COUNTERPOINT: Fair market produces surge prices
No one wants to spend New Year’s Eve acting as a designated driver. Even fewer would choose to drive around a slew of inebriated strangers. Realizing that standardized wages would not incentivize many drivers to forgo an evening of partying in favor of working, Uber designed a price model to heavily reward the drivers who choose to turn out and work during high-demand nights instead of electing to turn up.
Naturally, densely populated cities saw explosive demand for Uber rides throughout the night and early morning hours following New Year’s Eve, with surge pricing reaching nine times the normal rate in Miami Beach and nearly seven times the normal rate in Philadelphia. Despite multiple warnings from Uber on its blog and fare estimator, as well as plenty of independent web coverage providing tips on how to avoid steep bills, numerous people still took to social media the next morning to complain that the prices were “insanity” and “egregious.” The complaints generally bemoaned the fact that it took, in some cases, up to $200 to get a safe ride home. These complaints indicate that some would prefer that the government step in and ban the “insanity” of high prices. However, this insinuation is the true insanity.
First, consumers were free to get a car from one of Uber’s many competitors, such as Lyft or SideCar, take public transit or even hail a regular yellow cab.
A hypothetical consumer might say, “But there were only Ubers available!” Well, of course. Ubers were the only cars available in many instances. The Uber price model is designed with the specific purpose of bringing out drivers during nights when demand dramatically increases, such as New Year’s Eve and Halloween. No driver would work during such celebratory nights if it was not worth their time.
The government could hypothetically ban surge pricing, but it could not force Uber or cab drivers to come out and work. Presumably, many Americans would pay a higher price to make it home safely, instead of electing to be left out in the cold or, worse, wind up with a DUI.
Finally, massive Uber bills are the exception, not the rule. According to Uber statistics from 5 p.m. to 5 a.m. of this past New Year’s Eve, only 16 percent of American Uber rides had surge pricing of more than three times the normal rate, and 60 percent of American Uber rides had no surge pricing at all. Considering that the worldwide demand for Uber rides increased nearly threefold from midnight to 12:30 a.m., one can infer that surge pricing was overwhelmingly successful in its attempt to bring out drivers and keep prices as low as possible.
If, in the future, Uber’s surge pricing is found to be ineffective or fraudulent, we as consumers can exercise our greatest power in the market economy and use Uber’s competitors instead. Additionally, what governments can feasibly and fairly do is work with public transit systems, as Los Angeles and Chicago did this past New Year’s Eve, to offer free rides or extended hours on nights with a high demand for safe rides home. The government should have an obligation to increase competition, but certainly not to hinder it.
Waking up hungover with a hefty Uber bill is not a failing of capitalism; it is the system properly at work, ensuring that market supply can adequately meet consumer demand.
Tiana Lowe is a sophomore majoring in math and economics. “Point/Counterpoint” runs Tuesdays.