Wednesday, January 15, 2014

Annie Hail

The New York Times claims, Annie Lowery is an economics writer. But that claim comes at the end of an article on taxi fares that pretty much disproves it;
Uber is upscale, and typically costs about 50 percent more than the local competition. More important, lately anyway, its rates fluctuate with demand. When a lot of people are looking for an Uber car — like during a recent New York snowstorm, or Washington on New Year’s Eve — it sets the rate higher, in the hope of increasing supply, by enticing more of its drivers to come out or stay out. (Regardless of intent, the prices jump quickly, and from a user’s point of view, work more as a form of demand-limiting price discrimination than supply-inducing incentive.)
Clue: demand-limiting price discrimination. 

Price discrimination does the opposite, it responds to different customer's demand schedules more efficiently than a one price fits all model.
During a recent New York snowstorm, some rides cost 8.25 times the standard price.
This is surprising to an economics writer!

And what about the poor millionaires?
For Uber, one risk seems to be that its surge pricing might work in the short term but alienate customers in the long term. Say you decide to blow $100 on a short ride one rainy night, when the algorithm fails to entice enough drivers onto the road and the prices surge. Like Jessica Seinfeld, you decide “never again.”

(Peter Gordon noticed this before we did.)

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