Uber Defends Surge Pricing

A research carried out by Uber's researchers has defended surge pricing.

Uber has taken a step to address the concerns of its users. Uber news affirmed that it would fail to provide a credible facility if it failed to carry out surge pricing. Surge pricing refers to a rise in tariff that takes place when the demand for the cab service has reached higher levels, but not a sufficient number of operators are available on the road.

Uber news today revealed that its researchers, Cory Kendrick and Jonathan Hall, posted on the company’s blog, “We found that, without surge pricing, Uber is not really Uber - you can’t push a button and get a ride in minutes”. To explain this, Kendrick, Hall and Chris Nosko (Assistant Professor of Marketing in University of Chicago Booth School of Business) gave a justification that the company’s policy to increase prices is there to serve the passengers. They experimented by considering the number of operators available after a pop concert took place in New York City’s Madison in March and during the latest New Year’s Eve in NY.

Uber technologies reported that during the event, surge pricing strategy was implemented but not for New Year Eve (NYE). Naturally, for the concert, increases in fares were able to attract more driving partners towards the road within an adequate span of time.

Later, the high demand for the service declined. However, on NYE, the company’s surge charging technology stopped functioning for 26 minutes of high demand because its cab operators were not provided any incentive to drive their vehicles, which could have kept them away from enjoying the event. Thus, the company lost control of the situation.

The speed at which rides are provided – how the transporter determines the rate at which the market reaches equilibrium and its success – rapidly decreased during those 1560 seconds, as revealed by the report. At the maximum, one fourth of the cab services were provided during that period.

Projected arrival time, which is considered to measure the time span that a passenger requires to wait has risen, as revealed by Uber CEO and founder, Kalanick, in 2013. That adversely affected client's interest in the service and forced him/her to stop hiring it. At its highest level, waiting time span was 480 seconds during which surge pricing was not carried out.

It is probable that the findings of the research would improve Uber’s relationship with its customers. Its executives should promote the research’s conclusions to retain its position in the highly competitive market.