Uber's surge pricing is awesome. It's a well-executed feature that makes the product better.
And yet... tons of people irrationally hate it!
I've decided to analyze what's happening in people's brains that causes them to express such a wrong opinion about surge pricing.
It's actually very simple:
People who hate Uber's surge pricing haven't come to terms with the fact that it's impossible for Uber to charge the normal fare and still get them a ride right now.
That's all there is to it! Think about it...
- The surge-haters get that nice houses cost more than average houses, because they intuitively understand that there would be no incentive to build nice houses, and no way to get rich and spend your money on a nice house, unless nice houses cost more.
- The surge-haters get that last-minute flights cost more, because they intuitively understand that the plane has a finite supply of seats, so when it's two days before the flight, the seats have to be either high-priced or sold out.
What the surge-haters *don't* get is that the supply of Uber drivers is also limited. Every bit as limited as nice houses or seats on a flight.
To get inside a surge-hater's head, imagine how you'd feel if you went to the iTunes Music Store and saw a message that surge pricing is in effect for their most popular songs:
You'd be furious!
You'd be right to be furious, because surge pricing in the iTunes Music Store couldn't be anything other than a way for Apple to exploit their customers. We know this because:
- If Apple keeps the price at $1.29 for every song download, they have no problem running their servers and supplying enough copies to meet demand for even their most popular songs.
- Since the marginal cost of a song download is tiny and independent of its popularity, we can reasonably expect free-market competition to drive down the price of every song in every music store. Surge pricing in iTunes would be evidence that Apple's song-revenue model works differently from an idealized model of free-market capitalism with rational consumers, which is an economist's precise way of saying that Apple is exploiting their customers.
Surge-haters have an iTunes-like mental model of Uber's supply capacity. They never learned Econ 101, and apparently they also never learned from their firsthand experiences hailing snailcabs. They selectively remember that snailcabs have a fixed rate, but selectively forget that it can take an hour to get a snailcab when demand is high.
Imagine you call up Yellow Cab for a ~$20 ride, and they tell you the driver will come in an hour. If you're like most people, you probably think it's worth throwing down an extra $10 to cut your wait time from 60 minutes down to 5 minutes. Guess what? That's surge pricing. This is just a typical, totally average, totally reasonable surge pricing scenario.
The iTunes analogy is a satisfying explanation of how so many surge-haters came to hold their wrong opinions. But I'm convinced that if the surge-haters learned Econ 101, they'd completely reverse their position. Because every surge-hater argument I've ever heard has zero validity.
Surge pricing has a lot of haters, but it's awesome. Thanks for moving us forward, Uber.