Jens 'n' Frens
Idle thoughts of a relatively libertarian Republican in Cambridge, MA, and whomever he invites. Mostly political.

"A strong conviction that something must be done is the parent of many bad measures."
  -- Daniel Webster

Tuesday, December 16, 2014 :::

Uber is taking more flak for its surge pricing, which obviously serves a purpose (and indeed, in my mind, is their purpose for existence) but is very unpopular in some circles, and I'm trying to think of ways of at least partially achieving the purpose that might be less unpopular.  One suggestion I've seen is that Uber, which takes 20% of revenues (giving 80% to the driver), give all of the overage to the driver; when you have 4x pricing, Uber would get 5% of the fare paid.  In basic economics at least, markets tend to be "efficient" at the point at which quantity is maximized, and I would point out that this scheme perfectly aligns Uber's (short-term) incentives with (short-term) "quantity" maximization, where "quantity" is measured in terms of the base fare of potential rides.  It seems like it might at least improve their ability to communicate sincerity in the purpose of the price hike, vis-a-vis claims that they are "profiteering".

My own ideas fall into two categories, of which one is "double down" — "Look, people, the thing with Uber is that you can get service at some price if you really need it, and if you want unreliable but cheap service at those times, have at it" — and I don't know whether that would alienate a lot more potential customers that it would resonate with. Perhaps they've been as clear as they reasonably can about the whole "reliability" vs. "fixed stated price at which you can't get any service" trade-off for which they provide diversification among providers.  It's possible more transparency, at least after the fact, about net demand would help; if people can see that there really were a lot of riders asking for rides at high prices and not that many drivers, perhaps the trade-off would be a little bit more concrete.

My other ideas run around the idea of making it look more like an auction, partly for the same reason of making the previous message more concrete — if you've been outbid for a scarce resource, you can bid higher or accept that you've been outbid — and perhaps give buyers a greater feeling of control, even if there is really no more or less control one way than the other.  (They both, pretty much, give everyone as much control as the basic laws of mathematics allow.)  A traditional auction requires that everyone in the auction wait until the auction is over before they can proceed, and the whole point here is quick, reliable service.  I think Vohra (meaning Rakesh Vohra, though it's possible I'm actually thinking of Rajiv Vohra at Brown; they have similar research interests, and it's a while since I looked at this) has worked on auctions where time is an issue in this sort of way (people entering and exiting the market at different times).  Another option is to have buyers of the service post offer prices that drivers can see and can choose to accept or not, possibly with suggestions by Uber as to what trade-off they're likely to see between a higher price and a quicker/more likely acceptance.

::: posted by dWj at 1:17 PM

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Idle thoughts of a relatively libertarian Republican in Cambridge, MA, and whomever he invites. Mostly political.

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