Joshua Gans examines Uber’s challenge in mediating what customers want and what drivers want. When I first read about Uber’s dynamic pricing I thought that was brilliant – prices will raise until demand is satisfied, the New Years Eve taxi market will clear! Turns out things are more complex. Here’s a snippet:
Over the last year, a new app has been changing the way people get limos in some major cities in the US. Uber — founded by Garrett Camp, Oscar Salazar, and Travis Kalanick, and launched in 2010 in San Francisco — allows people to get and pay for taxi rides easily. Here’s how it works: after you have signed up for an Uber account, you can launch the smart phone app and instantly find limos or town cars equipped with the service. One click hails them, and the nearest driver comes and picks you up. At the end of the journey, your driver charges your account. No standing in the rain trying to hail a cab. No grabbing for cash or fiddling with credit cards.
(…) If this were a one-time mishap, we could set it aside. But sticker shock has actually turned out to be a ongoing issue for the company. This was demonstrated most clearly in New York on New Year’s Eve, a night that should have been a triumph for the start-up. Because of high demand and the accompanying ever-higher prices, Uber’s supposedly simple and straightforward transaction became complex. Consumers saw that their ride home could be seven times the price of their ride into town. Consumers who were used to easy clicking missed the notice and became (reasonably) upset when the bill arrived. Either way, they weren’t happy. Basically, to satisfy one side of its market — the taxi drivers — Uber upset the other side — its customers.
Joshua concludes with some revised pricing schemes that may resolve this challenge. I sure hope it works – Uber is a long-needed breakthrough. More…