Uber

Home Quiz 1

        Submitted by

Deepak Kumar Harjai

(16125015)

Do you agree or disagree with Uber’s surge pricing policy? What are the reasons it can be perceived as unfair? What does it mean to say that a pricing policy is exploitative? What are the risks of the policy to Uber? Given these risks, should Uber modify its policy? Be prepared to defend your answer.

Quoting Uber, Surge Pricing is “During times of high demand for rides, fares may increase to make sure those who need a ride can get one. For riders, surge helps ensure that pickup is available quickly and reliably. For driver-partners, surge means higher fares and a steady stream of ride requests”.  When demand increases, Uber hikes the price so as to maintain constant supply of drivers (lures drivers to such areas). Economy explains that if prices are too high, demand will fall and if prices are too low then supply will fall. So, surge pricing in simple terms is a measure to solve the imbalance between supply and demand.

Yes, I agree with the Uber’s dynamic pricing system because it is one of the ways to keep drivers on road. Since Uber has no control over when drivers decide to log off from the system, it can only provide financial incentives.  And it has been observed at various instances that when Uber decides to keep lower prices then “zeroes” (a term used to describe Uber users who open the app and see no available cars) start popping.

With due belief in this surge system, there are few reasons which can pertain to its unfairness:

1. Few consider this practice evil and inhuman and try to compare the same surge pricing in medicines and hospitals.

My Take: If we must come to terms with surge pricing, we will need entirely a new law to decide what kinds of products and services it should be permissible for.

1. Government defines some fixed rules and regulations for the maximum fare allowed for A/C cab (similar to MRP of tangible products).

My Take: The Uber cabs are not owned by government. Plus these web based taxi services have now become an easy target for the authorities to blame for their unresponsive behavior to provide better transportation to the public.

1. Criticism for using Surge Pricing during emergencies like Hostage Crisis in Sydney and Hurricane Sandy

My Take: The whole system is automatic. Neither the driver nor any invisible man sitting in Uber’s office does it during the state of emergency. So Uber just can’t be blamed for such price hike. Uber even apologized for the same and refunded the money in Sydney to those who commuted from CBD during hostage crisis.

The primary aim of any company is to make profits. So should Uber really think about “fairness” while deciding rules and regulations of Surge Pricing? The answer is NO. Having said that I feel that during such emergency situations, the surge pricing can be relaxed or people (both the drivers and the riders) can be refunded afterwards.

There have been many backlashes for Uber’s surge pricing be it Delhi’s Government asking Uber to stop surge pricing during Odd-even rule or by social media around the world for “capitalizing” during Sydney’s Host crisis. Uber is facing lawsuits in many cities due to this. Some 34 cities have passed price gouging laws that forbid businesses from hiking prices in times of extreme emergencies

Uber also understood this potential risk and therefore has now come up with some measures to solve this but not eliminate. Uber has announced a change in its algorithm that sets maximum surge pricing levels during states of emergency in the US. I feel that he surge pricing should be continued. Having said that, the surge pricing should have limits for example 3.5x or 4.5x or some such number. Also there should be some mechanisms to check if the drivers are creating this surge situation deliberately.

How robust is Uber’s operating model? Where are the weak links in its service model? Is Uber vulnerable? In what way?

Uber is an on demand transportation service which brought a revolution in taxi industry all across the world. Uber connects people looking for intra-city transportation with cab drivers (not owned or operated by Uber) via a Smartphone app.

Business Model of Uber:

• Drivers who want o earn money by riving for others.
• Bring them to a central location (virtually).
• Allow potential consumers to book these drivers via seamless mobile application
• Drivers keep almost 80% of the share.
• Riders get much cheaper cabs easily whenever wherever they want.
• Surge pricing allows drivers o earn more and riders to get cab in peak demand time.

Uber with its enormous success in a short span of time has now become synonymous with the concept of at-your-doorstep convenience for completing a multitude of household tasks and daily chores. Following the footsteps many industries have already started to see numerous apps to help people in their daily lives e.g. Laundry (Washio, FlyCleaners), Shipping (Shipster,Shyp), Valet services (Luxe), Health (Heal), Meal Preparation(Munchery).

So Uber Business model is robust to a great extent and can be applied to various industry segments. The New York Times reported that app-driven businesses like Uber are changing the way we think about certain services. Some professions can be broken down into tasks - services performed on demand by people with the tools and spare time to do so.

Various weak links in their service model are:

1. Legal aspects-Many cities in US and Europe have taken strict actions against Uber regarding they following the rules and regulations.
2. Uber can be successful where transportation services are not good already.
3. Trust issues with both drivers and riders side.

How well does Uber treat its drivers? From a driver’s standpoint, is it better to drive for Uber or is it better to drive for a taxi service? Is it economically more attractive to drive for Uber? What would you imagine are the biggest complaints drivers have about driving for Uber? What would you imagine are the most appreciated benefits?