/// Surge This: Ideas and Economics on Uber

December 20, 2013  |  All Things Digital

The Uber car service’s practice of “surge pricing” garners attention, it seems, at every snowstorm, flood, or other act of God , such as a Jay-Z concert. Uber CEO Travis Kalanick continues to vigorously defend the company’s policy of charging as much as eight times regular fares during peak times, saying that the higher prices are necessary to bring more cars on the road, which in turn makes for a better Uber experience for more people. And yet the public wails. “You idiots!” Uber’s defenders scream . It’s Econ 101. When demand outpaces supply, prices rise. Higher prices encourage more quantity supplied, hence Kalanick’s claim to more cars on the road. The invisible hand at work, dummies. It’s called capitalism. But, for the same reason that there’s Econ 202, Kalanick’s story deserves a deeper look. Many businesses see fluctuations in supply and demand, and choose not to charge the clearing price. Uber chooses to raise the clearing price, and the company’s implication that it’s simply for the betterment of the experience is specious. First, it’s worth noting that the company hasn’t provided data to support its claim that higher prices result in more drivers. Spikes in demand are just that — spikes. They don’t last long. Getting a driver off his or her couch and on the road during a storm takes time. Further, drivers drive on schedules, often sharing cars, based on average supply and demand. So the notion that there’s excess supply sitting around during snowstorms deserves scrutiny. But what about the economics? Shouldn’t supply and demand be the laws that matter

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Surge This: Ideas and Economics on Uber

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