From its humble beginnings back in 2009, Uber Technologies, developer of the transportation network app Uber, has grown into a giant worth an estimated $50 billion. However, Uber didn't progress without a hitch.
Aside from the intense opposition that it met from governments and unions abroad, the company also raised eyebrows within the country when it implemented "surge pricing," causing a significant taxi fare increase within New York City. Lyft, a similar app, also implemented the pricing scheme.
Uber justified surge pricing by saying that it is an incentive for drivers to pick up passengers, especially during heavy traffic and vehicle congestion. This goes in line with the app's main purpose: to enable users to get a quick ride using a phone. The whole idea is akin to what Apple did with their products, which, although pricey, were streamlined and felt "premium."
Even with the public's initial resistance to the pricing scheme, surge pricing became widely accepted. Though this does not eliminate some users' bitter view toward doubled and tripled prices during peak hours, having surge pricing as the norm led to more and more people relying on the service.
"Surge pricing has two effects: people who can wait for a ride often decide to wait until the price falls; and drivers who are nearby go to that neighborhood to get the higher fares," wrote Uber researchers in a blog post. "As a result, the number of people wanting a ride and the number of available drivers come closer together, bringing wait times back down."
To elaborate on why the pricing scheme works for passengers and why it should be kept, Jason Hall and Cory Kendrik, both part of Uber's research team, along with Chris Nosko, a marketing professor from the University of Chicago, conducted a social experiment.
"Our goal at Uber is to ensure you can push a button and get a ride within minutes - even on the busiest nights of the year. And due to surge pricing, that's almost always possible," explained Hall and Kendrick in the same blog post, which discussed the details and results of the experiment.
The study conducted involved two occasions during which traffic congestion in New York City was at its peak. The first one was in March 2015 during a concert in Madison Square Garden, and the other was during the 2014 New Year's Eve celebration that welcomed the coming of 2015.
On the night of the March concert, the surge pricing system was fully up and functional. Four times the average number of users opened Uber. However, even with the increase of those who used the app, the number of ride requests made did not see a significant change. In addition, every ride request was completed and all passengers arrived in their destinations within the expected timeframes.
On New Year's Eve, the surge pricing system was down, giving the research team the opportunity to provide a comparison for the statistics they gathered during the March concert. With the absence of the pricing scheme, only a quarter of all ride requests made were completed. The ride to each passenger's destination also took longer.
"Without surge pricing, rider and driver behavior did not adapt to the increased interest in getting a ride," Hall and Hendrik reported.
"We found that, without surge pricing, Uber is not really Uber - you can't push a button and get a ride in minutes," they added.
As compelling as the results sound, it does raise the question: what if it were the other way around? Putting things in perspective, New Year's Eve is quite an important time for almost everyone. It is a global celebration that transcends almost every religious affiliation, racial heritage and even financial status. It's busy. It's hectic. It's chaotic. It's New Year's Eve.
In contrast, each person has their own taste in music and it would be a fallacy to assume that everyone is interested in a pop concert hosted by a specific performer.
Without insinuating that the study is biased or that the pricing scheme does not work, data about what happens when the pricing system goes offline during specific events, such as the concert, and when it is fully functional during global celebrations, such as New Year's Eve, should be presented before any definitive conclusion on how the pricing scheme affects the riding public can be given.
Photo: joiseyshowaa | Flickr
