it the most will be the most willing to pay; pricing is the only real general mechanism we have to express need/desire. With Uber, I sometimes take Ubers even though my destination is straight down a bus line (to avoid waiting at the bus stop, if the weather is bad, etc). If the price was high enough, I may decide to just take the bus, which means the Uber is freed up for someone taking a trip that's less amenable to purely taking transit.
You are of course right that this effect is distorted by the fact that the wealthier you are, the less valuable money becomes, so you're willing to pay more for things that are less important. It just seemed like you were being a little reductive and ignoring the actual intent (and partial result) of demand pricing.
...pricing is the only real general mechanism we have to express need/desire.
There is another one, actually. It's called voting. And it's how taxi regulations came about in the first place.
There is another one, actually. It's called voting. And it's how taxi regulations came about in the first place.
Wait, what? How does voting determine who gets a taxi? I'm not sure what jurisdiction you're thinking of, but none of the ones that Uber operates in holds a referendum every time N people are trying to hail M taxis (where N > M).
Of course, voting expresses needs and desires, but that's in an entirely different sense of the word than it's being used in this context. The only way one could mistake the two is if they read my comment COMPLETELY without context: without having read the article, the headline, or any of the HN comments page....unless you're just nitpicking semantics to be contrarian because you have nothing else to contribute, in which case I'm not interested in wasting any more of my time.
Of course, voting expresses needs and desires, but that's in an entirely different sense of the word than it's being used in this context. The only way one could mistake the two is if they read my comment COMPLETELY without context: without having read the article, the headline, or any of the HN comments page....unless you're just nitpicking semantics to be contrarian because you have nothing else to contribute, in which case I'm not interested in wasting any more of my time.
Wait, what? How does voting determine who gets a taxi?
How does it not? Voting represents long term needs and desires, like the desire for an orderly, reliable public transportation system. Voting determines whether there are going to be taxis at all. It's not a matter of semantics. I read the article, the headline, and many of the comments, including yours. And I don't see any 'context' that supports a flat statement that pricing is the only way people express their need for transportation, sorry.
How does it not? Voting represents long term needs and desires, like the desire for an orderly, reliable public transportation system. Voting determines whether there are going to be taxis at all. It's not a matter of semantics. I read the article, the headline, and many of the comments, including yours. And I don't see any 'context' that supports a flat statement that pricing is the only way people express their need for transportation, sorry.
As I said in my comment:
"Of course, voting expresses needs and desires, but that's in an entirely different sense of the word than it's being used in this context....The only way one could mistake the two is if they read my comment COMPLETELY without context: without having read the article, the headline, or any of the HN comments page....unless you're just nitpicking semantics to be contrarian because you have nothing else to contribute."
I understand that you're trying to be deliberately obtuse here, but in the small event that you're not, i'll make it blindingly, incredibly, extremely, amazingly obvious that I'm talking about allocating resources at the time of purchase, for each potential purchase. I mean jesus,you claim to have read my comment, and yet you're pretending that I didn't give an explicit example of what I was talking about and you're continuing to talk about something that couldn't be more off-topic. Here is the example again, in case you somehow (???) missed it:
When there is a rainstorm, and there are T taxis, and P people who want a taxi, and T < P, there is no jurisdiction in the world who holds a referendum (or has Congress decide) that taxi 1 is assigned to Bob, taxi 2 to Fred, taxi 3 to Alice, etc. To make this ultra-ultra-ultra-clear, so hopefully even you will understand it, when I said prices are the only mechanism of expressing needs/desires, I was incredibly ridiculously obviously talking about "needs/desires of each person for a given product at a given time", since that is the context of the article, the headline, the HN comments, et al. The fact that you're pretending not to have understood any of the context of this and insist that "voting" is an expression of every individual's demand for a product at every relevant moment in time (which again, is the topic of the conversation here) is either incredibly disingenuous or mind-blowingly stupid. The fact that voting can set the value of T beforehand(in the above example) has NOTHING to do with expressing each individual's need/desire for the taxi product at every relevant moment of time (which, again, is what the conversation about and what you were attempting to rebut when you claimed that voting could take the place of pricing in that regard). I mean really, Jesus Christ
"Of course, voting expresses needs and desires, but that's in an entirely different sense of the word than it's being used in this context....The only way one could mistake the two is if they read my comment COMPLETELY without context: without having read the article, the headline, or any of the HN comments page....unless you're just nitpicking semantics to be contrarian because you have nothing else to contribute."
I understand that you're trying to be deliberately obtuse here, but in the small event that you're not, i'll make it blindingly, incredibly, extremely, amazingly obvious that I'm talking about allocating resources at the time of purchase, for each potential purchase. I mean jesus,you claim to have read my comment, and yet you're pretending that I didn't give an explicit example of what I was talking about and you're continuing to talk about something that couldn't be more off-topic. Here is the example again, in case you somehow (???) missed it:
When there is a rainstorm, and there are T taxis, and P people who want a taxi, and T < P, there is no jurisdiction in the world who holds a referendum (or has Congress decide) that taxi 1 is assigned to Bob, taxi 2 to Fred, taxi 3 to Alice, etc. To make this ultra-ultra-ultra-clear, so hopefully even you will understand it, when I said prices are the only mechanism of expressing needs/desires, I was incredibly ridiculously obviously talking about "needs/desires of each person for a given product at a given time", since that is the context of the article, the headline, the HN comments, et al. The fact that you're pretending not to have understood any of the context of this and insist that "voting" is an expression of every individual's demand for a product at every relevant moment in time (which again, is the topic of the conversation here) is either incredibly disingenuous or mind-blowingly stupid. The fact that voting can set the value of T beforehand(in the above example) has NOTHING to do with expressing each individual's need/desire for the taxi product at every relevant moment of time (which, again, is what the conversation about and what you were attempting to rebut when you claimed that voting could take the place of pricing in that regard). I mean really, Jesus Christ
I understand what you're saying, and I'm not being deliberately obtuse. The "context of the article, the headline, the HN comments, et al", in case you missed it, is a policy discussion on whether surge pricing should be permitted. You narrowed that context down to the moment of getting a taxi; I deliberately broadened it back out. It was not intended as an insult, only as a reminder. And I never suggested that "voting could take the place of pricing", only that it was another way of expressing need or desire in the long term.
You took for granted that "of course" those people also had the power to express their desire politically, you just didn't think it was relevant for the point you were trying to make. I get that. In these discussions, I see a lot of comments along the lines of "give the consumer choices" and "let the market decide", putting the focus just as you did on the point of transaction. But in a democracy the consumer can also exercise choice by voting to limit the market. I'm making the point that those choices shouldn't be discounted simply because they weren't made at the time the immediate need presented itself.
You took for granted that "of course" those people also had the power to express their desire politically, you just didn't think it was relevant for the point you were trying to make. I get that. In these discussions, I see a lot of comments along the lines of "give the consumer choices" and "let the market decide", putting the focus just as you did on the point of transaction. But in a democracy the consumer can also exercise choice by voting to limit the market. I'm making the point that those choices shouldn't be discounted simply because they weren't made at the time the immediate need presented itself.
Which other incentives?
Lowering or increasing the cut that Uber takes for example.
Uber's cut is just 20%, so the effect would be relatively low unless they wanted to dramatically lower the average pay of the drivers.
Why would a rational actor take a reduced profit in the face of increased demand for their product?
>drivers couldn’t be lured out of their warm beds on a cold and needy night.
This is not only about warm beds, it's about risk and reward. A snowstorm increases the chances of getting into a car crash by many factors, and if the reward (surge pricing) isn't big enough, drivers won't be willing to risk it.
This is not only about warm beds, it's about risk and reward. A snowstorm increases the chances of getting into a car crash by many factors, and if the reward (surge pricing) isn't big enough, drivers won't be willing to risk it.
It creates supply! (It doesn't. It stratifies the haves from the have-nots efficiently.)
Ice after a storm? Definitely let market forces dictate who keeps insulin cold and who sips chilly mint julips.
This is the underlying issue with Uber and blind disruption of regulatory frameworks. Regulatory initiatives often get propelled with moral issues. They then get calcified and twisted by economic forces.
Disruption of those economic entrenchments is laudable. Avoiding the acknowledgement of the collateral damage to the moral reasons for existing regulatory systems creates obstacles to acceptance. Fix that last bit and market forces can play freely.
Ice after a storm? Definitely let market forces dictate who keeps insulin cold and who sips chilly mint julips.
This is the underlying issue with Uber and blind disruption of regulatory frameworks. Regulatory initiatives often get propelled with moral issues. They then get calcified and twisted by economic forces.
Disruption of those economic entrenchments is laudable. Avoiding the acknowledgement of the collateral damage to the moral reasons for existing regulatory systems creates obstacles to acceptance. Fix that last bit and market forces can play freely.
> It creates supply! (It doesn't. It stratifies the haves from the have-nots efficiently.)
Are you disputing that surge pricing increases supply? It should be trivially obvious that it does.
Your "moral" arguments only apply if you treat Uber as the sole provider of transportation. If Uber ever starts actually supplanting cabs, your argument will have some merit, but cab companies have not died off. They have a real competitor now, which I think is a good thing, and in markets like SF where the cab companies woefully underserved the population it's now actually possible to reasonably get a ride. But the cabs still exist, with the same regulations as before.
If Uber disappeared overnight, the supply of cabs would not increase. The supply of overall transportation during a storm certainly would not increase. Given that Uber is an addition to the existing transportation infrastructure, and not a replacement, what exactly is the justification for claiming that Uber needs to abide by the same pricing regulation that regular cab companies obey? There's a good argument for why safety regulations should apply to Uber, but that doesn't apply to things like pricing. Regulation of pricing for cab companies is not a natural consequence of the fact that the cab companies are in the business of transportation; it's a consequence of the fact that cab companies are seen as providing basic public infrastructure. Do you view Uber as basic public infrastructure? I don't, and I don't see how you can make a compelling argument for that position.
Are you disputing that surge pricing increases supply? It should be trivially obvious that it does.
Your "moral" arguments only apply if you treat Uber as the sole provider of transportation. If Uber ever starts actually supplanting cabs, your argument will have some merit, but cab companies have not died off. They have a real competitor now, which I think is a good thing, and in markets like SF where the cab companies woefully underserved the population it's now actually possible to reasonably get a ride. But the cabs still exist, with the same regulations as before.
If Uber disappeared overnight, the supply of cabs would not increase. The supply of overall transportation during a storm certainly would not increase. Given that Uber is an addition to the existing transportation infrastructure, and not a replacement, what exactly is the justification for claiming that Uber needs to abide by the same pricing regulation that regular cab companies obey? There's a good argument for why safety regulations should apply to Uber, but that doesn't apply to things like pricing. Regulation of pricing for cab companies is not a natural consequence of the fact that the cab companies are in the business of transportation; it's a consequence of the fact that cab companies are seen as providing basic public infrastructure. Do you view Uber as basic public infrastructure? I don't, and I don't see how you can make a compelling argument for that position.
Do you object generally to scarcer goods costing more, or is there a more narrow (and preferably reasonable) standard by which you think this kind of effect should be suppressed?
For example, I'm sure you don't object to higher-quality goods costing more?
For example, I'm sure you don't object to higher-quality goods costing more?
Part of me things that this could have been avoided with better messaging and product design. Instead of calling it "surge pricing," they should have said, "There are no Ubers available. Your expected wait for an Uber is 110 minutes. Would you like to offer a bonus to your driver?"
Then you could select a bonus, and drivers could choose to pick you up or not pick you up based on whether they thought the bonus was enough.
Then you could select a bonus, and drivers could choose to pick you up or not pick you up based on whether they thought the bonus was enough.
This article misrepresents the facts, and the headline is false in two different ways. (False claim about surge pricing, unsupported claim about "economists")
The linked Slate article is more accurate.
Mods, please switch the link to point to the more accurate less blogspammy Slate source.
The linked Slate article is more accurate.
Mods, please switch the link to point to the more accurate less blogspammy Slate source.
Price Gouging and the Poor - relevant
http://bleedingheartlibertarians.com/2013/10/price-gouging-a...
http://bleedingheartlibertarians.com/2013/10/price-gouging-a...
The root of the problem is the question of whether social values should have weight in a situation of limited supply, ie. when taken to its extreme: should one person be allowed to fuck up the whole planet because they have more monopoly money, thereby destroying the whole species and all future generations.
Conventional capitalists will say yes without thinking, then spout whatever view-confirming stuff they can find (like this URL). Market-libertarians say a market will evolve to cater for the resource impacted that all people value, though we haven't actually seen that happen yet (observe the failure of the carbon credit scheme). Socialists say yes, we should treat one another with respect because fundamentally we're all in this together.
All views have some credence.
Conventional capitalists will say yes without thinking, then spout whatever view-confirming stuff they can find (like this URL). Market-libertarians say a market will evolve to cater for the resource impacted that all people value, though we haven't actually seen that happen yet (observe the failure of the carbon credit scheme). Socialists say yes, we should treat one another with respect because fundamentally we're all in this together.
All views have some credence.
No, that is not the root of the problem at all.
The root of the problem is that humans have evolved anti-market biases that served us well when living in tribal communes but which are Pareto inefficient when living in large billion person societies.
The root of the problem is that humans have evolved anti-market biases that served us well when living in tribal communes but which are Pareto inefficient when living in large billion person societies.
I'd call that a capitalist view. In all its brevity, it exhibits one of the absolute top fallacies of capitalist thinking when in "have evolved anti-market biases" you allude to markets being some kind of 'natural' state of affairs. This falsity was neatly summed up by George Soros: Classical economics is based on a false analogy with Newtonian physics... by which he means, if you listen to or read any of his numerous interviews, that there is no 'equilibrium' and self-regulating nature of the market is fundamentally more a well-spun, oft-repeated tale than a self-evident truth. Further smackdown can be applied through reading Debt: The First 5000 Years (which conventional capitalist economists positively hate).
Leaving that aside, you'll note that I alluded to the ugly truth (the world is inherently limited; ie. there's sure to be critical resource shortages given current trajectories). From my perspective, any so-called anti-market bias will evolve right about the time we see mass starvations due to stupid short-sighted environmental management, potable water shortages, etc. - ie. if you think we've got anti-market bias now ... my wager is that you'll be shocked at how hollow the notion becomes in the relatively near future.
But the view does have some credence, ie. some forms of decision-making don't scale. But the obvious answer to that, far from assuming a self-evident path of decoupling historically present social, environmental, cultural and other local factors from economic decision-making across an inherently globalized god-like market that will deliver us from all ills as you imply (clearly, it won't), is perhaps to evolve newer and more subtle modes of collective decision-making that include market-like consideration of these factors and scale more effectively. That would be more like the market-libertarian view.
Leaving that aside, you'll note that I alluded to the ugly truth (the world is inherently limited; ie. there's sure to be critical resource shortages given current trajectories). From my perspective, any so-called anti-market bias will evolve right about the time we see mass starvations due to stupid short-sighted environmental management, potable water shortages, etc. - ie. if you think we've got anti-market bias now ... my wager is that you'll be shocked at how hollow the notion becomes in the relatively near future.
But the view does have some credence, ie. some forms of decision-making don't scale. But the obvious answer to that, far from assuming a self-evident path of decoupling historically present social, environmental, cultural and other local factors from economic decision-making across an inherently globalized god-like market that will deliver us from all ills as you imply (clearly, it won't), is perhaps to evolve newer and more subtle modes of collective decision-making that include market-like consideration of these factors and scale more effectively. That would be more like the market-libertarian view.
Price discrimination only matches supply to greatest demand if everyone has the same income. But I then again this is Bloomberg so I'd be shocked if I saw any real economics on their website.
Is a (potentially dramatically) smaller set of riders of more evenly distributed financial means strictly better than more riders that skew richer?
Egalitarian distribution is in some ways a social good (it's a good antidote to the hedonic treadmill for just one thing). But at what smaller size does this more equal ridership become strictly worse than a bigger less-equal ridership?
Egalitarian distribution is in some ways a social good (it's a good antidote to the hedonic treadmill for just one thing). But at what smaller size does this more equal ridership become strictly worse than a bigger less-equal ridership?
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Serious question -- there appear to be common two ways of allocating scarce resources in situations like this: either through price, or through semi-random who-gets-through first (see also online ticket sales).
Why do people think the latter is "more fair"? Are there any interesting alternative methods of allocation that are equally lightweight?
Why do people think the latter is "more fair"? Are there any interesting alternative methods of allocation that are equally lightweight?
> there appear to be common two ways of allocating scarce resources in situations like this: either through price, or...
But the quantity of the resource (Uber drivers) is not fixed. If you allow a higher surge price, you get more drivers.
But the quantity of the resource (Uber drivers) is not fixed. If you allow a higher surge price, you get more drivers.
More people have access to the second method. Many people would rather have a 25% chance of getting through and paying the lower price than not being able to afford a ticket at all.
>Why do people think the latter is "more fair"?
I have no idea what unfortunate psychological characteristic of the human brain leads so many to oppose price gouging and markets, but here is some tangential discussion:
http://bleedingheartlibertarians.com/2013/10/price-gouging-a...
I have no idea what unfortunate psychological characteristic of the human brain leads so many to oppose price gouging and markets, but here is some tangential discussion:
http://bleedingheartlibertarians.com/2013/10/price-gouging-a...
An important yet neglected aspect of surge pricing model is that it fails to correctly account for decrease in demand.
As such, one can probably argue that fixed prices capture the real market better in the expectation sense.
Perhaps we can get some special surge pricing setup for only the economists.
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Why are economists who defend surge pricing not pushing for "real" markets where drivers set prices?
By the same logic, I'm sure that rent control makes economists sad, too. However, if that didn't exist, NY and SF would just be real estate speculation ghost towns.
I think that sentiment is pretty far from uncontroversial amongst economists of all stripes.
Here's a survey paper:
http://econjwatch.org/articles/rent-control-do-economists-ag...
Here's what Matthew Yglesias --- hardly a standard-bearer for libertarian economics --- has to say about it:
http://beyondchron.org/matthew-yglesias-is-right-the-rent-is...
(Yglesias is not an economist but is a decent proxy, since this is kind of his "beat").
Here's a survey paper:
http://econjwatch.org/articles/rent-control-do-economists-ag...
Here's what Matthew Yglesias --- hardly a standard-bearer for libertarian economics --- has to say about it:
http://beyondchron.org/matthew-yglesias-is-right-the-rent-is...
(Yglesias is not an economist but is a decent proxy, since this is kind of his "beat").
For the life of me, I don't understand why we don't replace rent control with means-tested cash grants if we really care about displacement (and pay for it out of a Land Value Tax, but that can be an orthogonal issue). The way we have it now, we're screwing arbitrary renters (including poor ones) that happen to move between apts more often, to pay arbitrary renters that happen to move less often (including rich ones). I don't understand how anyone could say it's good policy with a straight face.
Excerpt from that survey paper you cited, which reports that economists agree that "rent control is bad":
...I find that the preponderance of the literature points toward the conclusion that rent control introduces inefficiencies in housing markets. Moreover, the literature on the whole does not sustain any plausible redemption in terms of redistribution. The literature on the whole may be fairly said to show that rent control is bad, yet as of 2001, about 140 jurisdictions persist in some form of the intervention...
...I find that the preponderance of the literature points toward the conclusion that rent control introduces inefficiencies in housing markets. Moreover, the literature on the whole does not sustain any plausible redemption in terms of redistribution. The literature on the whole may be fairly said to show that rent control is bad, yet as of 2001, about 140 jurisdictions persist in some form of the intervention...
Actually, that's what they're becoming with price control: http://www.nytimes.com/2011/07/07/nyregion/more-apartments-a...
The amount of economic ignorance on display in here is not only astounding but deeply depressing.
Oh, they'd top out, eventually, possibly even crash spectacularly. Which should winnow out those rich but stupid people who believe it'll go up forever, except that if it's at large enough scale, governments step in to prevent those losses.
I'm not sure that SF's current real estate situation is much better.
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Technical aside: this page took forever to load, after being laid out. Is that due to a WebFont issue? Too much stuff dumped into the onload handler? It's been over 60 seconds of blank, laid out page now and I still can't see the content.
This is pretty much worst case when it comes to web technologies. Show the text first, let the extras come in slowly. Showing everything except the text is pretty horrific.
This is pretty much worst case when it comes to web technologies. Show the text first, let the extras come in slowly. Showing everything except the text is pretty horrific.
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You see similar attitudes in many other areas. E.g. when it comes to spectrum auctions, people complain that the big telecom firms just get even richer by buying up all the spectrum. Well sure, that's what happens in markets. Those with the most money buy all the resources.