The Real Problem With Uber's Surge Pricing Is It's Much Too Honest

A blog about business and economics.
Jan. 8 2014 3:53 PM

Uber's Surge Pricing Honesty Problem     

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I just tripled prices!

Photo by Eric Piermont/AFP/Getty Images

In a Wall Street Journal interview, Uber CEO Travis Kalanick says surge pricing isn't really such a weird idea noting that airlines and hotels routinely use demand-responsive pricing algorithms to both maximize revenue and ensure that there aren't chronic shortages of holiday flights and such.

This is very true, but it elides a key difference: transparency.

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Uber decided long ago that it would have less regulatory trouble if it made surge pricing very transparent. The app makes sure that if you're going to get charged double or triple fare, you know what you're signing up for. Airlines and hotels don't really do this. Rooms in downtown Philadelphia were quite pricey this past weekend due to a large convention, but when you tried to book a room the website doesn't say "JUST SO YOU KNOW YOU'RE GETTING GOUGED ON THIS PRICE SINCE THERE'S A BIG CONVENTION IN TOWN." They just list the price and you either decide the price is worth it or you don't. Most people are almost certainly aware that the prices float, but they don't rub your face in it. 

Obviously people rarely come out and say they don't want transparent pricing. But you see it all the time. In the political world we all know that policies with hidden costs (CAFE standards) are much more popular than policies with explicit costs (gasoline taxes).

So there's no reason to think the consumer world would be very different. Abandoning price transparency probably isn't an option for Uber, and personally I am glad that the prices are transparent. But a little bit more smoke and mirrors would probably serve it well. As a number of people have noted, you could reframe surge pricing by raising prices and then having very frequent discounts. Everybody likes to think they're getting a bargain. That said, the current strategy seems to be working pretty well and the surge pricing talk is great free publicity so my guess is there's no real need for a change. 

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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