The Idea Behind Uber Surge Pricing

As an Uber rider, Uber surge pricing can seem complicated and frustrating at times.

uber surge pricing

But there is a logical idea behind this seemingly complex calculation.

Uber surge pricing is a simple concept: An algorithm pinpoints areas of high demand where riders outnumber drivers. Uber then increases prices, and drivers are enticed to those neighborhoods.

Demand for cars is met, and drivers can potentially earn more money. What could possibly go wrong?

Uber Surge Pricing

Uber Surge Pricing Gone Sour?

There are a few kinks to be ironed out. For one, riders are often frustrated by long wait times in low-demand areas.

The idea behind Uber surge pricing is to put more cars on the road where and when they are most needed. If Uber’s strategy results in a redistribution of cars from low-demand areas to higher ones, then this strategy works. And evidence seems to suggest this is true.

A big frustration is inconsistent pricing. Fares sometimes change up to 20 times per hour and are unaffordable at their peak.

Uber surge pricing, also called dynamic pricing, has been one of the most controversial aspect of Uber’s business model. Customers demanded better information, and the company responded with an unveiling of new, more understandable app features.

Uber Surge Pricing Explained

Uber surge pricing is calculated using multipliers according to supply and demand. The base fare, distance and time of a trip are factored in. For a ride that normally costs $7, a multiplier of 1.5 would increase the fare to $10.50.

Before, when a rider requested a car during the surge, a lightning bolt icon appeared on his or her mobile device. The rider was given the multiplier for the surge, but they had to do the math on their own.

Now, in most cities, a rider will be quoted the exact fare for the trip. They must agree to the higher price before a car is sent.

Having more accurate information gives riders the option of arranging other transportation or waiting until the surge ends.

Riders can now even choose to receive notification when fares return to normal. The Uber Trip Estimator is an innovation tool meant to eliminate the unpleasant surprises of Uber surge pricing.

Chasing Uber’s Price Surge

Whether or not Uber surge pricing benefits drivers is debatable. Most drivers are learning the hard way that chasing a surge rarely pays off.

By the time they get to high-demand areas, the influx of eager drivers has balanced supply and demand.

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The algorithm detects this, and fares go back down. The cost in fuel spent to get there negates some of the extra earnings.

The only time it might make sense to chase after a surge is when the surge will be a long one. For example, heading to a sports arena or concert venue when it starts to empty is a sound business decision.

In order to reap the full benefits of Uber surge pricing, drivers should already be working in that neighborhood. Anticipate large events, concerts, and periods of high demand such as when bars close.

Also, if drivers are good at predicting when and where Uber surge pricing takes place – such as 5:00 p.m. in business districts – drivers can take advantage by getting there ahead of time.

Overall, Uber’s surge pricing model is sensible, but you must be informed to navigate this sensibly.

The pricing system should never take advantage of users in unfortunate or dangerous circumstances. Uber was

Uber was hotly criticized during the Sydney hostage crisis of 2014. As people tried to flee the scene and get out of harm’s way, the surge went into effect. During the worst of it, some fares topped $100.

Irate protesters took to social media platforms. About three hours into the crisis, Uber put out a tweet explaining that the surge was meant to give drivers an incentive to head toward the central business district. Uber soon atoned for its mistake by offering free rides to citizens leaving that area of town. Refunds were issued to riders who had already paid.

Uber soon atoned for its mistake by offering free rides to citizens leaving that area of town. Refunds were issued to riders who had already paid.

The surge model has ruffled more than a few feathers. Detractors say it’s nothing short of price gouging.

But we diasgaree, Uber surge pricing is a sensible way to navigate supply and demand challenges associated with decentralized peer-to-peer commerce models. Albeit, clearly some tweaks are needed.

Uber Surge Pricing: The Final Word

As you can tell, here at the Casual Capitalist, we believe that price discrimination is not necessarily a bad thing.

A jump in Uber fares isn’t always due to high demand. It could be that drivers are unenthusiastic about working at 2 a.m. in neighborhoods where bars are plentiful.

Uber’s dynamic pricing model usually results in extra income for drivers willing to chauffeur rowdy passengers.

Simply put, Uber surge pricing is just another example of the sharing economy providing people like you and me innovative income models.

Safe and profitable driving everyone!

Glenn

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