As you probably know, Uber pricing can fluctuate based on the supply of drivers vs. the demand of riders. Uber says:
Bad weather, rush hour, and special events, for instance, may cause unusually large numbers of people to want to request a ride with Uber all at the same time…In these cases of very high demand, prices may increase to help ensure that those who need a ride can get one. This system is called surge pricing, and it lets the Uber app continue to be a reliable choice…Whenever rates are raised due to surge pricing, the Uber app lets riders know. Some riders will choose to pay, while some will choose to wait a few minutes to see if the rates go back down.
Another example is demand rates on toll roads. I-66, which goes from suburban Virginia into Washington, D.C., is all HOT lanes during rush hour. You can either get three people in your car and ride for free, or pay a toll. When the road first made the transition to HOT lanes in 2017, the tolls sometimes were as high as $44 to go 10 miles. (To be fair, prior to the switch, the road was HOV only, so lone drivers did not have the option to use the road at all.)
But if a hardware store does the same thing with the price of generators after a hurricane, it’s price gouging and in some cases illegal.
When does a rational response to the economic law of supply and demand become gouging?
A hurricane is a different level of disaster than rush hour traffic.
If you go to your hardware store, and they have one generator left that they are willing to sell for you for 3x the normal price, but if you wait an hour for the truck to be unloaded with a couple dozen more, then you can have it at the normal price, I doubt they’d get in much trouble.
Camping gear is expensive. If you buy it in the spring or early summer, you are going to pay twice or more what you pay if you buy it off season.
Convenience is not the same as need.
It becomes gouging when you are bidding up the price to profit off of things that people need to survive.
In many states, or at least my state, someone can only run into trouble for price gouging if they do it during a state of emergency.
If Uber charges you 10 times the normal rate to get you out of the path of a hurricane, that’s may be an issue. If they charge 10 times the normal rate because a World Series baseball game is letting out at midnight on St Patric’s day, it’s likely okay in the eyes of the law.
However, even then, sellers may raise their prices by more than 15% (the threshold for what’s considered gouging) if their price is going up as well.
I’m not sure if this could be applied to Uber, but it comes into play at retail stores. For example, if a sheet of plywood is normally $20 and Home Depot’s wholesalers have to change their price to $40 because of a shortage, HD can still sell it for $45 (though it has to remain at their normal markup).
Well, right. The idea is also to serve only the customers for whom the higher price is worth it. We know the idea behind it…but is it unfair exploitation of the consumer? Or just the natural law of supply and demand?
Yes, it’s price gouging. It insures wealthy people get first access.
Are ubers effectively illegal black cabs? Yes, they are. Taxis are heavily regulated, drivers have to be vetted, there are rules about car maintenance, insurance, etc. And if it’s busy, you have to wait like everyone else. Municipalities make income off those regulations and fees, and other gov make income off taxing those drivers.
Part of it is that they are not Taxis. You have to have a Taxi medallion in order to pick people up off the street.
You don’t need one to pick up someone who has called you to their location.
If your friend calls you up in the middle of your work day asking for a ride, you may ask for a different compensation than if they call you when you have nothing better to do.
I use an answering service so that I can answer questions for my clientele. Occasionally someone wants me to drop what I’m doing and take care of their needs, driving 13 minutes in to work. I’m happy to do that for the right price.
If I normally charge $75 for a service, but someone wants it at 2 am, I’ll quote a price anywhere from $175 to $10,000 depending on how warm my bed is and how cold it is outside.
After looking into the laws on this, it does appear that the gouging laws are in effect for essential goods (using various definitions) during declared emergencies, rather than just any arbitrary price increase. So that probably answers the GQ.
And this is how pricing by supply and demand is supposed to work. The free market ensures that resources are allocated to those who most value them and are able to pay for that value. The downside is that someone with low income can’t afford an Uber in a thunderstorm and no taxis are available.
I wasn’t trying to start a debate thread about Uber vs. taxis, but since you mention it: With the Uber tech platform, this whole concept needs to be revisited. Standing on a street corner and pulling out your Uber app and being picked up in 2 minutes is not effectively any different than hailing a cab. This is much different than the conventional “black car” model where you call and say, “My flight is arriving at 3:00, please arrange a limo for me.”
I live in a large town/small city. There are 2 taxicab companies, and probably no more than a dozen cab drivers in the entire city. When all of them are off duty, or on vacation, or out sick, or just refusing to answer the phone, then nobody can get a ride, and a lower price does not do the customer any good.
We really need a better eye-rolling emoji. This is absurd.
It’s not gouging, because it’s not an essential service. And there are alternatives as well- nobody’s forced to use Uber at those times. Demand isn’t fixed either.
So it makes sense to raise prices in response to demand so that you both drop demand and increase supply at the same time, thereby getting back to an equilibrium as fast as possible.
The whole prices rising in response to a combination of decreasing supply or rising demand is common across the board- gas prices change when the oil supply changes or the demand changes (as we see nowadays with $1.85 gas). Same thing with meat, bread, dairy, etc… A few years back limes of all things, got really expensive because the supply from Mexico was disrupted.
None of it has anything to do with poor or wealthy people, except that it may cause people to use alternatives if the price is perceived as too high. I mean, I can probably afford Uber surge pricing, but I’d probably figure something else out if I thought I was going to have to pay that much. It just means that the poor people’s perception of the price is going to be predominantly formed by their available cash rather than other considerations.
If Uber surge pricing is gouging then vacation rentals costing more during peak season is also gouging. (For the record, I don’t think either are gouging; in fact I wouldn’t mind surge pricing to be more common.)
I am trying to think of a commodity that would work as well with surge pricing. Ride service supply and demand can be very dynamic. Airlines already do it, to the consternation of someone who paid $500 for a seat sitting next to someone on the same flight who paid $300.
I suppose a business like car repair could charge more on busy days; customers who didn’t want to pay would wait for a slow day. It wouldn’t make sense to customers who are asked to pay more–they are not getting any more value from the service than they would on a slow day, unlike a pedestrian who would rather ride than walk through a thunderstorm.
I wonder how people would respond at a restaurant if prices went up depending on how long the wait for a table is. No wait? Base price. One-hour wait? Add a 50% surge premium. (Some restaurants offer “early bird specials” but that is promoted as a discount and it’s a daily, scheduled discount rather than based on dynamic demand.)
It’s not backwards. A long line indicates a spike in demand. The price keeps going up until most people bail out of the line and the only people left are those for whom it is worth it to pay the premium. So ultimately they are paying more not to wait at all.
As someone who has in the past worked as both a taxi driver and uber driver, I can say for sure that surge pricing is rather effective at increasing supply of drivers and decreasing demand from riders. Typical surges are after sporting events, concerts, and bar closing times. If those trips don’t pay well, few drivers would want to be available for them. Why deal with football traffic or work the barfing hour if it doesn’t pay well? If there is a market inefficiency causing certain times to be highly lucrative, it tends to balance out as word spreads, and more drivers start working those times. Rideshare drivers just can’t seem to keep quiet about periods of good earnings.
Decreasing demand works like this: a lot of trips are for surprisingly short distances. Somebody who notices their $5 ride home has surged to $17 is likely to just decide to walk or go grab a slice of pizza or something until the rate goes down. The person who needs to go 15 miles is less likely to mind that their $28 ride has surged to $40.
The pre-uber days as a taxi driver had surge pricing unofficially. We could never keep up with demand at peak times, mostly because we would get flooded with short trip requests. I get sent to a bar to pick up Bob going 4 blocks to Main Street. I get to the bar and twenty different people outside want a ride. Bob is nowhere to be found. A few other cabs were leaving when I arrived, maybe one had Bob inside. By now I’ve got people making me offers for a ride, and someone makes a good offer. And customers who tipped well always got priority service. That’s not really that much different from surge pricing.