Comments due by Sept. 25, 2015
I do not have the deepest understanding of economics. I have an A-level—rather like a US AP—in the subject, but I haven’t opened an economics textbook in a decade. But I do remember something: The price of a good is determined by how many of them are available, and how many people want them. When the supply is low and demand is high, the price is going to be higher.
Uber today (Sept. 17) published a University of Chicago study it commissioned in which two economics doctorates explain that this is, amazingly, how Uber’s surge pricing structure works. The study shows, in intricate detail, that surge pricing allows for Uber to function, as suppliers (drivers) are enticed by the potential for higher fares, and demanders (riders) will decide if they really want to pay higher prices right that minute. When prices drop back down—as supply increases, or demand falls—the surge ends.
Or, as Uber explained:
When demand for rides outstrips the supply of cars, surge pricing kicks in, increasing the price. You’ll automatically see a “surge” icon next to the products (uberX, UberBLACK, etc.) that are surging. If you still want a ride, Uber shows the surge multiplier and then asks for your consent to that higher price.
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.
The economists made some great charts to illustrate this point, like this one:
But in reality, this one probably would’ve done the job too:
In 2014, Uber commissioned a study that showed, as Slate put it, that “Driving for Uber is great,” although that didn’t turn out to be quite so accurate. In this case, however, the study does seem to accurately confirm that Uber’s business does, in fact, marry up with the laws of economics.
(Quartz)
19 comments:
In order to make up for the tardy comment on the last one I decided to post well ahead of time.
Here this article is great because of the great display of the surge pricing that happens with the Uber community. It shows how there are these relationships with the amount of people looking for rides, the wait times, and the drivers all coming together to make prices but when one fluctuates to a certain point, a "surge pricing" process begins shooting the prices up. The second graph shows simply how there a shift in the demand curve and it causes the prices to change at different given quantities. The article does a great job explaining how Uber has an economic principle embedded directly into it. The simple supply and demand drives the communities price and how much people are willing to wait for a ride or pay for one. Overall great article showing the relationships.
- Alberto Monges
This article is very interesting for a couple of reasons. It shows the relationship between the people that need a ride (demand) and people that are willing to give them what they need in a ride (supply). Drivers will only pick up customers at certain times only if there is a price hike that is agreed too, which shows the real value of supply and demand in an area where someone needs something then and there. I never really thought about the economic side of Uber before this article so I find it to be very interesting
Justin Grossmann
This article is interesting because it is bringing economics to a part of life i'm fond of. It shows those who need a ride and thos are giving the rides which translates into supply and demand. Uber drivers understand when the demand will be its highest and in that time they up the price creating a surge. this comes from knowing your demographic and is very a very smart move to make the most money possibly.
David Grant
This article talks about supply and demand. Specifically, it talks about Uber's surge pricing. When there is a higher demand for rides than their is cars, surge pricing starts and raises the prices of rides. Some people can wait for a ride, and Uber goes to the places with people willing to spend the extra money. As a result, the gap between demand for rides and the number of cars begins to close. There were two graphs; one of which had a lot of data points, and one of which was extremely easy to understand. We use the supply and demand curve a lot in economics, so using Uber as an example of the graph made it easier to understand. I liked this article because it related economics to something simple to follow.
-Savanah Catucci
I found this article very interesting and relatable. The article showed a great way to explain supply and demand. The suppliers (drivers) will have their fares fluctuate based on their willingness to either drive a long way to pick up the demanders (riders) or depending on the demanders (riders) willingness to pay for a more expensive car. This rolls into the topic of surge pricing. For Uber surge pricing happens when there is a higher demand for rides than there are cars. The graphs shown in the article help to demonstrate. Overall the article was very helpful because Uber is such a relatable example that can easily be followed.
-Eva Hart
I think this article shows how certain concepts of economics are quite easy to understand. It would only make sense, to even a person will little economic knowledge, that when there are less Uber cars available than the rides needed, prices would be higher. This goes for anything in our society, especially like fruit and milk. When there is a bad season for something, the price is expected to increase. In my opinion, surge pricing makes sense in Ubers eyes but is basically a rip off. Using the example of Uber is really helpful because there would be few people who wouldn't understand this article. I found the supply and demand chart quite hilarious actually. It was funny that there was a big complex chart, and it was truly able to be simplified into a supply and demand chart. This article in total was an interesting read and it was cool to see how even Uber follows supply and demand laws.
-Morgan Ward
This is an interesting article describing what the concept of surge pricing is and how one company, Uber, applied it to make profits. First off, surge pricing occurs when supply for a product or service is low but demand is high. As result, the price of that specific product or service rises. Uber uses surge pricing when it is running low on its supply, drivers, but their demand is high. As the supply decreases, the fares for Uber cabs start to rise. The article states that two things occur when surge pricing takes effect; first, people who are not in a hurry will wait until the fare goes down again before ordering a cab and secondly, Uber drivers head towards neighborhoods with higher fares. The graph shows that at time fares can rise by over 400%. I feel that surge pricing can become a risk concept if not utilized correctly, but Uber seems to be profiting off of it.
- Hernan Gallego
This article clarifies how Uber's surge pricing structure works. It explains that suppliers or the drivers are attract by the potential for higher fares, and the demanders or the riders will decide if they really want to pay higher prices right that minute. So when the prices drop back down the surge ends. Theres two effects that cause surge pricing which are, people who can wait for a ride and drivers who get the higher fares. It mainly relates to supply and demand, which the article shows two different graphs. One graph seems to be simple to understand while the other is harder to figure out. This article was also interesting because it brought economics into a better understanding.
- Marchelle Correa
Uber, a major transport company, utilizes surge pricing. Surge pricing occurs when the demand for rides is greater than the supply of cars. Surge pricing ends when more drivers become available because of the surge pricing and potential riders decide they will wait until the prices go down. Surge pricing attracts drivers and reduces demand, however, this practice enables prices to septuple during special days such as Christmas. Nevertheless, surge pricing follows the laws of economics: when price is high and quantity is low prices go up and demand decreases so that the price decreases and quantity increases.
Uber a booming company in the world today provide a fast and affordable transportation to riders to wherever this wish. This article does a good job showing the supply and demand of an Uber and how they make a profit. One way the article informs the reader of Ubers income is when they discuss surge pricing, which is when there is a spike in the demand for a cars and there is a scarce amount available. Then the demander (rider) of an Uber pays a higher rate to the supplier (driver) to be there in an instant or he could wait. this article was very helpful and easy to understand and take in knowledge due to the graphs which display supply and demand when the surge hits and its relatable to the life of a college student like me who is a frequent Uber rider.
-Michael McGuire
Before reading this post I already thought of Uber as one of the most innovative companies in the market right now; but after reading about how they account for surges with different pricing I think they may be the single most innovative company. That being said, their increase of pricing in peak times is no different than a pricier plane ticket during the holiday season or a more expensive train ticket during prime travel hours. What makes this so significant is that the app adjusts for real-time, meaning that they do not have to speculate when areas will be more busy; drivers do the same thing they always do with an added bonus of more commission.
- Ari Hymowitz
This article was very easy to understand and even people who do not know anything about economics would grasp this concept. Surge pricing is when there is a high demand so as a result prices increase. Uber, the car company, uses surge pricing with its customers. When the demand for riders is greater than the amount of cars/drivers available, there is a surge. When there is a price surge, Uber notifies the rider and makes them accept the higher price. The other option for a rider if they have the time is to wait until the price drops back down. The second graph showed clearly that an increase in demand increases the price and this is true for any situation.
Sabrina Ruggiero
This article was very relatable and broke down a difficult concept into something that everyone can understand. Uber’s surge pricing is a form of supply and demand. When the supply of cars is low in a specific area the surge price raises and once the demand of the ride increases in that specific area more drivers commute to that area, eventually closing the surge gap. Also, the two graphs allowed the reader to get a visual on the gaps of when the surge is high compared to when there is no surge at all. I like how the article incorporated an economic policy into a company that many students can relate to.
Vincent Vasheo
This article really talks about supply and demand . Uber uses surge pricing with its customers, when demand for riders goes up more than there are drivers, that is a surge. For surge pricing to end, more drivers will have to be available than people actually need rides. Surge price follows the law of economics because when the price is high and quantity is low prices go up and then the demand increases as well.
This article sheds light on something we don't think about every day. Uber is only a service because there is a demand for it. This article compared the demand to the supply (and also speaks on how when demand is high the price of a ride might increase). Surge pricing happens when more people need rides than drivers can handle. In order to prevent surge pricing, there needs to be more drivers (supply) than customers looking for rides (demand).
This article was really interesting to me. Uber is not a company I am 100% familiarized with, but I believe that it was a very good example for discussing topics such as supply and demand and their correlation to pricing. They explain that when the demand is higher for a product, the price needs to go up. By creating the option for its costumers to choose wether they want to pay more for a better service they are attracting both drivers and passengers and at the same time generates a good amount of profit for Uber. I believe this is a very clear example of the curve of supply and demand works.
-Pablo Villacis
Cristina Alvarado,
This article peeked my interest as a fellow uber customer. I have noticed that uber supplies a lot of promotion codes and specials pertaining to their services. However I was unfamiliar with the companies "surge" aspect. It was very informative to learn how uber establishes their prices. A major aspect of economics is how the price of a good is determined by how many of them are available and how many people want them. Uber does formulate its prices based on supply and demand.
-Cristina Alvrado
I'm a little ashamed to say that I have yet to use Uber and I'm from New York. This article did peek my interest however because I always kind of wondered how Uber was doing so well above alot of the other cab/taxi companies. My sister, who lives in the city, often tells me that it's cheaper because you are able to share cars with other passengers and what not but I never knew about their surge pricing. It completely makes sense though and it seems like a very smart idea. It's also very convenient and a very good characteristic for the company to actually tell its riders when the price is higher than usual. I've definitely got to experience Uber soon :(
Very interesting to see how economic principles play into Uber's business. I have only been an Uber customer twice and each time I did not "buy" or "pay" for the driver. However it's interesting to see how surge demand shifts the supply and demand curve. Uber has definitely been doing well from a business perspective. The surge pricing is a way of regulating prices by letting demand of drivers and supply of cars set the price. Uber has adopted a self sustaining method of economics to help sustain their company with success. It has become very popular and most people I know will take Uber cars and use Taxi's as a last resort. Clearly they are doing something right and continue to adapt as the market demands.
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