Uber Reverts Back to Surge Pricing in New York After One Day

http://betabeat.com/2012/11/uber-reverts-back-to-surge-pricing-after-one-day/

by larrys • 14 years ago

30 68 14 years ago

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fr0sty5• 14 years ago

Previous discussion:

http://news.ycombinator.com/item?id=4725789

jbooth3• 14 years ago

Here's my question, gas stations are closing here in NJ when running out of gas. Why aren't they jacking up the price to astronomical rates? There are lines for miles to the gas stations that have electricity. Is this a failure of capitalism in the face of human compassion or what?

codewright2• 14 years ago

Price gouging during an emergency is illegal in NJ and Christie plans on going on the warpath after this is over.

starnixgod• 14 years ago

A price increase of more than 10% during or 30 days after a declaration of a state of emergency in NJ is prohibited. http://tinyurl.com/a7j2vgo

endtime• 14 years ago

>Christie plans on going on the warpath

Can you elaborate? Does he want to remove the anti-"gouging" laws?

fr0sty5• 14 years ago

New Jersey has an "Anti-gouging" law that makes it illegal for retailers to increase prices by more than 10%.

jbooth3• 14 years ago

Thanks, my curiosity is sated.

001sky5• 14 years ago

Is this a failure of capitalism

No, not at all. All of the gas is in the hands of people who bought it. The supple constraints are not problems of incentives, they are problems of physics. Roads are down, plant is not working, traffic, security, etc.

The reason anti-gouging laws exist is because jacking up prices has no benefit. It just keeps the poor people from having access to resources. 10 gallons of gas to a rich guy is not making the country or the economy better off, than if the gas is given to a poor/normal person, the day after a hurricane/earthquake, etc.

The Feds are going to be on the Hook for $6-7B to fix NY and that's going to be paid by everyone in the country. Most people aren't going to benefit from that, except for the local people in NYC. But we do that as a country to make sure all of the right incentives are in place over the long run, not just opportunistically in the short run.

tptacek5• 14 years ago

The idea that "jacking up prices" has no constructive purpose is strictly incorrect . When you fix prices on gas, and the relative value of gas shoots up, gas gets allocated to the people whose time is least valuable. When you allow gas prices to float in the same situation, gas gets allocated to the people whose time is most valuable.

Neither allocation is optimal; it is indeed unfair for all the gas to go to investment bankers. But that doesn't make it efficient or even fair for all the gas to instead go to the people who can get to the station earliest and wait in lines the longest.

Equally importantly, when you fix prices instead of allowing them to float, you enable hoarding. People get gas who don't need the gas, because they're risk averse and overestimate the likelihood that they'll use up what they already have. So gas quickly runs out everywhere. If you leave the fixed price in place for long, eventually all the value that would have been captured by the station owners instead gets captured by the grey market (and the deadweight losses involved in transferring gas to that grey market).

It's obviously not good social policy to allow gas station owners to charge $100/gallon for gas during a disaster. But it also seems pretty silly for prices to be capped at 10% of the pre-disaster spot price. Gas could easily float up to $10, $15/gallon (ie: the price of gas in Europe), motivate stations to find creative ways to supply that suddenly lucrative market, dampen the consumer urge to fill their tanks to 100%, and not bankrupt anyone (Americans famously overestimate the impact of gas prices on their daily lives).

prentis2• 14 years ago

"jacking up prices has no benefit"

Jacking up prices gives distant suppliers an incentive to divert resources towards the disaster-struck area, reducing shortages.

Jacking up prices discourages people from buying goods that they don't really need, making them available to people who really do need them.

On the other hand, if prices are not allowed to increase, people have an incentive to hoard the scarce goods that they anticipate will become scarce. This of course creates those very shortages. And the hoarded goods go unused while the people who really need them are unable to buy anything.

ynniv7• 14 years ago

Strict capitalism is heartless, and ruins society. If the only way to share is through dollars, the majority of the burden is placed on the poor. We pretend that capitalism is foundational because it is an easy way to control the vast complexity of resource sharing, but it isn't sufficient for a healthy civilization. Strict capitalism is a third world country, with all security and resources devoted to those with personal wealth.

gwright4• 14 years ago

Could you define this 'strict capitalism' that you think 'ruins society'?

There is a lot of evidence that other economic systems do ruin societies (communism, socialism, command economies, crony capitalism, etc) but generally capitalism is credited with being the most successful system for producing wealth and lifting people out of poverty.

alexchamberlain• 14 years ago

I think they've done the right thing; you need a way to balance supply and demand. This is just one way.

You can still hail a cab the old way, right?

adamsmith2• 14 years ago

In a disaster situation if there is no elasticity between price and supply then price gouging laws (social or legal) make a lot of sense. For example, if there's a fixed amount of water around regardless of price people shouldn't be able to raise prices.

But in this case there IS elasticity between price and supply, right? Uber is claiming that they'll deliver better service by increasing prices, because supply will increase proportionally. Thus, a functioning economy.

AND Uber is waiving 100% of their fees! Price gouging? Really?

(Side note: NYC would have more capacity for handing this emergency had they not given an artificial monopoly to cab companies over the last century, vis-a-vis medallions. I realize we can't change the past. Let's just be aware of it so we can learn how to improve.)

ddlatham2• 14 years ago

Even if there is no additional supply available, there still could be some benefit.

If the price of gas were far higher, people may not fill up their tank all the way and only purchase what they really need. So instead of the first X people getting full tanks and the next Y people getting nothing from an empty gas station, in some scenarios everyone could get a smaller amount.

However, the issue of poor people not having access at higher prices is still a problem. It may be better served by having the government step in to provide each person $Z in gas money (paid for by a tax on "gouging") rather than an outright gouging ban.

adamsmith2• 14 years ago

You highlight really good points. I guess at scale the government does exactly what you propose (step in and allocate supply per person), for example rationing in World War 2.

eru4• 14 years ago

Yes. But don't give people gas money. Just gives them money.

jorgeortiz85• 14 years ago

NYC has been allowing black cars to pick people up off the street during the crisis, so there isn't a shortage because of "medallions". There's a shortage because 5 million daily subway riders have to find alternate forms of transportation.

liber82• 14 years ago

Maybe I'm misunderstanding your point, but your first sentence seems completely illogical.

If there is a fixed supply of water, what better mechanism than price exists to efficiently determine the best use of that water? Not allowing people to raise prices means you end up with wildly inefficient allocation of resources (i.e. first guy in line says, "Man, there's a remote chance this flooding lasts for 2 weeks. Water is the same price it was pre-hurricane? I'll take all you've got.")

Similarly, not allowing people to raise prices actually decreases supply. If you remember post-Katrina, there were numerous "anti-price gouging" orders enacted. The result? All the people who were willing to drive a truck full of generators (and plywood, and water, etc. etc.) 1000 miles to make a few bucks/hundred bucks profit per unit now had no incentive to do so. And so they didn't. And the people of New Orleans suffered needlessly.

pavel_lishin2• 14 years ago

As I recall, authorities turned away anyone trying to make a quick buck by selling essential supplies.

Even with fixed prices, there was a limited number of goods. Driving a truck there to unload your wares still made economic sense, if you could do it at a large enough scale.

barrkel• 14 years ago

The correct response to a fixed supply of water is rationing, not either fixed or floating prices. Because without water you die, or catch diseases from poor substitutes.

With a fixed price, whoever comes in first gets the most water; laggards die. With a floating price, whoever has the most money gets the most water; poor people die. Neither of these is morally superior. IMO.

swohns• 14 years ago

I'm not sure there is actual elasticity here, despite Uber's claims. This is simply anecdotal, as a New Yorker on the UWS, getting downtown took upwards of 2 hours (instead of the usual 20) and the traffic was filled with numerous black cars. The real problem here is not the cars on the street, but more the capacity of the city. Great report on this here: http://www.npr.org/blogs/money/2012/07/31/157477611/does-new...

enoch_r• 14 years ago

I'd note that completely inelastic supply almost never occurs, even in a disaster. For example, if prices for water are high, it raises the likelihood that some entrepreneur will fill up a truck with water bottles and drive into a disaster zone to sell them. Or that a shopkeeper will stay open past his normal hours, or not set aside a bunch of water bottles for himself.

And of course there are dynamic effects of anti-gouging laws, too. Even if supply were unchangeable during a disaster, the knowledge that prices will--or will not--be allowed to rise when a disaster occurs change how shopkeepers will prepare when a storm is approaching.

brilee• 14 years ago

... if prices don't go up, what's the incentive for gasoline delivery companies to make the extra effort to bring resources to a disaster-torn city?

mchanson• 14 years ago

It seems to me that humans, as a group, act compassionately during crisis. So compassion, or good marketing if you are a cold blooded corp. type, is a good reason to truck more in. FEMA can also, I'm sure, force a commercial concern to do it. They have lots of that scary tinfoil hat power.

Many comments in here seem to look at this problem so coldly and rationally. Anti-gouging has a deep moral component. If some of us are not trying to get one over on others of us then you can maintain a stronger community during a crisis.

If Bob's gas starts charging $15 for a gallon of gas in a crisis it will cause friction in the community between those who can afford vs. those you cannot and with the employees and owner of the gauging station.

We have also, well enough of us that laws were passed, decided as a society that its just immoral/unacceptable behavior.

Capitalism is great. It doesn't need to deal with this corner condition well to be a successful system.

prentis2• 14 years ago

Disasters are not a corner condition. Limited resources and unlimited wants is a permanent condition. Disasters just tweak the relative values of these parameters, which are reflected in prices. As always, the system adapts and re-routes the resources to where they're needed most.

ynniv7• 14 years ago

Amazing how people switch their principals regarding free markets when it suits them. Especially rich people.

When consumer protection laws are drawn up, they will be the "end of America". When financial institutions have bankrupted themselves, they "need to be protected". It's "progress" to prevent people from bringing food onto private property so that you can massively overcharge them for unhealthy foods. It's "gouging" to allow others to charge more when demand far exceeds supply in an emergency.

I agree that leaning solely on price in all circumstances is a poor way to balance supply and demand. And I don't want anyone to forget how this works when social sacrifices are demanded for "American success" in the future.

eru4• 14 years ago

It is interesting how your first two paragraphs don't connect with your third.

Shouldn't the right reaction against the hypocracy be to have firm and simple principles, like relying on price as a signal?

koenigdavidmj• 14 years ago

Seems like the main alternative to increasing prices is `it's not sustainable for us to run at all until this is cleaned up'.

Is that a suitable alternative?

JumpCrisscross• 14 years ago

A.k.a. a shortage

ynniv7• 14 years ago

If I were them, I would sink some of that massive VC into paying the difference as marketing. Keep prices stable, but ration rides based on how often people have used uber. ie, attract as many possible new customers.

jonny_eh• 14 years ago

We're talking $100 000 a day. That's quite a marketing budget!

magikbum• 14 years ago

This is all moot any ways. Town cars are allowed to pick up any passengers during the crisis. Effectively unleashing a whole lot more supply. As well town cars and yellow cabs are now allowed to pick up multiple passengers going to different locations while continuing to run the first passengers meter. I don't agree with this policy at all. You try getting an Uber car on a Saturday night it's not "surge pricing" when something goes up 3x times, it's just disgusting even more so during the current situation.

aidenn0• 14 years ago

I don't see how the current situation can be called "disgusting" since Uber isn't making any money off of the current situation. (I'm assuming that you mean it's disgusting that they are using an emergency to make lots of money)

MattRogish• 14 years ago

Good! Living in NYC boroughs there are little/no taxis, so we have to rely on car services. Since Sandy they are all consistently booked solid (provided you can even get them on the phone: most are "busy" forever).

Yet, with Uber dynamic pricing, I have been able to get a car when needed. Yes, I paid more - but at least I got a car that I wasn't going to get otherwise. Awesome!

rayiner• 14 years ago

While we're on the subject... Isn't it amazing what kind of rapid and effective response you get when the people in trouble are among the richest in the country (NYC/NJ coast) versus the poorest in the country (New Orleans)?

I'm not complaining. I'm back in my Manhattan office two days after a truly epic disaster. I rode the train into work this morning, along the coast of Long Island Sound no less. It took ~10 minutes longer than usual, but on the whole the recovery is phenomenally impressive.

grayc• 14 years ago

Without getting into politics (too much)... there are a lot of reasons for different responses between this hurricane and Katrina. Parts of New Orleans being below sea level probably matters a lot. Plus, FEMA was pretty clearly mismanaged then and doesn't seem to be now. I think those two factors probably account for more of the variation than the wealth of the inhabitants does, and I'm sure that I'm unaware of other important differences.

edit: "sea level" should read "water level"

eru4• 14 years ago

Also New York is richer partly because it is better managed.

Uber Reverts Back to Surge Pricing in New York After One Day

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