People love Uber because it’s convenient. You tap a couple buttons on your phone and a car comes and whisks you away.
If there’s one customer complaint about the company, though, it’s probably surge pricing, when the company drives up fare prices during times of high demand.
Uber’s surge pricing policy — as well as the “dynamic pricing” policies of other startups like Lyft — came under fire Monday at a New York City Council transportation committee hearing.
According to the New York Times, Councilman David G. Greenfield introduced a bill that would cap surge pricing at 100 per cent of normal rates.
Uber’s surge pricing feature is great for the company’s business, since Uber keeps a fixed per cent of fares. When Uber’s surge price multiplier kicks in, Uber makes more money. Uber says that by raising its prices, it encourages its supply — drivers — to get out on the road to keep up with increased demand.
“Uber’s dynamic-pricing model benefits both consumers and drivers,” said Uber public-policy expert Colin Tooze, as reported by the New York Post.
“If prices were artificially capped within the normal course of business, consumers would be unable to utilise our safe, convenient transportation option because demand would simply overwhelm the available supply. When fares have increased, we repeatedly communicate that fact to the user.”
Uber will never spring surge pricing on you without you consciously acknowledging what you’re paying for. When surge pricing is happening, you’ll be notified before you can even hail the car. Uber’s app puts it in big, bold print so you can’t miss it. And when surge pricing rates are more than 2x, customers have to type in the multiplier to make sure they know what to expect.
Uber can increase fares 900 per cent when demand is greater than supply. It’s come under criticism by customers in the past; Uber instituted surge pricing during Hurricane Sandy and customers accused the company of unfairly profiting from the natural disaster. As a result, Uber worked with New York’s attorney general, Eric T. Schneiderman, to lower surge pricing when natural disaster strikes.
Councilman Greenfield said at the hearing that though he loves Uber as a product, he thinks customers are being taken advantage of by bloated Uber rates. “If it looks like price-gouging, if it sounds price-gouging, it is probably price-gouging,” he said.
“Many of our cabbies are immigrants who are being punished by a $US40 billion corporation,” Greenfield said, referring to Uber. “It’s quashing the American dream here in New York City.”
Capping Uber’s surge prices “would be un-American,” Councilman Antonio Reynoso said at the hearing. “Let the market drive the price.” Reynoso added that Uber supplements New York’s green Boro Taxis in the city’s outer boroughs.
Uber is by no means unique in its dynamic pricing strategy. Airlines have similar tactics to sell tickets and hotels use dynamic pricing to book rooms, especially during busy holiday seasons. As Matt Yglesias pointed out in Slate, what makes Uber different is that the company is at least upfront and transparent about how much you’re going to pay when the price spikes.
The New York City Council transportation committee plans to hold another hearing about Greenfield’s bill later this month, the Times reports.