The End of Surge Pricing?


Is surge pricing just price gouging in disguise—or a smart business model?

uber drivers

If you’re an avid Uber user, you’re probably aware of a pesky little tactic lurking around in the startup’s business model called “surge pricing.” As explained in one of our previous posts, surge pricing occurs during the height of ride requests (think holidays, weekends). The company says that  “by increasing the price at peak times, they’re maximizing the number of cars on the road—ensuring that everyone can find a ride home.”

Uber has come under fire for their pricing tactic, and people have attempted multiple ways around it including apps, other ridesharing services, etc. Some economists have said surge pricing is totally fair game, and what makes the company work so efficiently. Recently, however, news broke that new legislation is trying to bring a governmental end to surge pricing, starting in New York.

PAST ATTEMPTS

Without the new potential legal boundaries, Uber itself has been known to put a cap on surge pricing in the case of emergencies. For example, during the very recent Snowpocalypse situation, Uber put a cap at 2.8 times the normal rate. After this, however, The Verge noted that “NY attorney general Eric Schneiderman released a statement implying that Uber’s surge pricing during these periods could constitute price gouging.” Therein, many people in government have been attempting to limit or do away with Uber’s surge pricing altogether (or at least during emergencies). Eventually, however, Schneiderman was able to reason with Uber CEO Travis Kalanick to achieve caps during emergency situations.

Uber also stated in its blog post that they would be donating 20 percent of surge price revenues (during the time of the storm) to the American Red Cross.

In addition, David Greenfield, Brooklyn councilman, also attempted legislation to bring an end (or at least a ceiling) to surge pricing. Greenfield’s attempt was to require Uber to cap surge pricing at 100 percent (currently the app allows price multiplication up to 900 percent). Greenfield shared with The Daily News:

“Surge pricing is a fancy name for price gouging. It’s an unchecked system in the regulated taxi and livery industry that takes advantage of New Yorkers. A yellow cab in New York City may not charge you $225 for $25 ride simply because it’s snowing – neither should Uber.”

THE NEW BILL

The most recent bill proposal, introduced by Brooklyn assemblyman Felix Ortiz, would fine ridesharing companies like Uber $250 for each and every surge pricing occurrence. Ortiz told Capital New York , “I understand that the mechanism here is that if you can afford it you pay for it, but I believe our role is to ensure we can protect the consumer.” He also told The Daily News that “alternatives for transportation in busy cities are always welcome, but this practice of spiking fares is unfair and simply bad business.”

Surely as moves are made, we will soon see what happens with Uber, legislation, and the apparently endangered life of surge pricing.

Do you think surge pricing is unfair, or simply a smart business model?