Uber May Be Shooting Itself In The Foot With Surge Pricing

While it might be more difficult to hail a taxi at rush hour in Midtown Manhattan, the base rate for your ride is no different than if you’d flagged down that cab two hours earlier. But if you try to summon an Uber driver, you might he hit with increased “surge” pricing. Uber says the higher cost is intended to lure drivers to these high-demand areas, but a new study claims that surge pricing may have the opposite effect.

This is according to a paper [PDF] from researchers at Northeastern University who gathered data from 43 Uber accounts in Manhattan and San Francisco over a four week period.

The justification for surge pricing is that Uber drivers, who can see when rates spike in a city’s different surge zones, will be attracted to that area to meet the increased customer demand.

While the researchers did see a “small effect on attracting new cars,” the higher prices also appear to “have a larger, negative effect on demand, which causes cars to either become idle or leave the surge area.”

These results indicate that Uber users may be seeing the higher prices and deciding against using the service.

“What happens during a surge is, it just kills demand,” Christo Wilson, one of the researchers behind the study, explained to ProPublica. “So the drivers actually drive away from the surge.”

Savvy Uber users may simply be walking a few blocks to get out of the surge area.

The study found that Uber customers in New York’s busy Times Square section could sometimes save at least 50% off surge pricing by moving to the neighboring zone on the Uber map.

That information is not made available to the general public, but Uber drivers can see the distinct surge areas on their version of the Uber app. And an industrious customer could probably figure out the general boundaries of their local surge area by walking around and checking out rates every few blocks.

If walking around isn’t your thing, the research also found that surges tend to not last very long. So frequent users may be aware that they can save money by waiting out the temporary price hike.

While Uber is attempting to downplay the results of the study, saying that it uses a too-small data set that does not jive with the company’s experiences of surge pricing, some drivers are saying they do tend to avoid surges.

“The seasoned drivers don’t pay any attention to surge,” one cabbie-turned-Uber driver tells the San Francisco Chronicle. “By the time you get to that part of the city, the surge is over. Often, even when I’m sitting dead center in the middle of a surge area, I don’t get a ride request. Then, as soon as the surge is off — bam! — here comes a ride.”

An economist for Uber tells the Chronicle that the company is updating the driver-facing app with more granular surge data intended to give drivers more confidence in responding to short-term fare increases.

“We can tell you that if you are two-tenths of a mile away, you will make significantly more money” he explains. “Or we can tell you that by the time you get there, it won’t have been worth your time to make that trip.”

by Chris Morran via Consumerist