
Uber upholds capitalism, (possibly) learns downside of price gouging - ahmadss
http://www.latimes.com/business/hiltzik/la-fi-mh-uber-20131216,0,3779232.story
======
jdminhbg
In my Uber/Lyft-less city we had a snowstorm last week and I needed to get to
the airport. I spent 15 minutes letting my phone fruitlessly ring to various
cab companies before giving up and digging my car out to drive and park for
probably $90+ for the course of my trip.

It's a curious human psychological tic that people think this is a better
situation for me than looking at my phone's Uber app and deciding whether $90
for this particular ride would be worth it or not. And not just thinking that
the latter is better for me, but that I need to be sheltered by law from
encountering the former situation.

~~~
williamcotton
The article is mainly about the shortcomings of pure unregulated capitalism,
but thanks for your little story about yourself!

Which makes your comment incredibly ironic, you know, because the underlying
message is that a system driven only by individual perspectives is fatally
flawed.

~~~
Pinatubo
Beside missing his point completely, your comment is needlessly rude.

~~~
knowtheory
His point is a pretty meaningless hypothetical comparison.

What if uber had been in his city and charged 4000$ for a ride to the airport?
Does he live 60 miles from his airport? who the fuck knows?

The story isn't even a useful anecdote, it's a Rorschach test for libertarians
to project their biases onto.

~~~
jdminhbg
> What if uber had been in his city and charged 4000$ for a ride to the
> airport?

Then I would have dug car out of the snow and drove to the airport. I would
not have been any worse off. The difference is that the LA Times wouldn't
write a story about me.

~~~
knowtheory
So you're posting your hypothetical anecdote because you're upset that the LA
Times didn't interview you?

What unrepresented party to this story do you think you belong to? People who
are upset that uber isn't around to serve them? Again, this is entirely
dependent on circumstances that you haven't made clear. Maybe Uber and their
pro-market pricing think that you're in a region they can't make a profit in,
and therefor will _never_ be an option for you anyway.

Are you just in the class of people who are upset that taxis aren't available
in bad weather in your area? Again, do you live up on the top of a mountain?
Are you hard to get to? Again, it's not clear.

It just sounds like you're unhappy with your local taxis, and support
unrestrained market policies, which frankly, isn't interesting or relevant to
stories about Uber, their places in existing market places, and whether
they're serving their customers well with surge pricing.

~~~
corin_
Guys, you're completely missing the point of his anecdote. Due to the weather,
he was unable to get a taxi, he completely lost that option. If fares had been
way higher then he most likely could have (either because more drivers would
want to work, or because less people would be willing to pay those fares, or
for a mixture of these two reasons). Thus, an Uber-pricing system would have
been beneficial to him - even if he decided not to use it, it would have at
least given him an option to use it (what if he didn't have a car and really
needed to make that journey).

He's not trying to complain about his local companies, or anything like that,
he's merely pointing out that this sort of pricing can be beneficial to some
people, not just to Uber.

That doesn't mean it's the best system overall, it doesn't even mean this
anecdote owner thinks it is, it's merely a discussion point.

------
jowiar
It's a supply and demand thing - there's a choice -- Some people get cabs at
sub-market rate, and some stand on the corner for an hour trying to get a cab
-- or -- Some people pay more for a cab, while others balk at the price and
find an alternative method of transportation.

I've stood outside for an hour on a cold, snowy, windy New Year's eve/morn in
Boston trying to get a cab... I'll take the price hike vs. the jockeying for
sidewalk position, fights over who gets what cab, and other silliness. I think
the drivers would too.

~~~
thenmar
There's a choice now, and it's arguable a fair choice. But if Uber puts
heavily regulated cab companies out of business, the alternative disappears.
That raises some issues in emergency situations like bad weather.
Transportation is to some extent a necessity - would you be in favor of stores
selling water for $100 a bottle before a hurricane? That might be the price
that the market decides but the result of that is people suffering simply
because they weren't lucky to be born in the right family.

~~~
holograham
you are missing the other half -- that high prices drive more market entrants.
If the price of bottled Water is 100 dollars then more entrepreneurs will take
the risk to transport bottled water to a hurricane prone area because of the
profit incentive. This increase in market entrants would in turn drive down
the costs to the point where the costs of transporting water to the area
equals the ability of people to pay. If a business cannot profitably sell the
water in the area then yes, humanitarian aid is probably needed short term
(long term there probably needs to be analysis if the area is viable for
humans to live in).

~~~
metaphorm
> that high prices drive more market entrants

citation needed. I know this is dogmatic in laissez faire capitalist
philosophy, but its really not clear that this occurs in all real markets.

~~~
holograham
see my above comment on the law of supply and demand

~~~
metaphorm
I know the basic laws of supply and demand. that is EXACTLY what I mean by
dogmatic. you're quoting textbook theory at me as if the doctrine is self
proving and as if I'm some sort of idiot for questioning whether your textbook
doctrine applies in real life situations.

I'm asking you to consider whether or not your abstract economic theory is
really operating as you expect it to in this situation. this is the real world
we're talking about. its not a free market. its not a toy example in a text
book. between naturally occurring inefficiencies, legal interventions, and
unforeseen outside forces it is highly doubtful that basic supply/demand price
effects can be thought to apply reliably as the textbook describes.

~~~
holograham
Fair point. I elaborated more above. Think we are missing each other's next
move in the reply delay chain.

Sure the real world is not a perfect free market. Regulations and laws can be
a huge hinderance to new market entrants...Uber ironically has felt that pain
a ton with local taxi unions and laws

------
sailfast
This article asserts that if taxi cabs were run out of business by Uber then
nothing would remain to keep Uber's prices in check. That is completely
incorrect. There are a number of competing apps for rides (or they would be
built quickly to compete) and cars could freely undercut Uber. I'd be the
first to jump in and build an app that pulled each service's ride price to
compare options.

If price gouging continued, lower priced alternatives would flourish. I'm
struggling to see why this demand-driven pricing when provided BEFORE you get
in the car and make your purchasing decision is a problem.

Without price gouging, would you even be able to get a ride in a snowstorm?
Just because something is available in good conditions at a normal fee does
not mean you can just stop planning your logistics and assume that service
will be available all the time.

That said, what the market-based alternative does crowd-out is those without
the resources to pay spiked fares that may have lucked into a cab in previous
circumstances.

~~~
jtbigwoo
>> There are a number of competing apps for rides (or they would be built
quickly to compete) and cars could freely undercut Uber.

That's one possiblity. Another is that network effects would allow Uber (or
Lyft or whatever) to dominate local markets since drivers and riders would
flock to the most popular. The barrier or new entrants is going to get pretty
high if Uber can snap up enough drivers.

~~~
sailfast
True, but there is no shortage of drivers even if they start snapping them up.
For $20 a mile, I'll get in my car and pick you up. Uber would have to corner
the market for all drivers by paying them off which is... expensive, and
extremely unstable.

If you required a CDL or other more involved permit to pick people up that
might restrict supply but I don't anticipate demand outpacing supply of
drivers if there is money to be made.

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saosebastiao
If you aren't willing to pay more during peak times, you have to deal with the
scarcity. This is problematic for things like food, water, and shelter during
emergencies...not so much for luxury car rides across town.

~~~
DigitalJack
Scarcity is interesting. It's the root problem that government is trying to
manage. With perfect knowledge, a central authority could have goods or
services brought to those most in need. This is very alluring to politicians
as they naturally make themselves the central authority, and people have a
natural bias to believe they are right and will make the right decisions.

Eventually you confront the problem of more people being in need than there
are resources to satisfy. You can solve this by lottery or some qualification
system or money. But someone somewhere will be left in the cold. This may be
the poor or some schmuck who's birthday was in February.

Sadly most economies don't take the "most in need" concept a a founding
principle. It's about trade, where each participant feels they are in a better
situation than before the trade. Money is used as an abstraction representing
utility/usefulness of an object or work done.

This is fine until you discover the person who has no money and apparently
does not provide enough utility to get money (or enough money to live).

This is where charity can take action. Basically a trade happens where one's
position is worse after the trade and the other's is improved.

Some believe this charity should be a private affair, some believe it should
be compulsory.

------
tgrass
As I understand it, Uber's prices are listed prior to contracting for a ride.
Uber's market is clearly the middle to upper income brackets. If it's
understood that the price is time and conditions-variant, I fail to see how
their pricing method is unethical.

~~~
smackfu
They might benefit from being a bit more transparent with pricing. From a
customer's point of view, the multiplier is just arbitrary ("it's busy, so
we're charging seven times what we normally do"), and they have to trust Uber
that it is being set fairly. If it gets excessively high, like it has in these
recent cases, they start losing that trust in Uber, and move to a competitor.

~~~
tgrass
I agree, that the firm might benefit from transparency; but the article
stresses the need for regulation in the interest of the consumer, not the
firm.

This is how the price mechanism is supposed to work: it communicates
inefficiencies over the long term.

------
cypherpunks01
"Let Uber put taxis out of business, as sometimes seems its intention, and
there'd be no check on its "surge" pricing and no way at all for ordinary
people to get around."

No way at all for ordinary people to get around? Is this a joke? As far as I'm
aware, ordinary people take ordinary transportation, like, you know, subways,
buses, bikes and such.

~~~
pessimizer
Are you trying to say that ordinary people don't take taxis?

~~~
vdaniuk
No, he doesn't. And it's pretty obvious what he means: that primary method of
transportation for most people is public transport and price hikes during the
scarcity periods will be a minor inconvenience as many other transportation
means are available.

~~~
pessimizer
It's not that obvious to me. As a person who doesn't drive, taxis are crucial
to my getting around, and I have to take one at least once or twice a month.

edit: and to make it very clear, I can think of three jobs that I would have
had to quit if reasonably priced taxis weren't available.

------
corin_
> _Uber 's defense is that it needed to charge so much more to encourage its
> drivers to stay on the job_

Maybe people would be more OK with it if Uber kept their commission flat, i.e.
they get paid the same for each trip regardless of how much they are charging
extra for the conditions. Not saying they have a duty to do this, just that
from a PR point of view it would get rid of the assumption that they put
prices up too much to increase their profits.

------
tgrass
There's a great interview with Mike Munger on Econtalk about the price
mechanism during an emergency:
[http://www.econtalk.org/archives/2012/11/munger_on_john.html](http://www.econtalk.org/archives/2012/11/munger_on_john.html)

------
sardonicbryan
I think the analogy here to price gouging during an hurricane is quite a
stretch here. I don't think many would agree with "surge pricing" on
essentials or transportation during Hurricane Katrina where the alternative
might be death or extreme property damage. I don't see how that applies to the
vast majority of Uber surge pricing scenarios.

I have a friend who lives in Pac Heights and gets hit with surge pricing all
the time, likely because few Ubers are willing to pick up customers there.
He's switched to Flywheel, which works well and doesn't have surge pricing.
Seems like everyone wins here. Meanwhile, I live in SOMA, rarely get hit with
surge pricing, and pretty much exclusively use UberX/Uber.

~~~
robrenaud
Uber tried to use surge pricing in the aftermath of Sandy in NYC, and was
basically forced to pay the drivers the extra surge prices out of their own
pockets due to the PR fiasco that ensued.

[http://blog.uber.com/2012/11/01/hurricane-sandy-pricing-
upda...](http://blog.uber.com/2012/11/01/hurricane-sandy-pricing-update/)

Of course, this was only the aftermath. I am very skeptical that for hire
taxis are a good way of saving lives in an emergency.

I personally totally buy the economic argument for surge pricing. But they
have a very PR problem of convincing people that it's useful and beneficial to
everyone.

------
bengarvey
Experiments using the Ultimatum Game have shown that people hate feeling like
they're being ripped off, no matter how much we think they should just act
rationally and understand the circumstances.

A great book on this is Priceless by William Poundstone.

------
pmorici
Sounds like a bunch of rich people complaining about having to pay the hired
help extra to deal with undesirable work conditions to me.

~~~
FireBeyond
Right? It’s telling, in a very Stanford Prison Experiment way, how that works.

Take my girlfriend. She used to work as a nanny for a couple, two lawyers for
the State. They were strictly middle-class, and paid the same to my GF as they
would for daycare (my GF had taken care of their two children when in daycare,
until the center closed). It was mutually beneficial, as my girlfriend’s own
daughter was the same age as their kids and knew them.

Seattle and surrounds are not known for heavy snow, and don’t have the
infrastructure to deal with it. I work with the Fire Dept. Was called in when
a big dump ended in a State of Emergency being declared.

My girlfriend’s employers got a message from the State, not to come into work
that day. That they could work from home, and were advised to stay off the
roads, as they were particularly dangerous with over two foot of snow, re-
freeze, and largely unplowed.

They called my girlfriend (who lived with me, about 5 miles away) and,
seemingly oblivious to what was coming out of their mouths: “We will be
working from home today, as it’s too dangerous to drive. So we’ll need you to
come in an hour earlier, thanks."

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gabemart
Are auctions unethical?

~~~
metaphorm
depends on what is being auctioned

~~~
jtbigwoo
True. Are we talking about auctioning beanie babies or dialysis treatments? I
expect that folks would be much more accepting of the former than the latter.

(To be clear, I'm not saying that Uber rides fall in the same category as
dialysis treatments, just that folks are more sensitive to "unfair" pricing as
the product or service gets more essential.)

~~~
metaphorm
Uber provides transportation. Transportation is much closer to the dialysis
side of the spectrum than the beanie baby side.

------
smackfu
The dilemma for Uber here is that a 6x or 7x multiplier completely changes the
market for a service. It's an increase from $30 to $200. If it was just a 2x
multiplier, people would be much more accepting, since it would move from
pricey to really pricey.

~~~
sneak
It's not really Uber's dilemma. They warn people about the multiplier before
accepting an order from them.

This is a simple case of buyers not wanting to take responsibility for their
own actions.

~~~
smackfu
I agree that we are only hearing complaints from people who went ahead with
the purchase, and then had buyer's remorse the next day.

Uber's bigger problem is all the people who got to the screen that said it was
incredibly more expensive than usual, and walked away and started talking
about what a rip-off Uber is and how it gouges people who are in need.

------
davidedicillo
I found myself using other service more often when I see a surcharge.
Especially for short rides, I prefer waiting and extra 5 minutes and spend
half of the money.

~~~
apendleton
I'm sure Uber would tell you that's exactly how it's supposed to work. The
price increase drives some people to seek alternate modes of transport, which
keeps the supply stable so it's still possible to get a ride if you're willing
to pay the higher fare.

~~~
aetherson
Wellllll.... Their general line is not "surge pricing reduces demand," but
"surge pricing increases supply." Clearly, over here in reality, it does both,
but they prefer understandably to emphasize the up-side.

The question is, how much does it increase supply? My guess is that it doesn't
increase it all that much. Uber does not, to my understanding, have a huge
pool of irregular drivers who only occasionally go out onto the road during
high surge pricing. They encourage their drivers to work full time, and most
surge pricing (ie, not anomalous events like snowstorms) are at times of
predictable high demand, when you'd expect most of their drivers to be on the
road anyway.

My guess is that surge pricing (especially surge pricing in excess of x2) is
mainly a windfall for Uber and their drivers, and is less effective about
increasing supply than their promotional material would like you to believe.

Disclaimer: I work at Flywheel, an Uber competitor. I am not un-biased.

~~~
holograham
I'd speculate that some of this marketing is designed to lure drivers from
other services.

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sharemywin
The bigger problem is customers opinion of the company and service. Great you
got my business when I was over a barrel but I'll probably use someone else
the other 99 times. Amazon keeps its pricing low for a reason. cutting fees
during emegencies is how you build customer loyalty.

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the_watcher
Price-gouging serves a purpose: it ensures that the service in question is not
unevenly distributed to the first customer there. In situations like transit
this advantage isn't as obvious as in situations like a gas shortage. Are cabs
in the Bay Area regulated in terms of max prices? I end up avoiding Uber in
surge times because basically every other option is cheaper.

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kubiiii
What is cool with price gouging is that it makes standard pricing appear like
an innovation premium user would pay for.

------
wavefunction
$94 11 minute Uber rides...

This is why regulation of industry is not always an attempt to hold back the
unbridled forces of "progress."

~~~
johngalt
If one party is willing to buy and the other willing to sell, where is the
issue? If you want regulated rates, wait for a cab. Intentionally using a
premium service then demanding price controls makes you sound like the old man
complaining that Starbucks coffee should cost a nickel.

~~~
atwebb
When will Uber cease to be a start up or a premium service or some other
classification of company that allows them to skirt the laws that their direct
competitors have to abide by? A large part of the argument isn't whether or
not the gouging is acceptable, it's that Uber/Lyft/new ride app is allowed to
loophole itself into "current market rates".

