
Uber Reverts Back to Surge Pricing in New York After One Day - larrys
http://betabeat.com/2012/11/uber-reverts-back-to-surge-pricing-after-one-day/
======
adamsmith
In a disaster situation if there is no elasticity between price and supply
then price gouging laws (social or legal) make a lot of sense. For example, if
there's a fixed amount of water around regardless of price people shouldn't be
able to raise prices.

But in this case there IS elasticity between price and supply, right? Uber is
claiming that they'll deliver better service by increasing prices, because
supply will increase proportionally. Thus, a functioning economy.

AND Uber is waiving 100% of their fees! Price gouging? Really?

(Side note: NYC would have more capacity for handing this emergency had they
not given an artificial monopoly to cab companies over the last century, vis-
a-vis medallions. I realize we can't change the past. Let's just be aware of
it so we can learn how to improve.)

~~~
liber8
Maybe I'm misunderstanding your point, but your first sentence seems
completely illogical.

If there is a fixed supply of water, what better mechanism than price exists
to efficiently determine the best use of that water? Not allowing people to
raise prices means you end up with wildly inefficient allocation of resources
(i.e. first guy in line says, "Man, there's a remote chance this flooding
lasts for 2 weeks. Water is the same price it was pre-hurricane? I'll take all
you've got.")

Similarly, not allowing people to raise prices actually decreases supply. If
you remember post-Katrina, there were numerous "anti-price gouging" orders
enacted. The result? All the people who were willing to drive a truck full of
generators (and plywood, and water, etc. etc.) 1000 miles to make a few
bucks/hundred bucks profit per unit now had no incentive to do so. And so they
didn't. And the people of New Orleans suffered needlessly.

~~~
barrkel
The correct response to a fixed supply of water is rationing, not either fixed
or floating prices. Because without water you die, or catch diseases from poor
substitutes.

With a fixed price, whoever comes in first gets the most water; laggards die.
With a floating price, whoever has the most money gets the most water; poor
people die. Neither of these is morally superior. IMO.

~~~
jlgreco
I suspect water could be considered a special case, since it is so immediately
necessary.

What if, instead, we were talking about bread? Assuming that rich people are
fairly rare, then raising the price of bread high enough to be expensive but
not _so_ high that people cannot pull enough cash out of their pocket to pay
for it, then the effect seems to me like it should be an approximation of a
ration.

Clearly if Donald Trump gets to the store first and buys all the bread then
nobody else would have any, but he could do that no matter the price. So long
as the price is painful _but feasible_ for anyone to afford, everything should
work out more or less okay.

If the price is _so_ high that nobody but Donald Trump can afford the bare
minimum necessary, then there is certainly an issue, but I suspect raising
prices that high would not be very effective.

~~~
fr0sty
But water is not really a special case, though.

Tap water is nearly free and bottled water is >$1/gal. so the markup during a
disaster is >100x.

~~~
jlgreco
I only consider water a (potential) special case because it is one of the few
things that, in the event that it _really_ is unavailable, people will start
dropping dead pretty quick.

Bread, fuel, generators, etc... these are all things we can afford to be
relatively dismissive of and just say that price caps are unneeded/bad. That
may also be the case with water, but I don't feel comfortable saying that with
my limited knowledge.

~~~
fr0sty
Fair enough. My point is we balk at a 200% increase in the price of gasoline
but won't blink at a 100000% increase in the price of water.

Also consider that @ $1 per 16oz bottle you are paying $8/gal for essentially
tapwater that was bottled and driven in from out of state. But try to sell a
gallon of gas for $5 and you are some kind of monster...

------
MattRogish
Good! Living in NYC boroughs there are little/no taxis, so we have to rely on
car services. Since Sandy they are all consistently booked solid (provided you
can even get them on the phone: most are "busy" forever).

Yet, with Uber dynamic pricing, I have been able to get a car when needed.
Yes, I paid more - but at least I got a car that I wasn't going to get
otherwise. Awesome!

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ynniv
Amazing how people switch their principals regarding free markets when it
suits them. Especially rich people.

When consumer protection laws are drawn up, they will be the "end of America".
When financial institutions have bankrupted themselves, they "need to be
protected". It's "progress" to prevent people from bringing food onto private
property so that you can massively overcharge them for unhealthy foods. It's
"gouging" to allow others to charge more when demand far exceeds supply in an
emergency.

I agree that leaning solely on price in all circumstances is a poor way to
balance supply and demand. And I don't want anyone to forget how this works
when social sacrifices are demanded for "American success" in the future.

~~~
eru
It is interesting how your first two paragraphs don't connect with your third.

Shouldn't the right reaction against the hypocracy be to have firm and simple
principles, like relying on price as a signal?

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alexchamberlain
I think they've done the right thing; you need a way to balance supply and
demand. This is just one way.

You can still hail a cab the old way, right?

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jbooth
Here's my question, gas stations are closing here in NJ when running out of
gas. Why aren't they jacking up the price to astronomical rates? There are
lines for miles to the gas stations that have electricity. Is this a failure
of capitalism in the face of human compassion or what?

~~~
001sky
_Is this a failure of capitalism_

No, not at all. All of the gas is in the hands of people who bought it. The
supple constraints are not problems of incentives, they are problems of
physics. Roads are down, plant is not working, traffic, security, etc.

The reason anti-gouging laws exist is because jacking up prices has no
benefit. It just keeps the poor people from having access to resources. 10
gallons of gas to a rich guy is not making the country or the economy better
off, than if the gas is given to a poor/normal person, the day after a
hurricane/earthquake, etc.

The Feds are going to be on the Hook for $6-7B to fix NY and that's going to
be paid by everyone in the country. Most people aren't going to benefit from
that, except for the local people in NYC. But we do that as a country to make
sure all of the right incentives are in place over the long run, not just
opportunistically in the short run.

~~~
tptacek
The idea that "jacking up prices" has no constructive purpose is strictly
incorrect . When you fix prices on gas, and the relative value of gas shoots
up, gas gets allocated to the people whose time is least valuable. When you
allow gas prices to float in the same situation, gas gets allocated to the
people whose time is most valuable.

Neither allocation is optimal; it is indeed unfair for all the gas to go to
investment bankers. But that doesn't make it efficient or even fair for all
the gas to instead go to the people who can get to the station earliest and
wait in lines the longest.

Equally importantly, when you fix prices instead of allowing them to float,
you enable hoarding. People get gas who don't need the gas, because they're
risk averse and overestimate the likelihood that they'll use up what they
already have. So gas quickly runs out everywhere. If you leave the fixed price
in place for long, eventually all the value that would have been captured by
the station owners instead gets captured by the grey market (and the
deadweight losses involved in transferring gas to that grey market).

It's obviously not good social policy to allow gas station owners to charge
$100/gallon for gas during a disaster. But it also seems pretty silly for
prices to be capped at 10% of the pre-disaster spot price. Gas could easily
float up to $10, $15/gallon (ie: the price of gas in Europe), motivate
stations to find creative ways to supply that suddenly lucrative market,
dampen the consumer urge to fill their tanks to 100%, and not bankrupt anyone
(Americans famously overestimate the impact of gas prices on their daily
lives).

~~~
001sky
No, Not really. What's strictly incorrect are naive assumptions that the
standard behavioural assumptions of "economics" hold in a disaster. The
basics: truth telling, promise keeping, etc. The purpose of anti-gouging laws
is a rational anticipation of Opportunism.

<http://en.wikipedia.org/wiki/Opportunism>

Opportunism is not dealt with by economics (assumed != existent), except
obliquely. It is the providence of political economy, law and economics, and
other areas that focus on the political Institutions that allow "rational-
choice" econonmics to actually be logically rational. Some of these ideas are
variants of: "I've got your back" in a disaster, so you can trust people to do
the right thing, to avoid lord-of-the-flies.

While I appreciate your analysis, its important to keep an eye on the sandbox
in which the black box sits. With 3m people without power, and with people
losing their homes, no electricity, no cell etc, its more valuable to society
to avoid over-generalizations of "rich people" are more important than "poor
people" when all of the ATMs are broken, the surveilance cameras don't work,
and the police stations are flooded, etc.

Thats just common sense and street smarts, really. Its not really a political
or economic argument in the traditional sense (especially the partisan sense).
Its more of a point about when the shit hits the fan, you preserve the fabric
of society first. Sort of like the 80/20 rule. Having a "basically functional"
market is better than having a "perfectly functioning" one but especially is
better than having the market looted or burned down (etc). That being said,
hording and etc are equally anti-social. Often times what you see is that the
quantities will be limited (to say, 8-10 gallons of gas, etc). For this very
reason. Those are fair and good points to raise.

~~~
tptacek
There are lines miles long for gas. People do hoard in disasters. Gas in NY
metro simply is more valuable now; for instance, as a substitute for the
electric grid. Your reply is nonresponsive.

~~~
001sky
_Gas in NY metro simply is more valuable now_

The amount you are willing to bid on something under duress is not the way to
construct a proper-functiong market. Its important to seperate the short-term
from the long-term, in this regards. In certain cases, its rational to obviate
the market, into hierachy. see, for example:
<http://en.wikipedia.org/wiki/Hold-up_problem> . This is precisely why firms
are distinct from N-dimensional outsourcing arrangements, even under free-
market capitalism, under ideal conditions.

So you can attack the problem from perfect conditions or imperfect ones. You
may or may not like anti-gouging laws, but an plain vanilla analyis using
under-graduate economics is naive to several critical factors.

~~~
tptacek
I don't think you read my original comment. I think you skimmed it, concluded
that I was arguing for abolition of all price caps to allow "free market
capitalism" to solve all our problems, and wrote a philosophical response.

In fact, I don't believe we should abolish all price caps. I simply think the
cap we've chosen is foolishly low. We have empirical evidence that a dense
western urban area can survive on prices >300% higher than what they are in
NYC now, and yet we've capped price increases at 10%. Fixing prices on a good
whose intrinsic value is rapidly increasing, as gasoline's value clearly is in
NYC, amounts to declaring a state-managed fire sale on gasoline. How can that
possibly be a sensible response to a crisis of scarcity?

If you want to think about it from the other direction: price fluctuations in
the gas market of 10% or more are not altogether uncommon, and empirically
they do little to alter people's behavior. The 10% cap therefore amounts to a
declaration that the market will not be allowed to alter people's behavior,
despite the obvious fact that people are not behaving optimally --- and you
can look at any gas station near NYC to verify that.

Finally, I just think you made a very flimsy argument upthread: that "jacking
up prices", as you put it, serves no objective purpose. Well, no. Not true. At
all. The knowledge that rising prices aren't an intrinsically bad thing will
help in all sorts of situations where we have actual judgements to make in our
lives.

~~~
001sky
No, the arguments are orthogonal. As such, getting into a point-by-point is of
questionable merit. Its not that I don't understand what you are saying. To
put it another way, economics is based on the premise of risk, not
uncertainty. The two are significantly different. The purpose of political
economy (ie, the orthogonal approach) is to box uncertainty and turn it into
risk for a sub-space of actions. We can then set up markets to work efficienty
in that sub-space where risk is a viable operating assumption. In a disaster
situation, what was previously part of the subspace risk gets thrown back to
uncertainty. In this case, if market-trading is suspended it is not-per-se
evidence that "markets are broken". Its just evidence that they are misplaced
for the time being. This may or may not make sense, at first glance. But it
makes alot of sense when you think about it. There are lots of times when
markets are not the best way to allocate goods (even in a market economy --
that is why we have firms). Unless you are comfortable with that idea, the
rest of what I'm saying probably won't make sense in general.

~~~
tptacek
I'm sorry, but to be honest, no, this doesn't make much more sense to me after
rereading.

I'm sure there are elements of macroeconomics that don't apply in disasters,
but all I'm talking about is the law of supply and demand, and how a 10% cap
on gasoline price increases causes problems with it. I feel like basic supply
and demand remains meaningful the day after a hurricane.

~~~
001sky
The distortions that follow from price-gouging are (arguably) worse that the
distortions that follow from making it illegal. Probaly in orders of
magnitude. Thats the general point.

The logical flow of this argument, with respect to the HN thread is as
follows:

1) Opportunistim is predictable and adverse, so it creates distortions, as
resources are allocated _ex-ante_ to mitigate its impact.

2) Laws exist to minimize opportunistic behaviour, to minimize the distrotions
and resources allocated to minimizing its impact.

3) Per (2), the existence of these laws is incrementally efficient.

4) Anti-gouging rules (2) when observed empirically, are not evidence that the
market is broken.

5) Rather, these laws are on the books to make markets work better.
Directionally.

[(4) was the original claim, starting this sub-thread]

You're most interested in "correctly" specifying the parametric details of
(4). But while this is a valid line of inquiry, its not central to my larger
point (5). Good arguments exist that the less change there is the better.
Also, the precision of the tools normally used begins to decline.

The analytical toolkit one needs take the debate further is beyond a basic
(textbook) understanding of supply and demand. While "supply and demand
remains meaningful", it does so in a certain place, under certain contraints
and assumptions. All of which are now <edge case> variants. The pre-sumption
of equilibrium becomes questionable, externalities dominant, etc.

To wit: The edge case of supply and demand is, classicaly, the boundary of the
firm. Inside the firm, supply and demand does not apply. Resources are
allocated more efficiently by fiat than by negotiation.

So, in the same way that internalizing resource allocation into a firm is not
a problem during the normal course for firms, its not per-se problematic to
temporarily suspend or modify market trading terms in an emergency, and even
to do so under the (correct) rationale of "efficiency".

~~~
tptacek
I am just not smart enough to understand the argument you're making here.

------
rayiner
While we're on the subject... Isn't it amazing what kind of rapid and
effective response you get when the people in trouble are among the richest in
the country (NYC/NJ coast) versus the poorest in the country (New Orleans)?

I'm not complaining. I'm back in my Manhattan office two days after a truly
epic disaster. I rode the train into work this morning, along the coast of
Long Island Sound no less. It took ~10 minutes longer than usual, but on the
whole the recovery is phenomenally impressive.

~~~
grayc
Without getting into politics (too much)... there are a lot of reasons for
different responses between this hurricane and Katrina. Parts of New Orleans
being below sea level probably matters a lot. Plus, FEMA was pretty clearly
mismanaged then and doesn't seem to be now. I think those two factors probably
account for more of the variation than the wealth of the inhabitants does, and
I'm sure that I'm unaware of other important differences.

edit: "sea level" should read "water level"

~~~
eru
Also New York is richer partly because it is better managed.

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brilee
... if prices don't go up, what's the incentive for gasoline delivery
companies to make the extra effort to bring resources to a disaster-torn city?

~~~
mchanson
It seems to me that humans, as a group, act compassionately during crisis. So
compassion, or good marketing if you are a cold blooded corp. type, is a good
reason to truck more in. FEMA can also, I'm sure, force a commercial concern
to do it. They have lots of that scary tinfoil hat power.

Many comments in here seem to look at this problem so coldly and rationally.
Anti-gouging has a deep moral component. If some of us are not trying to get
one over on others of us then you can maintain a stronger community during a
crisis.

If Bob's gas starts charging $15 for a gallon of gas in a crisis it will cause
friction in the community between those who can afford vs. those you cannot
and with the employees and owner of the gauging station.

We have also, well enough of us that laws were passed, decided as a society
that its just immoral/unacceptable behavior.

Capitalism is great. It doesn't need to deal with this corner condition well
to be a successful system.

~~~
prentis
Disasters are not a corner condition. Limited resources and unlimited wants is
a permanent condition. Disasters just tweak the relative values of these
parameters, which are reflected in prices. As always, the system adapts and
re-routes the resources to where they're needed most.

------
magikbum
This is all moot any ways. Town cars are allowed to pick up any passengers
during the crisis. Effectively unleashing a whole lot more supply. As well
town cars and yellow cabs are now allowed to pick up multiple passengers going
to different locations while continuing to run the first passengers meter. I
don't agree with this policy at all. You try getting an Uber car on a Saturday
night it's not "surge pricing" when something goes up 3x times, it's just
disgusting even more so during the current situation.

~~~
aidenn0
I don't see how the current situation can be called "disgusting" since Uber
isn't making any money off of the current situation. (I'm assuming that you
mean it's disgusting that they are using an emergency to make lots of money)

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koenigdavidmj
Seems like the main alternative to increasing prices is `it's not sustainable
for us to run at all until this is cleaned up'.

Is that a suitable alternative?

~~~
ynniv
If I were them, I would sink some of that massive VC into paying the
difference as marketing. Keep prices stable, but ration rides based on how
often people have used uber. ie, attract as many possible new customers.

~~~
jonny_eh
We're talking $100 000 a day. That's quite a marketing budget!

~~~
ynniv
No, substantive marketing campaigns are orders of magnitude more. And, it
depends on how many new customers they get and how long drivers will cost
extra. The just raised $50 mil, and the subways will be back in a week, two
tops... do the math. It isn't every day you can buy happy new customers and
good press, and on the days you can it usually costs more.

------
fr0sty
Previous discussion:

<http://news.ycombinator.com/item?id=4725789>

