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Depends on the relative elasticity of supply and demand. 1) If demand becomes more inelastic with respect to price, you can raise prices more than you will red

Depends on the relative elasticity of supply and demand. 1) If demand becomes more inelastic with respect to price, you can raise prices more than you will reduce rides, allowing uber to pocket more money. 2) If supply is elastic with respect to price, more drivers will be ready to provide rides as prices increase. Uber is saying it's purely case 2 because that sounds like better PR, but any profit-maximizing business that knows any marketing 101 is going to seriously interested in case 1. case 2 is questionable - how elastic is the supply? The supply of drivers is limited - there are only so many uber drivers. The question is, if you raise prices 4x, will you get 4x as many drivers or something less than that?

mseebach 12y ago
If you can raise your price without reducing rides (1), your prices are too low to begin with. Does Uber really strike you as the kind of company that would leave money on the table like that, only incur the wrath of users by raising the price when it rains? That's really poor marketing. > The question is, if you raise prices 4x, will you get 4x as many drivers Nothing in the surge pricing argument is predicated on that relationship being in place. As long as the relationship is positive, surge pricing works. Presumably, Uber has a data-driven model that allows them to calculate which level to surge to to satisfy a given demand - which is probably the same model they use to set base prices - if the model consistently suggests a 0.9x surge, it means they should lower the prices, which, incidentally they did in London four months ago (also in direct contrast to your case 1).
- nerfhammer 12y ago
  > If you can raise your price without reducing rides (1), your prices are too low to begin with. Yes (ignoring the possibility of wanting to discourage long-term competition by keeping margins low), from a profit-maximization perspective, but not necessarily a quantity-of-rides maximization as uber claims. > only incur the wrath of users by raising the price when it rains? That's really poor marketing. Some would argue that surge pricing is already poor marketing, given the negative reaction people intuitively have to it > As long as the relationship is positive, surge pricing works. No, depends on the elasticity of demand. If demand is unit elastic then an increase in price will result in a equivalent decrease in rides. In order for surge pricing to increase the quantity of rides supplied supply has to be more elastic than demand.

mseebach 12y ago

If you can raise your price without reducing rides (1), your prices are too low to begin with. Does Uber really strike you as the kind of company that would leave money on the table like that, only incur the wrath of users by raising the price when it rains? That's really poor marketing. > The question is, if you raise prices 4x, will you get 4x as many drivers Nothing in the surge pricing argument is predicated on that relationship being in place. As long as the relationship is positive, surge pricing works. Presumably, Uber has a data-driven model that allows them to calculate which level to surge to to satisfy a given demand - which is probably the same model they use to set base prices - if the model consistently suggests a 0.9x surge, it means they should lower the prices, which, incidentally they did in London four months ago (also in direct contrast to your case 1).

nerfhammer 12y ago
> If you can raise your price without reducing rides (1), your prices are too low to begin with. Yes (ignoring the possibility of wanting to discourage long-term competition by keeping margins low), from a profit-maximization perspective, but not necessarily a quantity-of-rides maximization as uber claims. > only incur the wrath of users by raising the price when it rains? That's really poor marketing. Some would argue that surge pricing is already poor marketing, given the negative reaction people intuitively have to it > As long as the relationship is positive, surge pricing works. No, depends on the elasticity of demand. If demand is unit elastic then an increase in price will result in a equivalent decrease in rides. In order for surge pricing to increase the quantity of rides supplied supply has to be more elastic than demand.