Behind Uber's ride-hailing service is an algorithm that aims to constantly balance supply and demand for drivers and riders. Known as surge pricing, the system looks to encourage drivers to move towards busy areas and decrease requests by customers by increasing the price of rides in such situations.
Uber, however, has taken a lot of criticism for its implementation of surge pricing, with the startup not revealing how exactly the algorithm works. Researchers from Northeastern University have taken it among themselves to figure out how the system works through what they called as "algorythmic auditing."
According to Christo Wilson, one of the researchers, Uber's services are different from the products being sold on eBay and Amazon due to the surge pricing algorithm. However, the algorithm is a "black box."
"You have to trust that it's working correctly, because you can't verify. You don't know how many customers there are, you don't know how many other drivers there are," Wilson said.
The researchers, Christo Wilson, Le Chen and Alan Mislove, created a total of 43 accounts on Uber and wrote a script that logged into the accounts, pinged the servers of Uber every 5 seconds like all accounts do, and then recorded information on the drivers of Uber in San Francisco and Manhattan.
The information that was gathered were combined with other observations on Uber and tools of the ride-sharing service that are publicly available to analyze surge prices, resulting in a paper presented by the researchers in Tokyo.
Among the findings presented in the paper include the fact that while surge prices do deflate demand for rides, drivers are only sometimes attracted to go to areas where surge pricing is ongoing. Surge prices also usually last over less than 10 minutes, and often less than 5 minutes.
"[Surge pricing] is working in a sense that it is responding to supply and demand, but I would argue that it's not working as intended," Wilson also said, adding that the system leads to mixed results.
For passengers who are looking to book an Uber ride but are in the middle of surge pricing, the researchers said that they can save on the extra charges by walking a short distance, as Uber divides cities into different areas which each have their own surge multiplier. By moving to another block, passengers may find themselves in a different surge area where surge pricing is not in effect.
In addition, passengers can simply wait it out for a while, because as mentioned, surge pricing typically only lasts several minutes.
