Transportation

Should Uber Raise Prices During a Transit Strike?


A Bay Area Rapid Transit (BART) train sits idle at the Millbrae station on July 3 in Millbrae, Calif.

Photograph by Justin Sullivan/Getty Images

A Bay Area Rapid Transit (BART) train sits idle at the Millbrae station on July 3 in Millbrae, Calif.

San Francisco’s transit strike has been great news for ride-sharing services such as Lyft, Sidecar, and Uber. It also has the potential to be the latest testing ground for Uber’s controversial pricing strategy.

Unlike regular taxi services, Uber sets its prices based on demand. When there are more people looking for rides, the company says it raises fares to encourage more drivers to get on the road. So-called dynamic pricing is increasingly common, and the rationale behind flexible pricing in markets with elastic supply makes sense, according to Slate’s Matthew Yglesias. But price controls on public services like transportation are seen as ways to keep them accessible to the public at large. When the prices of gasoline and bread shot up after Superstorm Sandy, law enforcement officials declared they had zero tolerance for price gouging and went after businesses that raised prices.

Taxi drivers regulated by the San Francisco Municipal Transportation Agency are not allowed to seek higher fares during the strike; the rates are set by the MTA. Uber, though, has fought against being held to the same regulations. It says taxi regulation serves primarily as a way for incumbents to strangle innovative competitors. While the company has not raised prices during the San Francisco strike—despite more requests for rides—it is holding out the possibility of doing so.

Would a rabbi approve? Luckily, we have an answer. When Toronto’s transit workers went on strike in 2006, Rabbi Jay Kelman took to the Talmud to determine whether raising taxi prices during extraordinary times comported with Jewish law. The answer, of course, is: It depends. Jewish scholars didn’t see anything wrong with selling war materials for higher prices during battle, because those prices represent the new market price in a time of heightened demand. The Talmud, however, also says that a fugitive who’s charged more than market price for a ride is entitled to recoup those costs.

“Whether charging the traveling public more is analogous to charging a criminal a higher price or represents a changed market paradigm is open to debate,” wrote Kelman. “In any event even if taking advantage of unexpected market forces may be technically allowed it falls short of an ethical ideal and should be discouraged.”

But the bottom line may be neither economic nor ethical. Uber has public-relations considerations here. The company’s surge-pricing model has drawn criticism before, as when prices for rides booked through the service skyrocketed on Dec. 31, 2011. And the company quickly reversed its price increases in the aftermath of Superstorm Sandy, responding to consumer complaints. It opted to pay drivers more to get them on the road, and take a loss in the short term to preserve its good name.

Underlying the surge-pricing controversy is Uber’s consistent awkwardness with regard to wealth and privilege. The company has taken a distinctly populist tack when arguing against regulations keeping it from operating freely in certain markets, as when legislators in Washington, D.C., wouldn’t let it compete directly with taxis. “Why would you want to make a great transportation option only accessible to the rich and well-heeled?” asked Travis Kalanick, Uber’s co-founder, in an open letter.

But the company’s tune changes when people raise questions about its pricing. “We do cost more than a cab. This is because we are offering more than a cab. In fact, we offer a lot more: reliability, customer support, and, of course, style and comfort,” wrote Bradley Voytek, Uber’s “data evangelist,” on the company’s blog.

Kalanick also sounds more like Milton Friedman than Che Guevara when he discusses surge pricing: “Nobody is required to take an Uber,” he wrote.

Brustein is a writer for Businessweek.com in New York.

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