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How Uber's Surge Pricing Benefits You

After, maybe, possibly, drinking a little too much champagne this New Years Eve, calling an Uber could have been the smartest thing you could have done. You helped contribute make the roads a safer place for our kids, parents, and all other loved ones.

The harsh reality, however, is that you might have been a little upset after seeing your Uber bill from the night, as the ride-sharing platform employs what is known as “surge pricing,” meaning the price will go up when there is a surge in demand, such as a holiday.

Of course, nobody wants to pay any more than necessary, but researchers at Washington University in St. Louis have concluded that surge pricing is actually an efficient system that benefits everyone, both consumers and drivers.

Consumer Affairs writes that Kaitlin Daniels, an assistant professor of operations and manufacturing management at Washington’s Olin School of Business says Uber provides an interesting case study in how a business uses prices that go up and down with demand.

“Since drivers decide for themselves when they drive, price in this setting influences not only the firm’s margin but also the number of drivers out on the road serving customers,” she said.

Though it may seem counter-intuitive, Daniels and her colleagues swear that consumers can actually benefit from surge pricing. If demand for rides is not being met by a traditional taxi service, they say surge pricing will encourage more ride-sharing drivers to hit the road, increasing what ordinarily would be a limited supply. So, in short, you may end up paying a little more for your ride, but at least you’ll always have one.

“Because taxis charge fares that are independent of demand for rides, they experience one of two possible inefficiencies,” Daniels said. “Either taxis fail to satisfy peak demand, or many taxis idle during times of normal demand. Drivers can only tolerate so much idleness because they are paid per ride, so in many cases taxis opt for the former inefficiency over the latter.”

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