Uber surge pricing no substitute for operations planning

I got the this text from Uber yesterday and the graphic pasted below showing an hour by hour prediction of demand for New Years Eve.

UBER: 3 days until NYE – the BUSIEST day of the year is almost here! You can make great money driving between 7-11pm and 12-6am on New Years Day. See you on the road!

Your Uber Team

Unfortunately for Uber these texts promising riches are losing their effectiveness because they are no longer credible. It was the same for the Rugby World Cup – as soon as a text went out promising windfalls at Twickenham I just left the area.

Of course it makes sense for Uber to flag up periods of high demand and encourage drivers out onto the road to meet the demand. But typically this results in market over supply with meagre money for the many and much money for Uber. Last year a colleague made £90 gross working 12 hours on New Year’s Eve for Uber and that was typical. I suspect Uber knows this well – it certainly has the data to divine this – but chooses to mislead drivers to maximize its own profits.

So what?

What this proves is that surge pricing, at any time, is totally unnecessary and represents only a failure in operational planning. The experience I and other drivers have had with depressed incomes when Uber promises high earnings shows that Uber has tremendous capability in demand prediction and supply side mobilization. Some of us have also anecdotally noticed an up tick in surge pricing towards the end of  each quarter, perhaps due to internal pressure to meet revenue targets.

Uber NYE

Given Uber’s superior ability to predict both demand and supply so well then surely setting modest surge price increases in advance would likely clear the market more efficiently and at less cost than allowing the algorithm to try to solve the problem dynamically when there is simply no available additional supply in the market to instantly tap? At any rate, the market cannot operate effectively in the long run so long as suppliers do not have the information they need to make a decision to participate.  Perfect markets operate effectively when all actors have all information. When demand and supply information is hidden under the table by a market dis-intermediator such as Uber then efficient outcomes cannot be achieved. Taking Uber’s word for it when earnings fail to pan out time after time won’t wash for long.

If Uber keep crying wolf to drivers with promises of earnings that don’t materialize then it will have no choice but to either offer realistic incentives in advance to get drivers on the road or clobber riders with run away dynamic surge increases which just might tempt the patience of the regulator or the riding public.

The invisible hand is no substitute for the visible hand of effective operations management.

One thought on “Uber surge pricing no substitute for operations planning

  1. Mr Good

    The public’s safety is at risk using a Uber mini cab in London, Unregulated,& Fraudulent … Stay safe New Years Eve!!!!

    Reply

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