Uber to end surge pricing? Yes and no

Is Uber working toward ending surge pricing, the rise in fare when the demand for taxis shoots up? Uber has said ‘yes,’ and ‘no’ over the last week.

The local government in Delhi had recently banned the San Francisco-based company from applying surge pricing that kicks in when demand outstrips supply. This feature generates sharp reactions in the 58 countries in which Uber operates. Surge pricing is also a key point of conflict between the rider and the driver even as Uber is campaigning to add more numbers of both.

Predict demand

A senior Uber executive told National Public Radio (NPR) last week that the company considered surge pricing as a market failure and was working on algorithms that would predict demand and eliminate the situation of demand-supply mismatch. Uber drivers protested and the company issued a rejoinder that did not exactly deny the original interview.

“If you can predict that demand, you get that information out there – and you get that supply there ready for the demand so the surge pricing never even has to happen,” Jeff Schneider, engineering lead at Uber Advanced Technologies Centre told NPR. “And I think that's one of the really cool things that machine learning's doing for Uber right now. Because, now we can look at all this data, and we can start to make predictions,” Mr. Schneider said.

“Uber is always looking for ways to better predict supply and demand in a city; but this story is not accurate: we have no plans to end dynamic pricing,” an Uber spokesperson told a technology website after the NPR story agitated the drivers. “While we understand that no one likes to pay more for the same trip, it’s the only way to ensure that passengers can always get a ride when they need one.”

The story and the denial can both be true at the same time. Surge pricing happens only in a situation of supply-demand mismatch. So, Uber may “not end” dynamic pricing as the statement said, but will predict the demand such that “surge pricing never even has to happen,” as Mr Schneider explained.

Formally doing away with surge pricing can have a negative impact on its ability to attract drivers, who are already complaining – in the U.S. – that a series of downward fare revisions have lessened Uber's appeal.

But the question, however, remains as to how an algorithm could incentivise a driver who might want a higher fare after an IPL match or a concert. In the U.S., many Uber drivers get on to the road only during surge hours, and in fact, wait for it.

Mixed reactions

Our Bengaluru Special Correspondent adds:

The surge pricing model has evoked mixed reactions from Uber’s driver-partners in the city. While a high quantum surge of say, three times the normal fare,would result in extra earnings in cities like Bengaluru, it also means that drivers have to wade through endless traffic to earn the extra amount. “We have surge pricing on the weekends or during the morning rush-hour. It depends, but mostly it is a headache driving during these hours as well. . I stick to the minimum number of rides as per the rules for drivers during peak-hours, and then stop,” said Ravindra S., a driver-partner with Uber in the city.

Though earning more was attractive to drivers, the initial enthusiasm has worn off. Drivers realize that there is more demand at a given time because there are more people out on the streets, making driving that much tougher. “IPL matches, without fail, trigger surge pricing, but by the time we locate the client, we have to endure threats by traffic police, identifying wrong customers and near accidents. It is simply not worth it,” said Prakash Gowda, another driver-partner.

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Printable version | Aug 13, 2020 3:48:59 AM |

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