When Uber puts surge pricing in place on a Saturday night, say, two things happen. The first is that some drivers who otherwise might sit at home enjoying life now find it worthwhile to spend time picking up people and taking them where they want to go. The second is that some people who want a ride decide to either delay their trip for a bit or find an alternative way (taxi, bus, walk, friend) to get to their planned destination. Some will decide to cancel their trip when they see the cost of getting an Uber.
These effects are particularly important when there is danger that people wish to flee. Last night in New York City there was an explosion in the Chelsea neighborhood. No one at the time knew for sure what the cause was or whether it was part of more general danger in the area. A lot of people wanted to get out of the area and get out quickly. Surge pricing encouraged drivers to face potential danger. It also signaled to potential passengers whose desire for a ride was not urgent to step aside and make room for those whose need was very urgent indeed. The beauty of prices is that these people do not have to know what is going on. The higher price sends them a message.
For those who are offended by surge pricing at a time of crisis, please tell me your preferred method for getting some people (drivers) to head toward danger when everyone else prefers to head in the other direction. And then tell me how you are going to get people who are heading out to the grocery or are thinking of going out for a drink to postpone or cancel their plans.
Some have suggested that Uber should just pay drivers more without charging the passengers. But that will not discourage passengers with relatively frivolous demands for a ride from calling up Uber. And it is not obvious why Uber should pay a price for operating during a crisis. Perhaps those who are upset with surge pricing could create a non-profit to rebate surge pricing fees to those who used Uber during surge pricing and who had a legitimate rather than a relatively frivolous demand for a ride.
Finally, if surge pricing offends you as a passenger, don’t ride when it is in effect or don’t use Uber at all. Get a taxi. I hope you will be able to find one. The good news? Your odds of finding one during a time of peak demand increase because other potential taxi riders are using Uber.
In Part II of this series I focus on the impact of Uber on the poor. You can read it here.