Was Uber right to raise rates during hurricane Sandy? originally appeared on Quora: The best answer to any question.
Answer by Nate Anderson, CEO of ClaritySpring, on Quora:
Yes.
Many people think that Uber immorally price gouges by raising rates during chaotic times. In reality, elevated prices are the natural effect of increased demand and limited supply. Uber is simply an intermediary between passenger and driver. Let's think about it from both perspectives:
The driver:
"Should I go out and drive during this hurricane or should I stay here with my family and make sure everything is alright? Wow, it looks like hell out there. It could be dangerous to drive now. I think I'll just take a few days off and pick up some extra hours when things calm down."
The passenger:
"F*CK. I need to get back uptown and tape up my windows before this storm hits. My kids are going to freak out if they're alone when this gets bad. Little Timmy is probably crying and peeing himself already. I need to pick up some cat food before everything shuts down so Smuckers doesn't die of starvation. I should have done this yesterday. Of all times why the heck aren't there any cabs on the road right now?"
This isn't a question of right and wrong -- the driver requires more compensation to make it worth his while to get out on the road, and the passenger is willing to pay due to the high need.
Are there instances where the driver would be willing to accept less pay but instead will charge more due to the circumstances? Certainly, but that's how the market works. If there are enough drivers willing to accept less pay and not enough willing customers to pay higher prices, the prices drop to match those needs.
What about for critical items like gas or food? Let's say a gas station doubles prices during the storm. "Immoral!" People would shout. "You shouldn't charge people higher prices just because they need it. That's taking advantage of them!"
Unfortunately, if you don't raise prices to meet demand, this happens:
The people shouting about morality forget that by raising prices, those who don't need gas would be discouraged from eating up supply. If you already have 3/4 of a tank and were considering filling it up the rest of the way just to be safe, you might reconsider upon realizing that gas is $8/gallon. If you're an ambulance driver who needs to fill up you will pay the higher price. During a shortage situation the elevated prices tends to allocate supplies to those who need them most.
Is the system perfect? Of course not- some people who need gas will not be able to afford the higher prices. As awful as that may be, it's less awful than having people who don't need the gas fill up and leave thousands of people in need out of gas. Competitive, flexible prices allocate scarce resources better than controlled prices.
In this case, Uber made the mistake of trying to bend the laws of economics. On the day they didn't implement surge pricing they lost $100,000. Consumers need to understand how this system works and recognize that much like gravity, you can't bend these laws if you're coming up with a flight plan for your business. In either case, you wouldn't want to.
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