Without surge pricing, Uber just wouldn’t be Uber.
That’s the latest message from the company, which has just published a new study based on two naturally–occurring instances – one where surge pricing worked as planned and another where surge pricing was unavailable and everything went to hell in handbasket.
Well, not exactly. But according to Uber, an Uber without surge pricing produces a less-than-optimal service.
“Surge pricing has two effects: people who can wait for a ride often decide to wait until the price falls; and drivers who are nearby go to that neighborhood to get the higher fares. As a result, the number of people wanting a ride and the number of available drivers come closer together, bringing wait times back down,” says Uber.
“We found that, without surge pricing, Uber is not really Uber — you can’t push a button and get a ride in minutes.”
Uber looked at a period right after a packed Madison Square Garden concert and compared it to last New Year’s Eve, when Uber experienced a technical glitch causing surge pricing in New York City to fail for 26 minutes.
Here’s what Uber found:
On the night of the concert, even though the number of people opening the Uber app experienced a 4x increase, the number of actual ride requests only rose slightly. In other words people decided not to request a ride. Meanwhile, 100% of ride requests were completed and ETAs were virtually unaffected.
By comparison on New Year’s Eve, without surge, ride requests skyrocketed and only 25% of these requests were completed. ETAs also increased sharply. Without surge pricing, rider and driver behavior did not adapt to the increased interest in getting a ride.
“The best evidence for the effectiveness of Uber’s surge algorithm is the remarkable consistency of the expected wait time for a ride. Regardless of demand conditions, the surge algorithm filters demand and encourages supply such that a ride is almost always fewer than 5 minutes away,” says the research paper.
Basically, without surge pricing, according to Uber, you’d be waiting for a ride for a long, long time.
This report comes just months after a well-publicized report suggested that Uber is “disingenuous” in the way it handles surge pricing – using “predictive” algorithms instead of responding to genuine supply and demand.