The recent outrage over Uber’s use of “surge” pricing during the Sydney siege incident on 15 December highlighted the use of pricing algorithms as a response to peak demand in taxis.
Uber’s pricing tools automatically increased fares during that incident. The fact that it took Uber 10 days after the event to issue an apology simply reflects a company lacking a strong moral compass. Putting to one side Uber’s behaviour in Sydney this should not be used as a reason to discredit the use of flexible fare and pricing solutions to drive innovation in the industry.
Uber’s use of “surge” pricing at other times has highlighted the benefits of pricing algorithms to respond to peak demand.
CabFare believes that the taxi industry and its regulators must:
Unless pricing and demand management is tackled, the Taxi industry will lose the fulfillment debate and UberX will become legalised.
What is Surge Pricing?
It is time of day demand and supply curves to set fares. This attracts more drivers and pricing rations scarce resources so supply and demand is balanced.
Surge pricing is not complex. It is economics 101 although algorithms underpinning pricing can be complex.
The fundamentals involve:
Pricing in this manner is found in many markets (e.g. utilities, ports, eBay). Such pricing should be encouraged to better manage resources (as Uber demonstrated), and stimulate operator service innovation.
Regulators must tackle fares and metering technologies as a single issue:
Regulated pricing and 100-year-old metering technology impedes reform. Regulated prices have removed the key market signals for both passengers and drivers thus delivering the worst aspects of centrally planned economies to the taxi industry.
Regulated pricing and legacy-metering results in:
How Future Pricing and Metering can be delivered in real time and improve fulfillment:
The tools to turn what Uber has initiated are cheap and easy to implement. The changes involve:
Based on Uber’s data that surging occurs in 10% of trips, a move to real time demand based pricing is low risk.
Adopting Surge Pricing is critical to Fulfillment delivering:
Uber has pointed the way, now is the time for regulators and the industry to get it right for all.
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