Uber Should Not Raise Prices During Emergencies

Just as the company slips out of the news cycle for going after Pando Daily's Sarah Lacy, here comes another surge pricing scandal. This time, it was for jacking up prices during the Sydney hostage crisis.

People got angry. Uber backtracked, and offered refunds and free rides out of Sydney for a while.

But the outrage cycle had already begun, and now the internet is once again debating whether Uber is right to use surge pricing during times of emergency.

Uber's position is in the tweet above: charging more incentivizes drivers to come on to the system, which increases supply at a time when there's excess demand. The popular argument on the other side is that it's not fair that only rich people can afford rides at times of overload. In a regular taxi system, which doesn't have surge pricing, you pay the same price, but must wait longer to find an empty taxi (if you can find one at all). This is essentially a lottery system - you have to wait until you are lucky enough to be near one of the few empty taxis in order to get one.

The question is then, does "fair" matter in business? 

I think the answer is both yes and no. Josh Barro is right here: 

But at the same time, an emergency situation is not the same as rush hour. 

For one thing, it's not clear that surge pricing even serves its intended function during an emergency. I like Matt Bruenig's take on this point: 

In a situation where surges happen at predictable times, e.g. during rush hour or on weekends, drivers are able to schedule their "shifts" to take advantage of those times. But this is not true in an emergency situation that is, by its very nature, totally unpredictable. We have no idea whether and to what extent drivers who don't plan to be on the road at a particular time monitor the app to for surge opportunities and hustle out to capture them. It's plausible that they don't do it much at all.

If surge pricing doesn't serve its function during those periods, and most customers are angry about it, what's the point?

I suppose you could argue that Uber gets rich off of it, and that's the business reason for doing it. But in the true emergency situations in which Uber has responded with surge pricing, it's been a PR nightmare for the company. It reversed its decision in Sydney, and it reversed its decision during Hurricane Sandy. It doesn't matter if it tracks well with established economic theory, because it doesn't work out in reality. 

Then, of course, there's the moral argument: should rich people have better access to safety than everyone else?

As a business decision, this sort of doesn't matter. Uber is a private company, it can do what it wants. It can set its own prices. It can alienate its customers, and serve only the wealthy. There's a whole section of the economy that's built exactly for this purpose - no one is outraged that private jet pricing. Well, maybe some people are, but we're more or less comfortable with private jets being an out-of-reach transportation option for the masses. 

But the point is that while Uber doesn't have a moral obligation as a company to treat its customers equally, it seems like this sense of morality is what is driving the outrage that then forces the company to backtrack and start refunding people who feel price gouged during emergency situations.

Uber has the right to surge pricing in emergencies*, sure, but is there really any incentive to doing it? 

* Except when it actually doesn't because it violates price gouging laws.