Surge price or gouging?

snow-dollar2When a new urban ride sharing and smartphone-based taxi operation called Uber began showing up in cities around the US (they claim to now be in more than 50), the first push-back came from existing taxi companies. Why should this start-up be allowed to operate like a taxi service, they protested, without having to comply with the same regulations as the cab companies?

Forcing a tech-based service like Uber to comply with burdensome safety and license regulations, said the company’s many supporters across social media, will constrain growth and choke new technologies. Hiring yourself and your personal car out on UberX is no different than attaching a Dominos sign to your car and delivering pizzas to your neighbors, they say.

And there plenty of supporters of this “e-hailing”operation, dubbed a “Transportation Network Service” in Seattle, who see it as the wave of the future arriving just in time to act as disruptor to a stodgy, frustratingly tardy service that urbanites wish worked better. Just try and find a cab in a thunderstorm or on New Year’s Eve.

And of course, there’s the potential financial growth that’s some say is sure to make Uber the next Facebook.

The problem arose when Uber started making headlines for what it calls surge pricing. People looking for a ride during inclement weather are advised at the time they book that the price of that ride will be higher, sometimes as much as seven times higher. And as quick as you can tweet, many of those same supporters were venting their anger furiously on social media, ironically the same medium the company relies on to build its brand.

How dare this upstart, they complain, take advantage of a snow storm or busy New Year’s Eve to price gouge. It’s outrageous.

In theory, most folks get it – nobody wants to drive in bad weather, including drivers for e-hailing, ride-sharing services, but if you pay them more it gives them incentive to get behind the wheel and dodge snow plows instead of sipping hot chocolate on the couch. But when it happens to you, when a two-mile ride costs more than $100, folks get angry. And these days, when they get angry, they vent on social media.

And, helpful as always, the news media offer suggestions how Uber could “fix” the surge price problem. Cap the surge at two or three times the regular price, or give excess profits to charity, anything, just don’t keep the money, they say.

And then something surprising happened. The company’s CEO, Travis Kalanick, gave interviews in which he plainlydefended surge pricing in simple, Economics 101 terms. When demand is high and supply low, higher prices will draw supply into a market to satisfy that demand; greed and evil intent have nothing to do with it.

His comments garnered plenty of support from the free-markets crowd. It all sounds very reasonable and Chicago school but I can’t wait until the next big Gulf hurricane or break in a gasoline pipeline, when supply is restricted and the price of a gallon at the pump rises. Uber’s Kalanick says surge pricing is simply about ensuring reliable supply of drivers for people who want a ride. Will the same defense be acceptable from an oil company CEO when he’s hauled in front of a Senate committee hearing?

I wouldn’t count on it.