Well the assumption of supply adjustments to meet demand in real time that is given for Surge Pricing is just unrealistic. A driver must make a commitment (hours or days before) to be available to drive at a given time. Of course they have no idea what the surge multiplier is, so they'll have to guess. As a result the number of cars on the road is driven by the _expectation_ of the multiplier, rather than the actual multiplier.
This affects the demand side too: people remember stories of people getting burned by huge surge multipliers, and as a result adjust their behavior (being more willing to call a normal cab, driving instead of taking a cab). Here again the actual surge multipliers matter less than the expectations. By providing reasonable estimates, they could set surge multipliers that would ensure a high supply of drivers and demand for them, instead of having the curves moved out of whack by overestimation.
This is a feature, not a bug. :) Uber has created a market with dynamic pricing, but manages to keep both ends of the transaction in the dark until the last possible moment. This information asymmetry is precisely why they are making money hand over fist.
I'm not too surprised. Uber has created a perception that their service will be unaffordably expensive at peak times like this, so people don't even check.
I actually did check, and they were running at a 3.5x surge price in NYC. I stood on a street corner for 30 seconds and flagged down a yellow cab easily, so you might say their offer was lacking.
EDIT: reading the article again, I think there's something more of interest in here. Drivers are annoyed at their lack of surge earnings, which makes me wonder to what extent they're unhappy with how much they make at regular prices, and how much they depend on surge pricing windows to really make money.
I saw something strange here in Seattle. Usually there is surge pricing whenever there are few cars around. However I checked multiple times on New Years Day at around 12:30AM and the surge pricing was >4.5x, but there were loads of UberXs around. Like, 10 cars within a couple blocks. And if I dragged the gps marker 10 streets over, another huge cluster of cars would show up.
It looked to me like Uber overrode the algorithm and jacked up the prices really high, even though there wasn't such high demand for Ubers.
I regularly take Uber at 9AM and there will often be no cars in the area (wait time of 8 minutes when usually it's <2 minutes) and the surge shows only 2.0x.
Yup, sounds like you're right. What should have been an automated algorithm based on supply & demand was instead hand-tuned by an idiot and fucked everyone over.
Lots of cars within a small area is a snapshot of one point in time, though. What you don't get to see (but presumably Uber's algorithm does) is the liquidity; how quickly are cars being taken, and how quickly are new cars becoming available?
Uber claims that New Years Eve is their highest traffic day. I could imagine they might override the surge algorithm (or give it a nudge) to provide a more consistent price based on their historical data.
I've encountered a number of situations where Uber's surge prices annoyed people not simply by how expensive it was, but because the person standing next to them got 2.5x and if they had waited another 10 minutes they might get 1.25x or 8x. The non-repeatability can be frustrating and feel unfair.
However, just because NYE 2014 naturally surged to 4.5x doesn't mean that NYE 2015 will, because things change. Not the least of which is the (small, but vocal) backlash against Uber that this article is a part of.
And the main argument is: there may very well have been loads of cars around, but people still paid $x for them, so that's what they cost! Supply and demand.
To me it's a little deceiving, because Uber frames it like this grand algorithm determining the pricing, when in reality I feel there's a substantial human element in it.
The problem is that customers and drivers don't actually set the price.
The market would operate much more efficiently as a double auction: potential passengers submit their bids and drivers simultaneously submit their ask prices, and Uber continuously chooses some price that clears the market.
> "There should be some regulation on the numbers of drivers you allow to Lyft," another commenter wrote. "Otherwise it may seem that you are taking advantage of the fact that we are not paid salaries, and you reap the benefits regardless if it effects us."
It will self regulate. If there isn't enough money in it, there will be less drivers. When ridership goes up, it will attract more drivers.
Uh... Did someone in the article seriously ask for Uber/Lyft to artificially limit the number of cars on the road? Isn't that one of the problems with traditional taxis? They never learn. Meet the new boss, same as the old boss.
I'm glad to be living in a city with a functional public transit system (NYC) so I no longer have to be forced to be robbed by Uber (SF).
All of this has happened before, and all of this will happen again ;)
This is basically a retelling of the cab industry origin story. The point is that this is an industry where the barriers to entry are so low, and the supply side so abundant (with the collapse of low skill labor economies across the US, ever more so) that the equilibrium state means everyone goes hungry.
And more relevantly for us silver spoon Silicon Valley types, more and more corner cutting to eke out a profit.
It's interesting watching us re-learn the motivations behind some regulations. This is why medallions were created, a far cry from the mustache twirling evil shenanigans that we'd like to paint on regulations.
The medallion system emerged from real problems. It may not be a particularly good solution, but an alternative that does not address the problem at all seems equally misguided.
I feel like on NYE, in particular, most people don't go out without already having made a plan for how they're going to get home, so even if the actual price turned out to be lower than expected, that might not have boosted demand the way one might expect because many people had already made other transportation arrangements in anticipation of Uber being unaffordably expensive.
Flywheel offered a flat rate of $10 for all cab rides on New Year's Eve. By contrast, Uber sent a mass email warning riders that New Year's Eve would see a spike in passenger demand, potentially skyrocketing prices to over $100 for a ride after midnight.
If you want to have no customers, then yeah, this is how you would do that.
Looks like Uber has set up a system where either the riders will be unhappy with high surges, or drivers will be unhappy with the normal pricing on big nights. I never thought abut that side of it.
That article was pretty much only comprised of anecdotes about drivers being upset about something... They even directly say "hard numbers on tech riders were not available."
I want to see the actual data and how Uber, or Lyft came out after NYE. Wasn't the algorithm supposed to help stabilize the supply of Uber cars on the road? I doubt it is designed simply to gouge people when demand is high.
It kind of sounds to me like the media pumped up this idea of "OMG look at how screwed these few people were by surge prices!" Then Uber responded to the critics by issuing warnings about high surge prices on NYE. This further solidified this idea that the price would always shoot up on big nights no matter what. So now you have everyone who's ever driven for Uber, plus a bunch of newcomers all going out driving thinking they are all going to be cashing in on $200 fares. Supply goes up, surge goes down.
Or maybe surge doesn't go all the way down. Uber would have no reason to make the primary function of their algorithm to make drivers more money, or stabilize driver income. They are trying to increase market share and make money. Maybe they think the NYE demand is very inflexible and thus they can restrict the surge pricing to stay above a certain level and not have much of an effect on demand. This would, however, probably only exacerbate the initial problem with oversupply, as more drivers would see surge pricing in effect and start earlier, and stay out later.
There isn't even any anecdotal evidence in the article about the passenger side of the experience, they only have stuff from Lyft/Uber drivers.
People act like Uber/Lyft should be nice to the drivers and treat them well, when in reality they are clients, not prized employees. Uber's relationship with the drivers is a business relationship that is very carefully maintained and fine tuned. If you showed me a similar company that treated drivers very well and was still able to keep prices from exploding, I would gladly use that service over the current players, but it just seems to me that they are doing what makes sense given the current marketplace. Isn't it supposed to be a lot easier gig to be an Uber driver than a city cab driver?
I'm not exactly sure how Uber's surge algorithms work, but this seems like it should be mitigated the smaller the price and time adjustments are made. It's not like they don't have the data to do that.
I checked the Uber app in my city at 12:30AM and the rate was 2.0x, closed the app, reopened it until it was at normal 1.0x around 12:50AM, 4 USD was my bill , I used it again at 3:30 AM and the surcharge was 1.5, used it anyway since I was really tired, my bill was 6 USD.
A bidding system could conceivably address this, or just a more dynamic pricing system that reduced fare multipliers as demand sagged. (Or does it work this way already?)
Or, just fixed fares and sometimes you can't get a ride. Seems to work for the rest of the transportation system.
Yeah, the fare multipliers are already dynamic and NYE's riders got a good deal. The issue is that we've had some highly-noticed surge pricing stories so all of the customers figured "oh yeah, it's going to be horrible surge pricing again and I'm going to be stranded at the FOO Bar after they close." So people changed their plans to either include a DD, use public transit, use traditional taxis, or go somewhere within walking distance.
Me and my friends stayed in and drank board games and played tequila.
a more dynamic pricing system that reduced fare multipliers as demand sagged
This is supposedly exactly how it works. Fare multipliers are updated every couple of minutes and fluctuate according to number of available drivers on the road (supply) and number of ride requests (demand).
I am a good example for this. I was planning to use Lyft but then scared of surge pricing and drove my own car. I was lucky to find free street side parking but even paying $40 for parking wouldn't be that bad compared to Lyft/Uber rates that night.
Most people avoid taking their own cars because they're going to be getting wasted, so I'm not surprised you were able to find street parking. I'm guessing your New Years was a little less "festive" than others' :) (I hope it was!)
The entire purpose of surge pricing is to ensure that there is always a care when you want one. The purpose is not profit maximization, but ensuring there will never be a time that I go to Uber, request a vehicle, and not have one appear within a reasonable period of time.
If Surge pricing is working then there should be a large number of empty cars waiting for rides. Those cars are incentivized to show up by getting paid more than they normally would for a ride of the same distance.
[+] [-] yuliyp|11 years ago|reply
This affects the demand side too: people remember stories of people getting burned by huge surge multipliers, and as a result adjust their behavior (being more willing to call a normal cab, driving instead of taking a cab). Here again the actual surge multipliers matter less than the expectations. By providing reasonable estimates, they could set surge multipliers that would ensure a high supply of drivers and demand for them, instead of having the curves moved out of whack by overestimation.
[+] [-] aristus|11 years ago|reply
[+] [-] warfangle|11 years ago|reply
[+] [-] untog|11 years ago|reply
I actually did check, and they were running at a 3.5x surge price in NYC. I stood on a street corner for 30 seconds and flagged down a yellow cab easily, so you might say their offer was lacking.
EDIT: reading the article again, I think there's something more of interest in here. Drivers are annoyed at their lack of surge earnings, which makes me wonder to what extent they're unhappy with how much they make at regular prices, and how much they depend on surge pricing windows to really make money.
[+] [-] ethanhunt_|11 years ago|reply
It looked to me like Uber overrode the algorithm and jacked up the prices really high, even though there wasn't such high demand for Ubers.
I regularly take Uber at 9AM and there will often be no cars in the area (wait time of 8 minutes when usually it's <2 minutes) and the surge shows only 2.0x.
[+] [-] meritt|11 years ago|reply
Well done Uber.
[+] [-] jfoster|11 years ago|reply
[+] [-] skuhn|11 years ago|reply
I've encountered a number of situations where Uber's surge prices annoyed people not simply by how expensive it was, but because the person standing next to them got 2.5x and if they had waited another 10 minutes they might get 1.25x or 8x. The non-repeatability can be frustrating and feel unfair.
However, just because NYE 2014 naturally surged to 4.5x doesn't mean that NYE 2015 will, because things change. Not the least of which is the (small, but vocal) backlash against Uber that this article is a part of.
[+] [-] prezjordan|11 years ago|reply
To me it's a little deceiving, because Uber frames it like this grand algorithm determining the pricing, when in reality I feel there's a substantial human element in it.
[+] [-] applecore|11 years ago|reply
The market would operate much more efficiently as a double auction: potential passengers submit their bids and drivers simultaneously submit their ask prices, and Uber continuously chooses some price that clears the market.
[+] [-] buckbova|11 years ago|reply
It will self regulate. If there isn't enough money in it, there will be less drivers. When ridership goes up, it will attract more drivers.
Isn't that the point?
[+] [-] untog|11 years ago|reply
[+] [-] jinushaun|11 years ago|reply
I'm glad to be living in a city with a functional public transit system (NYC) so I no longer have to be forced to be robbed by Uber (SF).
[+] [-] potatolicious|11 years ago|reply
This is basically a retelling of the cab industry origin story. The point is that this is an industry where the barriers to entry are so low, and the supply side so abundant (with the collapse of low skill labor economies across the US, ever more so) that the equilibrium state means everyone goes hungry.
And more relevantly for us silver spoon Silicon Valley types, more and more corner cutting to eke out a profit.
It's interesting watching us re-learn the motivations behind some regulations. This is why medallions were created, a far cry from the mustache twirling evil shenanigans that we'd like to paint on regulations.
The medallion system emerged from real problems. It may not be a particularly good solution, but an alternative that does not address the problem at all seems equally misguided.
[+] [-] waterlesscloud|11 years ago|reply
[+] [-] jrockway|11 years ago|reply
Unless you want to go to LaGuardia airport.
[+] [-] apendleton|11 years ago|reply
[+] [-] revelation|11 years ago|reply
If you want to have no customers, then yeah, this is how you would do that.
[+] [-] badusername|11 years ago|reply
[+] [-] tarikjn|11 years ago|reply
[+] [-] davis_m|11 years ago|reply
[+] [-] moonka|11 years ago|reply
[+] [-] Benjammer|11 years ago|reply
I want to see the actual data and how Uber, or Lyft came out after NYE. Wasn't the algorithm supposed to help stabilize the supply of Uber cars on the road? I doubt it is designed simply to gouge people when demand is high.
It kind of sounds to me like the media pumped up this idea of "OMG look at how screwed these few people were by surge prices!" Then Uber responded to the critics by issuing warnings about high surge prices on NYE. This further solidified this idea that the price would always shoot up on big nights no matter what. So now you have everyone who's ever driven for Uber, plus a bunch of newcomers all going out driving thinking they are all going to be cashing in on $200 fares. Supply goes up, surge goes down.
Or maybe surge doesn't go all the way down. Uber would have no reason to make the primary function of their algorithm to make drivers more money, or stabilize driver income. They are trying to increase market share and make money. Maybe they think the NYE demand is very inflexible and thus they can restrict the surge pricing to stay above a certain level and not have much of an effect on demand. This would, however, probably only exacerbate the initial problem with oversupply, as more drivers would see surge pricing in effect and start earlier, and stay out later.
There isn't even any anecdotal evidence in the article about the passenger side of the experience, they only have stuff from Lyft/Uber drivers.
People act like Uber/Lyft should be nice to the drivers and treat them well, when in reality they are clients, not prized employees. Uber's relationship with the drivers is a business relationship that is very carefully maintained and fine tuned. If you showed me a similar company that treated drivers very well and was still able to keep prices from exploding, I would gladly use that service over the current players, but it just seems to me that they are doing what makes sense given the current marketplace. Isn't it supposed to be a lot easier gig to be an Uber driver than a city cab driver?
[+] [-] mikecb|11 years ago|reply
[+] [-] unknown|11 years ago|reply
[deleted]
[+] [-] pacofvf|11 years ago|reply
[+] [-] aaronharnly|11 years ago|reply
Or, just fixed fares and sometimes you can't get a ride. Seems to work for the rest of the transportation system.
[+] [-] civilian|11 years ago|reply
Me and my friends stayed in and drank board games and played tequila.
[+] [-] slayed0|11 years ago|reply
This is supposedly exactly how it works. Fare multipliers are updated every couple of minutes and fluctuate according to number of available drivers on the road (supply) and number of ride requests (demand).
[+] [-] msoad|11 years ago|reply
[+] [-] thinkpad20|11 years ago|reply
[+] [-] ghshephard|11 years ago|reply
If Surge pricing is working then there should be a large number of empty cars waiting for rides. Those cars are incentivized to show up by getting paid more than they normally would for a ride of the same distance.