This is an unfulfilling thing to say perhaps, but price gouging is actually beneficial in producing more supply when it's needed. (So long as we're speaking about a market that is not a monopoly.)
Why else would a cab be out during a hurricane? The world doesn't owe you a cab ride during a hurricane at an everyday price.
Uber points this out in their tweet, and they are correct. So let's not get our pitchforks out just yet...
As per the line of thinking that article has. Nobody is working as hard, has worked or will ever work as hard as you do. There fore your problems are vastly bigger and demanding than everybody else. Given this the world around you automatically is obligated to help you endlessly fight your daily battles.
A part of which is that a cab driver(who probably by any means of measure is having it difficult than you) must not just report to his duty during hurricane but also should offer it at a everyday price. Now think of this, even if the cab driver had asked for the everyday price these people would have cursed them for not offering the service for free during a hurricane.
Similar story - last year, Olympia WA had a large snowstorm, upwards of 3-4' in 12-24 hours (which would be bad enough in most places, let alone a city without the infrastructure), and a state of emergency was declared (I'm a firefighter - had to go in and ended up working for several days straight).
My girlfriend is a nanny for two attorneys who work for the state. Their offices were closed due to the storm, and to quote the recorded message, "due to the extremely hazardous road conditions, we are closing so employees do not have to attempt the drive to work, and indeed we urge them to stay off the road".
My girlfriend's employers? "So, we'll be working from home - we were told it was too dangerous to go in due to the state of emergency, so we'll need you to be here (a 5 mile drive through mostly non-thoroughfare streets) an hour earlier to keep the (two) kids out of our hair."
Talk about a cognitive disconnect.
It's amazing the attitude even people who would swear blind, and believe, that they don't, have towards those they see as "the help".
You are absolutely correct. Controlling supply is almost always the reason for raising prices and there are some benefits to it.
Imagine a hacker news post that says, "Über isn't picking me up to take me to safety." Neither headlines are enjoyable but higher prices are better than, Über is putting my safety at risk by missing their target times.
Cabbies can also get paid more if Uber takes a smaller cut for the time being. That would have been a good PR move too.
This is a bit of a wasted opportunity to get good PR.
That's exactly what they did after the flood of negative press. I live in the Lower East Side and even without the stoplights there are traffic cops directing and it is generally safe walking and driving downtown with no water and debris in the streets.
Yellow cabs and black cabs are already hiking up their prices and "negotiating" with passengers so it would have been nice to see Uber step up in this case.
Some other posters have mentioned that you can't raise rates in the time of an emergency. I don't know how valid this is, or what constitutes an emergency.
Irrespective of the majority of cab money going to the corporate apparatus and not the drivers in plenty of cases, it still seems unfair to expect drivers not to raise their rates somehow just for the increased danger.
Price gouging rules are often applied to "essential" goods and services. An easy way of identifying what's "essential" is to look at price elasticity. Inelastic goods are usually essential. For example, if gasoline prices double, the majority of people can't simply choose to stop using gasoline. They have no alternatives. They either stop doing what they're doing, or they buy gasoline at whatever price is asked. The actual measure of the gasoline price elasticity of demand is -0.26 over the short run [1].
In a city like NY, less than half the population owns an automobile [2], yet more than that proportion rely on transit systems [3]. I can't find a lot of recent data, but a 1999 study puts the price elasticity of demand for taxi fares at -0.22 [4]. Not surprisingly, that's very close to gasoline.
Based on that, I suspect that the demand for transit will not reduce because Uber double's their prices. Fewer people may be able to afford it, but with the transit systems down, they will have no alternative. This means that people will stop doing whatever is on the other side of that transport. In many cases, that's their job. When people stop doing their jobs, the economy shrinks. With a population the size of NY, that's not good for anyone.
Increasing prices don't just reduce demand. They also increase supply. Uber can't order drivers to work against their will. By increasing the price, they are making more sedans available.
> This is an unfulfilling thing to say perhaps, but price gouging is actually beneficial in producing more supply when it's needed.
Okay, I'll bite: how? What level of Uber price gouging will, for example, cause an unflooded subway to be constructed within the next few weeks? Maybe quadruple pricing would do it?
That is besides the point. Why the hell should a cab driver instead of being safe with this family and that too during a hurricane drive you around for a everyday price?
The purpose of increasing the fare, is to motivate the driver to drive during the time of a hurricane. This has nothing to do with other things and was never meant to be.
There is a shortage in supply, the demand automatically increases. The only way he can prioritize his work is by offering his services to the highest bidder. He is in business earning just like us. He didn't take a oath to serve selflessly regardless of his own problems.
When the programmer salaries go high because of the demand, do you willingly take a pay cut? Why then do we apply different standards to other professions?
As Uber said in one of the tweets quoted in the linked article, by increasing the fare they increased their supply of drivers by 50%. I.e. since they were being paid more, more drivers decided to work more hours. This is the expected result from the application of basic economics. It has nothing to do with unflooding subways; just more drivers working longer hours because they want to get paid more.
Correct and I agree with you - law of supply and demand etc. but lets see if Uber tries to do the right thing by limiting their benefit, or even donating their commission to a relief fund, as per AirBNB? that would be a great way to generate some positive feeling as well.
But there is still a transportation shortage. This provides an accessible option for those who are willing to pay. The alternative for most people is not finding a car at all.
As an East Village resident who fled yesterday (post-Sandy) due to loss of power and even cell service, I'm siding with Uber on this one.
When I needed to go 60+ blocks uptown, I didn't manage to hail a cab because every single one was taken, and only because of a private car (who separately charged three individuals for a concurrent ride, literally a 3X fare) did I manage to get to my destination without carrying my heavy duffel + gear for an hour or more in the drizzle.
In this situation, price is not the problem, it's supply.
Edit: From what I can tell, Uber now locked rates at 2X, and is eating half of the fare. That's pretty darn generous.
There are price gouging laws against this specific activity. You can not raise prices during a disaster. I hope Uber gets shafted to the full extent.
This is what you sound like:
When I needed to eat all the bread in the grocery store was gone. Except for this one grocery store that was charging $100 a loaf. They filled my belly when everyone else was sold out. What a good grocery store!
If that bread is being imported from outside the city, then yes. What a good grocery store.
Per Uber (and even PandoDaily), the available driver supply has indeed risen due to prices. Without the price increase, some drivers wouldn't consider it worth the painful traffic.
And lets not forget: It's not like the folks at Uber flipped a switch and doubled the rates. Their system responds to demand automatically--it doesn't know when there is a disaster.
"...Uber finally backed down and agreed to pay drivers an increased rate but keep fares at their normal leves"
The outrage here stems from the fact that people do not perceive Uber as the corner grocery store, or some guy on the corner selling umbrellas at twice their cost when its raining. Uber is perceived, as most startups are, as a "good guy," an entity who would try first and foremost to help during a crisis before trying to make a profit.
If they had done this (eat the losses) from the beginning not only could they have avoided the bad press but probably gotten enough good pr to increase their customer base.
Or more likely, it stems from the fact that some people understand economics and some don't.
You want prices to go up in an emergency, because it creates incentives to go beyond usual measures to provide supply. Anti-gouging laws are not just useless, they are mindbogglingly harmful. There's a good reason you don't set ceilings on prices during usual times: If the cost of supply goes above set price, there is no supply and people have to go without. The pricing mechanism still works and is even more important when there is an emergency. If conditions make providing supply hard and legislation limits the prices to a set ceiling, retailers aren't going to eat the cost of providing supply, they are just going to say that it's too hard and close up for the duration. If prices are allowed to rise naturally, it incentivizes not just going above and beyond to get goods where they need to be, but also stockpiling supplies before the disaster.
Price gouging is a good thing, because the choice is not between very expensive bread and non-gouged bread, but between very expensive bread and no bread. If there was enough supply to provide for all demand during the crisis, prices wouldn't go up.
Price "gouging" (if you can call it that under the circumstances I'm outlining) is a good thing as long as prices are going up relative to the risk taken in the seller procuring the goods. To use an example that exists outside of the controlled economy, if drug enforcement teams are cracking down hard on a city, the price of marijuana is going to increase. The dealers and growers are taking a much more increased risk to keep supply.
However, here in Michigan after 9/11 (a place not directly affected by the disaster), gas prices shot up drastically, immediately. The governor stepped in and set gas prices at a controlled rate, with serious repercussions if the price limit was breached. That's an example of bad price gouging, in an area where that type of activity should be controlled. There was no immediate threat to Michigan's gas supply, nor to the Michigan transportation network. Prices were not going up as a result of increased risk in the market, but because companies knew they could incite a buying panic at a hugely inflated profit margin. They knew that when their supplies of highly profitable gas ran out, they could get more at the normal rate, then sell it massively inflated again.
What Uber is doing while operating in NYC right now is an example of increased risk. NYC is in a disaster zone. There is a massively increased risk to operating a business on the streets of New York currently. With the public transport out, they need more drivers. Depending on the area, they might need drivers willing to take the risk of operating on these streets. There is a risk to the continuity of their business, a need to fill demand with limited supply. Increasing prices temporarily makes sense. It's the tradeoff between everyone can afford it but no one can buy it versus some can afford it but all who can will be able to buy it.
If the government wants to limit the ability of the market to assess risk, maybe they should compensate Uber and other hire-car companies (aka cabs) to help offset the supply vs demand equation.
Well, Uber knows there is a disaster. A large temporary change in the NYC cab market would not go unnoticed. They can update their own 'system' to reflect current prices, it's not a third-party thing.
I lean very heavily socialist, but I can't see how anyone would benefit from there being no cars available.
Actually, I recall just such an occasion, in Dublin at 4am New Years eve when there was a surprise snowfall. Tens of thousands of people in the city center, taxis weren't running, buses weren't running, and there was no way for many to get home. The worst I saw was girls in skimpy dresses holding their heels in their hands as they walked a few miles home in the snow and ice. They would have been glad to be "gouged" for a taxi.
As a supporter of price gouging laws, the idea isn't that there should be no cars. No one expects UberCar to look at the situation, say "We're losing $X million per day. Oh well." and keep sending cars out on the street. The plan for price gouging laws is for Uber to say "We're losing $X million per day and our Hurricane insurance will pay out $Y million. This will leave us $Z million ahead." The problem is that, for Uber, Y = 0.
Under the price gouging model, every company would be charging extra on a daily basis outside of emergencies to either buy insurance or build a safety fund to use during disasters. Instead of gouging some guy $100 after a hurricane, Uber is expected to gouge everyone 25¢ year round. This slows the economy during the good times, but keeps things running smoothly in the bad.
Whether or not this is a good model is freely debately, but that's how it was intended to work.
Uber don't control the cars or employ the drivers, and can't force their drivers to be out on the street. They have a very good mechanism for ensuring supply during high demand: allow their drivers to charge more.
I see that it would be possible for them to have a hurricane fund which they would use to encourage the drivers to come out, but I don't think its fair to expect them to have expected this.
To be honest, I don't see this as gouging. Its a 2-sided marketplace, and there are pretty simple economics at play.
You feel entitled to a cab at the same price even though it's a disaster and everyone needs a cab.
Drivers feel entitled not to have to drive into a disaster zone for the same price and would rather stay home.
So either way, whether or not prices are raised or prices stayed the same, the result to you and everyone who feels similarly entitled, would be the same - walk home.
At least by raising prices, those who are willing to pay the higher price will be able to get a cab.
Wow...this rational sounds so irrational. Simple economics tells us that when demand far exceeds supply, prices rise. A natural disaster will cause prices for many things to increase.
There is MUCH more social utility for Uber to double & triple prices to ensure there are private cars (i.e. supply) than leaving tons of people stranded.
It's just the market at work....no need to attack them, just don't pay the rate.
If you are stuck on the corner, and water is headed your way, I can guarantee you - you would pay almost anything to get out of there. Just paying 2X or 3X - depending on your perspective - is almost a steal.
I don't live in NYC, nor am I an Uber customer - but if I were stranded in NYC and wanted to leave, I would be glad to pay any rate I could afford.
When I needed to eat, all the bread in the grocery store was gone. But they were only a penny a loaf! I starved, but seriously, what a good grocery store! Only a penny!
And to add insult to injury/starvation: the person who got to the store first probably bought 10x more food then they needed and now has a bunch of food spoiling in their non-functioning refrigerator.
All the responses about supply and demand aren't accounting for the fact that taxi drivers are a protected industry in New York.
You are unionized, have benefits, and have protections preventing any ol' person from starting a taxi service that are VERY COSTLY to NY residents. But it ensures a safe and mutually beneficial industry.
So a big fuck you to anyone who price gouges. I hope you lose the medallion, lose your job, and lose your benefits.
Uber isn't a taxi company. The supply being talked about isn't necessarily about the limited number of taxi medallions issued. Instead, it's about how private car operators don't want to work in NYC right now but might be induced to work if they were payed more.
I'm not sure what you're getting at in your comment.
Are you complaining about Uber raising their prices, or about Uber existing at all?
TL;DR: A study in Singapore showed that it's hard to get taxis when it rains, because rain increases the risk of accidents, which cabbies are liable for. Since there's no compensating upside to pay for the potential extra cost, the rational thing is for cabbies to sit out the storm, and that's exactly what they do.
The parallel to Sandy is obvious: if you want a cabbie to risk life and limb for you driving in the flooded streets after a storm, then you should compensate him accordingly. And Uber does this fairly, automatically and transparently for both sides.
This kind of dynamic pricing is precisely what we do via our REST API[0] for ecommerce shops and event providers. I can assure you that there is nothing evil about this kind of activity - it's all mathematics and economics.
No one at Über is looking at this and saying, "lets up our rates to make money on those hurricane victims." Some where, in some Uber server there is an algorithm that is suggesting a high multiple to keep their supply in line. I wouldn't think anything more of it than that.
In fact, last New Years Eve, Über reportedly capped their dynamic pricing in Washington D.C. Even though their numbers were telling them they could charge more they felt an ethical obligation to cap at 6x.
I apologize if my response came off as "blaming the computer." I'm unsure of what the 1990 references is about but I just want to help anyone that wants to understand how this works.
I'll be more clear, our dynamic pricing algorithms are just listening to how much you, as the consumer, wants to pay for a product. Don't want to pay 100% markup on a product? Don't buy it and the machines will just drop the price.
No one is being evil, not a machine or a person. It's just charging market price; every consumers' decision to buy or not to buy impact the price. Über is no different. Don't want to pay 2x? Don't and their algorithms will drop the price as fast as it went up.
Who does this guy think he is telling Uber what to charge? If you don't like their price don't use them. After Hurricane Wilma I was begging for someone to "gouge" me on gas, but due to Florida law there was no gouging and thus no gas for my generator.
What makes you feel you're more entitled to have gas for your generator in an emergency than someone who can only afford a smaller multiple? Should you also have priority access to fire and EMS if you can afford to pay a bit more when need is high?
I think Carr is very uncomfortable with where services like Uber are taking us. Specifically the notion that we're headed for a world with a much starker rich/poor divide, due to power becoming more concentrated in the hands of companies like Uber whilst the drivers just do what they're told.
He's not necessarily wrong in my view, yet I'm unsure what he's trying to do but bitch about it. It's a problem, yet at the same time it's something of an opportunity to do amazing things when governments no longer have the will or apparent wealth.
I don't entirely agree with the reasoning, but I think it goes like this:
Historically transportation in NYC has been pretty egalitarian (leaving aside car service). A 1-percenter pays the same cab fare, subway fare, or (heaven forfend) bus fare as a single mom on welfare, and presumably gets basically the same level of service. The president drinks the same Coke you and I do.
Uber basically allows those with more money to jump the queue. You hear the same thing about medical services in single-payer or socialized systems, where it's seen as almost a form of bribery for a medical professional to expedite care for someone who pays extra.
Unfortunately while markets are arguably fair for groups of people with the roughly the same level of resources at their disposal (people are just expressing their preferences by allocating their money differently), they can be very "unfair" (for a certain narrow meaning of the word) because some people have vastly more resources to trade for a limited good.
It almost makes you wish you could somehow separate "spendable money" from "earnable money", but unfortunately you need a way to incentivize people to work and be productive, and giving them more spending money seems to be the most straightforward way of doing so.
I think it's partly his style. I'm an Uber fan (although being in a city both, I prefer Hailo) , but I find Carr's writing amusing and a good antidote to the pseudo-objectivist drivel these articles often contain.
There was an article on Slate that addressed the price gouging issue. The author made a lot of good points about how price gouging is a good thing in times of crises, most of which I agree with. However, in the long run, if you piss off your customers, I guess you are just shooting yourself in the foot.
I'm not going to type much here because I don't want to rant, but articles like these are why I quit reading TechCrunch and have never thought to read Pandodaily or any other recent startup-focused journalism site. They all just seem to prey on the stories that they can twist in whichever direction causes drama. As somebody just wanting to read about what other entrepreneurs, your average hackers, thought leaders in my areas of interest, etc are doing, I tend to just stick with HN and Twitter. I'll let the Paul Carrs of the world live out their own reality show. I mean, look at the slug in the URL of his article, even. sigh
The main reason I use Uber is because they always have a car available within 5 minutes in SF. If I want cheap I'll call a cab and wait 20 minutes and then call again when they don't show up.
Uber has always been about convenience over price. What other company says "I will disrupt industry X by charging twice the price". Here all they are doing is keeping with the same mission, make sure you can get an Uber as quickly as possible.
I'm for smart regulation, and I certainly agree with price gouging regulation in emergencies, but market pricing is not price gouging.
Devastation has hit NYC in zones that were not forecast to deem mandatory evacuation. As it turns out, the hurricane had caused greater devastation than expected and many people are unexpectedly experiencing loss of water and power and some loss of life. So in response to your first statement, no, most people did not know their areas would be in the path of danger. They are traveling now because where they are now is not habitable.
In response to the concept of supply and demand, yes, that is generally how the economy works. If NYC is in a higher demand for private car service, then it will likely cost more to get more drivers on the road.
I don't think the question at this point is why people are looking for relief via traveling - it should be why are they seeking help and how can we help.
This article is ridiculous. It's not until the last paragraph that they reveal that Uber is no longer charging 2x, instead keeping prices level and reducing their margin to increase supply.
It's quite likely that the increase was automatic with their dynamic pricing algorithm and when they realised the effect in a natural disaster area they corrected for it.
Paul Carr doesn't call himself a journalist, does he?
Sad that I had to get this far in the discussion to find that out. RTFA or not, a lot of people develop opinions based on posted comments before they read the article, ~if~ they even read the article.
They utilize surge pricing during many holidays, or when big events are happening (like a music festival or a tech conference). This is no more "gouging" than any of those.
Meanwhile, the District of Columbia preemptively added a $15 emergency surcharge to all cab fares for 24 hours. For a trip within the district, the fares ranged from 1.75x to 6x normal price.
In general most of the commenters here are not understanding that supply of these goods is constrained. Currently X amount of bottled water is reaching the city, and 100% of it will be sold, at any price. Currently X amount of cars for hire can transport people over the bridges, and no more can fit - the bridges have a fixed capacity. Commenters are thus making false economic arguments because they don't understand the economics, don't understand the situation, or both. Quintupling the price of bottled water and baby formula does not magically make more bottled water or baby formula appear in the city. It just takes a lot of money out of your pocket and puts it in someone else's. That's all, the only effect.
Except that as far as I understand it, in this case, doubling the price does increase the supply. i.e. by charging $99 for a $49 ride, provides a strong incentive for drivers in nearby cities to leave their current market and go to NYC.
So that DOES help the situation.
I am not sure if this is what you were arguing, but I thought I would provide some clarity :)
You know what the irony of the situation is? Cabbies have argued against companies like Uber and advocated the more regulated method of doing business because they say that cabs can be ordered into service in times of emergency. Not sure if NYC has that power or not.
No, those arguments are trotted out by the companies that hold the precious taxi medallions (~$1m a pop) and lease them to cabbies at extortionate rates. The cabbies themselves are, for most part, happier working for Uber than their current masters.
There's two issues here. First is the supply-demand balance, which several commenters have addressed (would you rather have bottled water cost $5 a bottle during Sandy or not be able to find any bottled water because "gouging" law kept it at $1?).
The second is that studies of cab drivers during rainstorms show that cabbies set a goal for daily earnings, and then leave the streets once they hit the goal (causing supply constraints). Would be interesting to see if uber has been able to address that psychological response in any way (tweaked incentives that give an additional bonus for driving more per month, rather than per day, for example).
>would you rather have bottled water cost $5 a bottle during Sandy or not be able to find any bottled water because "gouging" law kept it at $1?
If I had the $5 I'd rather they gouge me. On the other hand, if I had only $1 at least there's a chance I could get a bottle if the price stayed at $1.
To me, the supply and demand argument seems to ultimately boil down to a simple survival of the fittest scenario where "fittest" is determined by wealth.
Ethical me hates that (at least for essential goods like water, food, fuel). But selfish, "I've just survived a major natural disaster and need some f*ing water!" me wouldn't have a problem with gouging.
I've never really understood Uber, in London there's a company called Addison Lee, do basically the same as Uber London and have for years, have loads more cars, more experience and charge about 20-30% less than Uber. I've never been to any of the other cities where Uber operates but I can't see why anyone would pay more for Uber over Addison Lee. Have I missed something?
Why else would a cab be out during a hurricane? The world doesn't owe you a cab ride during a hurricane at an everyday price.
Uber points this out in their tweet, and they are correct. So let's not get our pitchforks out just yet...