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Uber's Surge Pricing Strategy Might Hurt Drivers And Passengers

Sinduja Rangarajan |
January 20, 2014 | 12:03 p.m. PST

Staff Reporter

Price-surging policies are sending Uber drivers into a frenzy. (Photo/Uber)
Price-surging policies are sending Uber drivers into a frenzy. (Photo/Uber)

Uber’s price-surge policy unintentionally incentivizes its drivers to speed between rides to get to crowded areas, making them prone to accidents, said a uberX driver who requested anonymity.

Sometimes during a price-surge, fares can go up by 8 times the original amount within a matter of seconds. This could tempt other drivers to speed and aggressively compete for inflated fares, making them accident prone. 

“It could create a frenzy amongst drivers,” the driver said. 

Moreover, Uber’s insurance does not insure drivers between rides, exposing them to greater risk if they try speeding between rides.

“It’s a double whammy for us,” he added.

The debate about whether Uber should sponsor insurance for its drivers between rides has heated up after an Uber driver fatally struck a 6-year-old girl in San Francisco. Uber denied liability in the case, claiming the accident did not occur during an official Uber ride.

Drivers are required to constantly keep up with the Uber app on the mounted dashboard, which constantly gives out information about ride availability and price-surges, while drivers are in-between fares. Drivers responding quickly to secure fares may get distracted, prompting some in the media to question Uber's role in collisions as a result of distracted drivers.

The driver who refused to identify himself said he supports surge pricing as long as it’s capped to 2 to 3 times the original fare amount. While price surging seems like it would benefit drivers by giving them a chance to earn more, it could also inadvertently harm them if left uncontrolled.

The ride-sharing company received a lot of flak on Twitter from consumers for charging 8.25 times the price during a snowstorm in New York. The incident prompted many to criticize the ride sharing service on social media:

"Uber is only accepting first born children as payment during tonight's snowstorm"

— samir mezrahi (@samir) January 2, 2014

"@JohnAlbertsJD John, we were in NYC ,during a major snowstorm. Uber kept raising the rates. The taxis did not and earned our patronage."

— Adrian Cox (@Adrian314) January 12, 2014

Travis Kalanick, the chief executive of the Silicon Valley startup, explained to the New York Times over email that the surge-pricing algorithm tries to maximize the number of rides and not the revenue. It is necessary to keep as many cars as needed on the road, especially during bad weather conditions.

“Higher prices are required in order to get cars on the road and keep them on the road during the busiest times,” Kalanick said to the New York Times. “This maximizes the number of trips and minimizes the number of people stranded. The drivers have other options as well. In short, without surge pricing, there would be no car available at all.”

Price-surge strategies are commonly employed in the airline, restaurant and other industries. Consumers regularly pay higher fares during the holidays and other peak travel periods. But Uber’s price-surge during the snowstorm made passengers feel like the company tried to exploit them during the time of a disaster when pedestrians needed the service the most, according to the New York Magazine.

While price surging isn’t popular for consumers in any industry, it is sound economics on paper. But without caps and further refinement, it could be potentially dangerous for both drivers and passengers.

 

Reach staff writer Sinduja Rangarajan here or follow her on twitter.



 

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