Fairness vs Availability: A defense of Uber’s surge pricing

Why Uber is right to surge

Aron Solomon recently posted his outrage at Uber instituting surge pricing during a storm in Toronto. I think that he is misguided in his criticism.

Uber is not a critical service. It is a luxury. It is up-front about the fact that it makes a conscious choice: when there is a limited supply, they value availability over fairness. Let’s look at these a bit closer.

Fairness

A bus is fair. You climb onto a bus knowing that they will charge you the same $1.00 or whatever it is, and they will get you from point A to point B. Let’s say that a bus can take 100 people — if you happened to be person #101 trying to get onto the bus, you will not be able to do so. The bus company will collect their $100 and transport their 100 people, and you will be left out in the cold. No matter how much money you offer the bus driver, if there are already 100 people on the bus, they won’t take you. You have fairness (predictable pricing) but not availability.

Availability

Uber is not meant to be fair. It is meant to be available. It values giving a user the same likelihood of being able to climb into a car, regardless of circumstances. When there’s a calamity or some other crunch (new year’s eve, for example), Uber knows that it will run out of cars. So, how can it ensure availability?

A bus company can run more buses. Uber could, in theory, run more cars. But by having drivers be independent suppliers of their service, Uber cannot force more of them to work. So, it uses the only other venue available to it: price. Uber’s contract with the riders is that when rides are hard to find, you can find an Uber — but at a potentially higher price. You will be effectively just as likely to have an open Uber during the surge as outside of one, but you in effect agree that you will accept whatever price they deem necessary to charge in order to guarantee that availability for you.

So, is it evil?

Uber is not a utility. It is not a monopoly. It is not a critical service. If any of these were true, the company would effectively be benefiting from some government regulation giving it special powers in return for special responsibilities. Since none of these are the case, I think that Uber is not just within their (moral) rights to charge surge pricing, but I think that they are indeed obligated to do so — in order to fulfill the implicit contract they make with their riders.

Claiming that there’s some of an obligation that Uber has to be “decent” is, in my opinion, to misunderstand both Uber’s obligation to society in a fundamental way. Aron likened surge pricing to charging $99 for baby formula — but I would say it’s actually much more like charging $99 for premium baby formula that normally has to be flown in from Paris, France, but got delayed due to the storm. It will be just fine for you to give your baby a normal, $5.99 bottle of formula — but if you really, really want the premium stuff, well then — Uber lets you decide to trade in your dollars for this luxury.

Ultimately, societies have to make choices on how to deliver scarce resources to users. Some resources aren’t scarce — the bits that represent downloadable music, for example, are pretty much non-scarce (bandwidth costs notwithstanding). Some, like drivers in limousines, are. If we as society deem that Uber must err on the side of fairness — thus reducing availability during a shortage — then we must endow them with special privileges as well (as we do for other utilities and natural monopolies). Unless we are prepared to say that Uber is so very core to our existence that it deserves to get special unique rights from the government, I think this is a road we will not take.