Uber’s surge pricing is price gouging
There are those who love Uber’s surge pricing because it reflects the law of supply and demand. While some complain about paying hundreds of dollars for what would otherwise have been an ordinary cab fare, defenders counter that charging much, much more when demand is high is just good old-fashioned market forces at work. But when it comes to providing basic services, such as housing, gas, and yes, transportation, surge pricing is just a nicer term for price gouging.
Let me admit that I like Uber. I’m a little tall and rarely feel comfortable in taxis. Besides, using the app is fun — I like seeing the little avatar of the car approach my location on the map — and the prices are usually cheaper than a regular taxi.
What gets under my skin is what Uber did during the recent terrorist attack in Sydney. As people fled the downtown area, Uber — responding automatically to higher demand — quadrupled its prices. The company argued that the higher prices would encourage more drivers to offer rides, but the practical effect was to charge people a lot more money to run for their lives. (The company later apologized.)
Uber doesn’t do surge pricing during emergencies in the United States, probably because it’s illegal. In Texas, Attorney General Greg Abbott sued a hotel for merely doubling its prices when 1.2 million Gulf Coast residents evacuated ahead of Hurricane Ike. Uber can charge several times the normal rate during surge pricing.
A recent example of this happened to Keith Livingston, a guy who went to the Texas Bowl at Houston’s NRG Stadium. When he couldn’t get a cab, he tried walking home. When he got too tired to walk, he called Uber. And when he looked at his bill, he realized he’d paid $247.50 for what would normally be a $43.16 fare.
Livingston isn’t the first guy to get gouged by Uber. There was the Baltimore woman who raised money online to pay for her $362.57 Uber ride home on Halloween. During last year’s Austin City Limits music festival, Uber gave out free rides — once. Thereafter they charged 500 percent their normal fares. In response, state and local politicians in New York are proposing price controls to prevent gouging during peak demand.
All of this strikes some folks as ignorant bellyaching by economic illiterates. In a 2013 Washington Post piece, Tim Lee argued, “The concept of charging extra during periods of high demand is a good one, since it attracts more drivers and ensures that customers who really need a car can get one.”
Come again? How does charging nine times the normal rate (as happened to that Baltimore reveler) ensure that “customers who really need a car can get one?” Carried to its cold-hearted conclusion, this logic deems that the customer with only enough money for a regulated but unavailable taxi but not enough for Uber does not actually need a car.
You could argue that these cash-strapped travelers could take other modes of public transportation, but there’s the rub. Though privately owned, taxis are part of the public transportation system. That’s why we regulate them. We need to ensure that drunk people can afford and find a ride home after the bars close and the buses and subways stop running.
To contend that the government doesn’t need to be subsidizing rides home from football games, however, misses the bigger picture. At $352 million, NRG Stadium is the third-most expensive professional football stadium, and the public financed 43 percent of it. And the Texas Bowl — a nonprofit, by the way — pitted the football teams of two public universities.
It’s a little late in the game to start preaching the infallibility of market forces. Transportation is a public service even when provided by a private company, and surge pricing, while making superficial sense to those who aced Economics 101, is just a way to make price gouging sound nicer.
Jason Stanford is a regular contributor to the Austin American-Statesman, a Democratic consultant and a Truman National Security Project partner. You can email him at stanford@oppresearch.com and follow him on Twitter @JasStanford.