Is This The Last New Year’s Eve Of Uber Surge Pricing

Timothy B. Lee offers several defenses of surge pricing by Uber and Lyft, including this.

It might seem like an obvious point, but it’s often overlooked by people who complain about surge pricing. Surge pricing gives drivers an incentive to spend more time on the road than they otherwise would. It encourages them to re-arrange their schedules to make sure they’re available on nights of peak demand. And it entices drivers who might otherwise like to go out partying themselves on New Year’s Eve to hit the road instead.

I haven’t been able to find any hard data on how much higher prices increase the number of drivers on the road — a measure economists call the elasticity of supply. But there’s reason to believe that big price increases will be more powerful during nights of predictably high demand — like Halloween or New Year’s Eve — than at other times.

If demand spikes unexpectedly, there might be a limit to the number of people who can immediately jump in their cars and help out. But everyone knows New Year’s Eve is the biggest night of the year for taxi service. Lyft has been sending me emails all week reminding me that I could make a lot of extra money if I drive tonight. So people who need some extra money have plenty of time to make the necessary arrangements.

So, to his credit, he admits that there is no data supporting surge pricing as a means of enticing ride share drivers onto the road but suggests that surge pricing incentivizes drivers to come out. The point he elides is that it is just as likely that drivers will come out on nights like New Year’s Eve whether there is surge pricing or not. The sheer volume of ride requests guarantees more business than they can adequately serve, and consequently a profitable evening. It is not surge pricing which allows just about every taxi company in major metropolitan areas to lease all of their cabs with ease on nights such as these.

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