Uber Busted for Intentionally Surging Prices
Uber has come under fire for its surge pricing strategy, and new accusations the car service startup is artificially influencing the market to drive prices up means the problem won't disappear any time soon.
.Uber has come under fire for its surge pricing strategy, and new accusations the car service startup is artificially influencing the market to drive prices up means the problem won't disappear any time soon.
Andrew Lane, a San Diego resident who says that likes and regularly uses Uber, hailed a car on Valentine's Day this year and heard something he maybe should not have, according to The Verge:
But this Valentines day [sic], while traveling through San Diego in an Uber car, Lane heard something that disturbed him. "The driver had a Ford Sync system, and it read his text messages out loud." The message, which came wedged between numerous texts about a promotion for free roses, said, "UberX is very close to SURGE. It's Valentine's Day! People will be out all night and we didn't activate new drivers to make earnings even higher this weekend."
Uber's business model is fairly simple: they employ they employ a pool of drivers who can choose when they're on and off the roads. In theory, more drivers would be out and about when there's more demand, like at rush hour. Prices fluctuate based on the supply (number of drivers on the road) and demand (customers hailing drivers with their phones). But sometimes the demand for rides is greater than the number of drivers, so Uber uses "surge pricing" to attract more drivers to the roads, meaning the cost of a single ride can sometimes reach as much as seven times the normal price. More money means more drivers, and more drivers means more rides for customers.
Uber's surge pricing has been controversial, to say the least, and accusations of price gouging have dogged the car service for months. Uber recently cut prices in certain cities to remain competitive with competing taxi services; even without surge pricing, fares were too high. Uber's CEO Travis Kalanick recently defended the practice in an interview with The Wall Street Journal:
We can help smooth out the curves. But at the end of the day, Friday night is three or five times bigger than a Sunday night in any city around the world. And if you've got enough supply on the system so that we were perfectly supplied on a Friday night for as much demand as a city could ever throw at us, then the rest of the week you have drivers not making a living.
Kalanick eventually conceded that not everyone loves surge pricing when he announced a new notification feature that will alert users when surge pricing subsides; "bringing humanity" to the app, he said. "Surge pricing only kicks in in order to maximize the number of trips that happen and therefore reduce the number of people that are stranded," he told Wired in December.
Except life isn't that simple. What Lane heard is a message from Uber saying they deliberately kept drivers off the road even though prices were near surge numbers. Surge pricing is meant to be a last resort, something that only happens at the worst time when the company is completely maxed out. Uber could have had more drivers on the road but they chose not to. This goes against everything the company allegedly stands for.
Of course, according to the company, not everything is as it seems. This is how Uber explained the text Lane overheard:
Uber confirmed the text message, but says the whole thing is a misunderstanding. The company did not artificially restrict the number of drivers who were able to come on to the system on Valentine's Day — a particularly busy day for Uber rides — says spokesman Andrew Noyes. He explained the text simply noted that Uber did not onboard as many San Diego drivers as they could have that week because in the two weeks prior, a very large number of new drivers were added to the system. Earnings had been low, and the company wanted to reward new drivers with a strong holiday paycheck.