Mobile Commerce

Uber Says Surge Pricing Is Critical To App’s Efficiency

When you’re in a rush to get across town and open up your Uber app for a ride, seeing surge pricing in effect can be enough to make you scream. To hear Uber tell it, though, surge pricing is better than the alternative.

In a blog post, Uber researchers Jonathan Hall and Cory Kendrick, along with University of Chicago economics professor Chris Nosko, explained how temporary surges in the popular ride-hailing service’s fares actually help more riders get to where they want to go. When a glitch to the system that implemented surges in New York City occurred on New Year’s Eve 2014, Uber said it had an opportunity to see just what might happen when thousands of passengers need a ride but no surge is in effect.

“Without surge, ride requests skyrocketed and only 25 percent of these requests were completed,” Hall and Kendrick wrote. “ETAs also increased sharply. Without surge pricing, rider and driver behavior did not adapt to the increased interest in getting a ride.”

Uber contrasted the New Year’s Eve glitch to a night when Madison Square Garden hosted a sold-out concert and surge pricing went off without a hitch. While more than four times the average number of users opened the app, this didn’t translate into astronomically higher ride requests. As a result, all passengers who hailed a driver were able to get to their destinations — a luxury that won’t be going anywhere as Uber tries to make its services more seamless for corporate passengers.

Nosko also released an academic case study on the effects of surge pricing on Uber’s practices, which details how drivers flock to areas of high demand during surges. This increases supply in certain neighborhoods, but it might also be siphoning drivers from neighborhoods where users still want rides but aren’t willing to pony up several times the base fare.

The average rider might not like surge pricing, but Uber has tried to implement more ways users can save money with new features through the app.

 

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