Uber and Lyft Suggest the Days of Cheap Rides Could Be Over
wired.com
wired.com
I hate the whole idea of this. If they track you around, maybe realize you order from fancy places on uber eats, then they will raise prices on something that costs them the same. There's something that strikes me as especially awful about automating the "how much is this individual willing to pay." It's like the worst parts of searching for air fare.
Yet another reason to advocate for privacy, so they can't just buy records about you to determine your price sensitivity from the rest of your life.
If everything everyone bought had perfect information on what they're willing to pay, I wonder what markets would look like. Would getting a raise immediately cancel itself out?
I would hope income qualifies for the same protection, but maybe not.
Edit: Answering the very last part of the comment; it does not have the same protections.
I believe that you're asking whether it's legal. Also yes.
Maybe they are using other factors, maybe he was in a different part of town when he signed up. Maybe it has to do with the school or the job listed in each account. You don’t know, and therefore you can’t prove anything. As long as the algorithms are a black box it’s hard to take a company to court over discrimination.
They're just so unfairly treated in the rest of society. It would be so unfair if Uber also discriminated against them.
Why is "the seller would have given it to me for less" any better than "the buyer would have given me more for it"?
End result would probably be like super high income tax with low rate "capital gains" loophole.
I think that pretty much articulates how people view jacked up prices, especially (but not exclusively) in situations where people are in a tough situation through no fault of there own.
Thus, the garage owner who is known for fleecing out-of-towners who have a breakdown is far more likely to get a local reputation as sort of an asshole rather than a shrewd small businessman.
It does apply in other contexts though. for example, tickets to highly sought after concerts and sporting events are probably not as expensive as they could be. (And one result is profits flow to ticket agencies.) Look how hard it was to get tickets to Hamilton for ages. (Probably still is.) The thinking is that, if you're seen as price gouging because you can, that can work for a while but isn't a great look for a long-term relationship, to say, a band.
Can you get away with it when transactions are very occasional? Sure. But things have a way of coming back to bite you.
As a thought experiment, what if we make the cab driver example be about time instead of money. Pretend it benefits cab drivers somehow to make rides take as long as possible. (I say pretend, because in most cases in the real world they would be wasting their own time as well.) So let's say you have to be somewhere at a certain time, but earlier is better. But the driver knows exactly what time you have to be there, and makes the trip take exactly that long, even though he could've gotten you there faster. You can see he's doing subpar work, doing worse for you on purpose to benefit himself.
A competitor might even find an advantage by providing that information. For example, if a car service told you exactly how much the driver made and how much the service took as a cut, you might be willing to pay more because you know where the money is going.
I don't need nor even want to know how much Dunkin Donuts pays to make a donut or Exxon to buy, refine, and truck a gallon of gasoline to me.
I understand all these specific scenarios may be kinda-dismissed with some commonsensical argumentation, but has someone somewhere (in the academia?) explored how perfect information could break the economy/capitalism in some way? It looks like an interesting problem theoretically. (I don't feel like arguing either way, just would like a deeper look on this.) It's my understanding that economists actually think that perfect information should be a prerequisite/an effect of efficient markets, but did they really mean the same thing when this was formulated in the last century?
[0] this tree may make this impression https://news.ycombinator.com/item?id=21778890
This is a misunderstanding of how insurance works. It makes sense to self-insured in expected $ value, but not necessarily in expected utility.
There's nonzero value to lowering volatility[1], and the insurance company creates surplus by coordinating the pooling of risk across many people.
For an easy example of the difference, for an easy example of the difference, I wouldn't take a 50/50 coin flip that would either cost me $1 million dollars or gain me $1.1 million; even though the expected value is $50k, because I couldn't afford such a high chance of financial ruin. I would however, sell the chance at this bet to an insurance company for $40k, and if they were large enough to absorb the loss (or bought many such policies), they would take it and gain $10k minus the (lower) value they place on the risk. (All numbers are made up, obviously).
[1] this is a simple enough concept that you can derive it graphically from a utility/$ graph, and requires only the assumption of diminishing marginal utility of $
Someone in the linked comment tree said "dispersion of the cost in wider population" is "not insurance, but a social solidarity scheme" and you may agree. But it's possible that we are currently running some "social solidarity schemes" only because of the imperfect information.
This meta-imperfect information wouldn't last very long: People are generally skeptical of things like insurance as a baseline anyway, since they're unintuitive ("why am I paying for nothing every month?"). In this hypothetical world of perfect insurers, people would just sum up the anecdota of X insurance literally never paying out (and everyone rejected having X happen), and it wouldn't take very long for conventional wisdom to switch to "insurance is never worth buying".
and that theoretical limit of perfect, simultaneous, accurate information is akin to the heat death of the universe, and really not worth practical (as opposed to theoretical) discussion. for all practical purposes, at the very least there are rate limits related to the propogation of and reaction to perfect info, not to mention all the ways people will actively obstruct it.
I can technically imagine stores both online (good old tracking) and brick-and-mortar (looking at clothing and subtle body cues: inferring health, psychical well-being etc. - if not matching to external data with facial recognition) being able to quote, with machine learning, higher prices for you at check-out if your financial situation is better. Now of course wealthy people spend less on such "trivial" consumption in comparison to capital investments, but for middle class this could be significant. I mean a kind of thing like this.
the transactional value of money is not inconsequential, but people absolutely do all kinds of (silly) things for status (see social media), moreso than just for transactional value.
It is true that a score based system with no money involved would be equally useful but I guess people fear more about their money.
If I'm a poor speeding Fin, then a non-scaled speeding ticket could cost me a good number of days food. If I'm a rich speeding Fin then a non-scaled ticket is just the cost to travel quickly.
When you're wealthy enough fines don't matter there's no point in the police enforcing them aside from as an additional income stream.
Pigovian taxes should be constant. And if it's not pigovian, why give tickets at all?
A flat fee doesn't discourage those with more money to pay it. It simply says "speeding is OK if you have enough money."
In this scenario it is constant percentage though, as far as I understand it, and therefore should be constantly discouraging.
I don't understand how you reached this conclusion.
> Speeding has a constant negative effect on society. It doesn't vary based on how wealthy the speeder is.
The point of a speeding ticket isn't to make things right or to make amends for the bad effects of irresponsible driving. That would be impossible, since people die. The point of a speeding ticket is to serve as a carrot, or to be "pigovian" to use the term that you just made me look up. Since you understand that well enough to apply the word, I don't see why you could possibly argue that they should be constant, since 1% of people or so can (and do) just straight up ignore the law otherwise. A frequently reposted thread explains the reasoning well - https://i.imgur.com/3OeKrA2.jpg
Again, that goal is impossible with speeding tickets. The "negative externality" in this case is literally that someone dies. Someone (a lot of someones) lose their kid, their life partner, their parent. Can you apply relatively simple financial analysis to assign a dollar value to that? Sure, but fuck the kind of person that wants to do that; that is not acceptable for any so-called "justice system."
The point of the tax is not to "correct the undesirable outcome" but rather to avert it as much as possible using reasonable techniques.
And no, the rich absolutely should not be allowed to do it more.
>The point of the tax is not to "correct the undesirable outcome" but rather to avert it as much as possible using reasonable techniques.
If you want to avert it as much as possible, set a million dollar fine for everyone. Why is that unreasonable in your view? If you don't think that would be a good idea, you're implicitly valuing it at less than a million dollars.
I did not say a good objective was to avert people from speeding "as much as possible" (or I would simply destroy all cars). I said "as much as possible using reasonable techniques." I am not trying to revolutionize the field of public policy economics, here; I am just arguing against a system that assumes that a dollar means the same thing to me that it does to Steve Jobs; it does not, and some adjustment is appropriate.
The beauty of a Pigovian system is it doesn't require any assumptions as to how much money is worth to different people, or for that matter how much actions are worth. It just calculates the harm to society of the action and sets a fine accordingly. This is very much standard economics, see https://www.jstor.org/stable/725557 with 300 citations.
Set X= negative value to society of an action we want to discourage, and Y= probability of getting caught.
If a fine is set at X/Y, then the expected cost of doing this action is X (fine times probability), and so it will be done if the value of doing it is above X and won't be done if the value is below X, which is efficient. Any value other than X/Y is inefficient.
We can't assume perfect humans, so we must assume that sometimes, some of the people will act irrationally or make mistakes. Introducing this "error rate" into our actors means there's an un-removable noise floor of cases where we issue fines to our actors for breaking the law.
This noise-floor of mistakes leads to some very unfortunate side effects when we use constant fine pricing. Assuming an income distribution like what we have in reality, this means that a certain percentage of our population will have so little income that the fine will ruin their life, making them less effective and thus our population less effective. And there's no way we can remove this by adjusting the price of our constant fine. If we remove the fine, then everyone speeds. Even at the best sweet spot, we'll have a system where some people will always speed, and some people will never rationally choose to speed but will be economically "killed" by the fine anyway.
These two inefficiencies are what variable fine pricing are meant to address. By scaling price with actor income, we are able to maintain a similar relative (dis)incentive across income levels, and we remove the cases where we are sentencing a portion of the population to economic "death".
This is manifestly untrue, as I showed above.
If you're concerned over extremely poor people being unable to pay the cost, you can waive that or subsidize it. That's far from sufficient to justify scaling.
We already have a system for this, which is that the fine for speeding scales with speed. Then someone who can't afford the fine can drive more conservatively, so that if they make a mistake the degree to which they violate the rule is smaller, which reduces both the probability of enforcement and the amount of the fine.
Having at least that level of fine is inherently necessary, even for lower income people, because otherwise there is insufficient disincentive for them to speed and there is no compensation to society in the form of a proportionate fine when they do.
We can let a rich person get a thousand small speeding fines because taking their money and using it for lead abatement or cancer research saves more lives than they're risking. But we can't let anyone take that risk without "paying for it" or the net result is a very big social loss, multiplied by every person in that category who longer has any incentive not to do it.
Moreover, talking about "economic death" over a matter of something like a $250 fine is an exaggeration. Even for someone making the federal minimum wage, that's less than 2% of their income. That amount of money doesn't make the difference between whether anybody files for bankruptcy or not, it only makes the difference between whether it happens this month or next. And if you want to help those people, don't waive their traffic fines, just take all the money you would have waived in traffic fines and give it to lower income people regardless of whether or not they violated a traffic law or not -- so that you're helping them but not giving them incentive to misbehave.
Let's say speeding causes a harm of 500 dollars, and there's a 10% chance of getting caught. Then you would put the fine at 5000 dollars. However, it might be the case that a 500 dollar fine (with an expected payment of 50 dollars) is already enough to stop everyone from doing it, since nobody likes speeding so much that they would pay 50 dollars for it on average. In that case, setting a 5000 dollar fine would just be overkill, and it could hardly be called efficient.
Moreover, your answer assumes that utility can always be measured solely in terms of money. If we measure the utility of society in terms of the number of people speeding (lower is better), then no amount of money can compensate for an increase in the number of people speeding. Then the answer would be to set the fine such that the number of people who choose to speed is the lowest, and does not involve the "expected harm" to society at all.
Even if you do assume that there is a conversion factor between "number of speeders" and "money", then it might still be sufficient to set the fine at a much lower number than you would get using your formula. You cannot just take into account the utility of the society, you also have to take into account the preferences of individuals (which guide their actions).
This can also be used to justify individual fines: if a 100 dollar fine is enough to stop you from speeding, and a 200 dollar fine is necessary to stop someone else from doing it, then why should I set the fine for both at 200 dollars? How can this be called efficient? You could argue it's more fair, but that's more a question of what's moral and has little to do with simple calculations, which you seem to be advocating for.
>Moreover, your answer assumes that utility can always be measured solely in terms of money. If we measure the utility of society in terms of the number of people speeding (lower is better), then no amount of money can compensate for an increase in the number of people speeding. Then the answer would be to set the fine such that the number of people who choose to speed is the lowest, and does not involve the "expected harm" to society at all.
Sure, if your goal is prevent speeding at any cost then you should set the fine to be infinite. Or rather, set it at max wealth (since above that can't be collected) and pour all your policing resources into detection. Obviously, this also doesn't reflect reality.
>This can also be used to justify individual fines: if a 100 dollar fine is enough to stop you from speeding, and a 200 dollar fine is necessary to stop someone else from doing it, then why should I set the fine for both at 200 dollars? How can this be called efficient?
Again, it depends on the goals. In my framework the goal is to prevent people from doing something that harms society if and only if the benefit they get from it is less than the societal harm. Setting the fine equal to the harm (modulo probability) does that. If you charge some people more than this number, then they'll be deterred away from the action even when it would be efficient to do it. Conversely if some people are charged less.
Speeding is not a market activity and a speeding ticket is not a tax. Speeding is either a misdemeanour or crime, that means it is simply prohibited. Period.
The state of affairs you refer to, where the speeding ticket is considered just a cost of doing said activity is exactly what we want to avoid, and income-based speeding tickets are one mechanism that does this.
The purpose of a speeding ticket is to (a) punish and (b) deter. Both essentially don't work on rich people if they are too low, as you amply demonstrated, because they will consider this just a tax or similar minor nuisance. On the other hand, the fine that would actually deter a rich person from speeding might bankrupt a less wealthy individual and would therefore be disproportionately heavy.
Why not set the fine to a million dollars for everyone, then, or at least significantly boost the fine? Under my framework it's easy to answer, since it's inefficient to disincentivize speeding that much.
>The state of affairs you refer to, where the speeding ticket is considered just a cost of doing said activity is exactly what we want to avoid
Why?
>Punish
What is the benefit of punishment outside of deterrence? And for deterrence, the clear economic answer is to have the same amount of deterrence for everyone, which requires a constant fine.
Because that is a disproportionate punishment for speeding for most people. We don't do disproportionate punishment.
It's also why we don't hang people for stealing. Any more.
> [it's not a tax] Why?
Because allowing speeding and taxing it is not the goal. We don't want people to speed. Even rich people.
> same amount of deterrence for everyone
Exactly.
> which requires a constant fine.
Er, no. Exactly the other way around. To make the deterrence effect the same for everyone absolutely requires the monetary amount to be different. The deterrence effect of an economic fine is hugely dependent on how much money you have/make.
If I make a €10000 an hour, a €1000 fine is nothing, it takes me 6 minutes to work that off, so who cares? If I make €1000 a month, that's an entire month's worth of work, and so the fine will have a huge impact on me.
In Germany, this is encoded by the concept of a "Tagessatz", which is essentially how much you make per day (minus what you absolutely need to live):
https://de.wikipedia.org/wiki/Tagessatz
They don't generally do this for traffic violations or other misdemeanours, but for felonies for which the sentence includes a monetary punishment. So you are convicted to pay, let's say 45 "Tagessätze". How much that is depends on how much you make. If you don't pay, you go to jail for that amount of time.
Time is the equalizer, being roughly the same for everyone, unlike money.
(Yes there are differences in how long people live, or have left to live, but it's not clear whether those should be accounted for and they are nothing comparable to the differences in income/wealth. See Taleb on "Extremistan" https://wou.edu/~shawd/mediocristan--extremistan.html )
And I've addressed the deterrence issue at length, just asserting that my model is wrong without explaining why won't cut it.
No you haven't. You've just asserted a random formula, without any supporting evidence.
> just asserting that my model is wrong without explaining why won't cut it.
“That which can be asserted without evidence can be dismissed without evidence.” (Christopher Hitchens).
You haven't provided any evidence for you "model" (=random formula), so there is no reason to demand evidence for dismissing it. However, multiple people actually have provided that evidence and explained in great detail why your idea and formula is wrong.
Also, multiple countries have based parts of their legal systems on this model (relative fine). So if you want to figure out why you are wrong, which you are, feel free to examine the legal systems of those countries.
For example: "Ziel ist es, Menschen mit unterschiedlichem Einkommen verhältnismäßig gleich hart zu bestrafen." → "The goal is to punish people with different incomes equally hard." From the Wikipedia entry on "Tagessatz" that I pointed out to you earlier.
Outta here.
This is false. The only comment that actually purported to respond said there's an issue with an error rate in applying the fine. This is a minor problem, nowhere close to justifying a massive differential across all income levels.
>So if you want to figure out why you are wrong, which you are, feel free to examine the legal systems of those countries.
Of course, the fact that a country does something does not imply it's economically sound, and your implication of such is absurd. You've yet to give any economic rationale for "punishment" as opposed to deterrence, yet continue to cite "punishment" as a justification.
I'm happy to concede that this does, in fact, "punish people with different incomes equally hard", but since punishment is a stupid goal, this is useless.
>You haven't provided any evidence for you "model"
I provided all assumptions required to derive it; you need to disprove some explicit or implicit assumption, or agree.
A country is not an economy. An economy serves society, not the other way around.
> yet continue to cite "punishment" as a justification.
Deterrence is one of the components of and reasons for punishment:
https://plato.stanford.edu/entries/legal-punishment/
https://www.upcounsel.com/legal-def-punishment
https://en.wikipedia.org/wiki/Punishment
...and the reasons I give very much apply to "deterrence": if committing this crime/misdemeanour will cost me 6 minutes of my life, iff I get caught, I am not deterred. At all. If it costs me a month, I probably am.
>The purpose of a speeding ticket is to (a) punish and (b) deter.
You've yet to give any justification of "punishment" in this context outside of deterrence, and you've explicitly claimed that punishment is distinct from the deterrence effect. Linking to various definitions of punishment is just silly.
>A country is not an economy. An economy serves society, not the other way around.
Since apparently Wikipedia links are sufficient to make points: https://en.wikipedia.org/wiki/Law_and_economics
>...and the reasons I give very much apply to "deterrence": if committing this crime/misdemeanour will cost me 6 minutes of my life, iff I get caught, I am not deterred. At all. If it costs me a month, I probably am.
If the goal is maximizing deterrence, then as above, just set a million dollar fine for everyone. You claimed that would be "disproportionate" above but gave no reason why that's more important than establishing a deterrence effect.
Again, a constant fine establishes a constant deterrence effect. This will not mean that the same percentage of people of any group will end up commiting the crime, both because their initial probability of doing it may differ and because their desires to do it may differ.
You've yet to respond to my point that demonstrates that fines will either be set too high or too high under such a system.
Here's a paper with 300 citations that lays out largely the same model I did and which you dismissed as not supported by evidence: https://www.jstor.org/stable/725557?seq=1
They actually add the enforcement cost of administering the fine, which makes sense but doesn't significantly change the conclusion.
That clearly is not the case, because fines are not the only thing rendered as a penalty. Driving privileges and criminal prosecution are quickly added on as behavior changes, even if it's small violations that add up.
Everyone faces the same financial, driving access, and legal risk which equally discourages everyone from driving badly, no matter how wealthy you are.
Unless you think rich people should get sentenced to twice as much time for the same crime, then altering the fine for wealth makes no sense.
Cost is a cost, regardless of how much you may care about it, but yes the larger non-financial penalties is what keeps rich people from driving however they want and shows that the system works fine as is.
It's an issue, they call this affluenza.
> That clearly is not the case, because fines are not the only thing rendered as a penalty.
Sure but then if your deterrent are the others penalty, why is there the first penalty in the first place?
There should be a punishment for traffic violations big enough to discourage the offender from repeating it. Since a couple of thousands will not cause such an effect on an ultra rich person, the punishment should be calculated in such a way that it actually does. Calculating it based off of income achieves just that.
Where do I sign up to be exempted from traffic fines, since my driving doesn't have any impact anyway?
1. I'm driving at 110 kph when the limit is 100. I pay $80, but I got paid $16000 after tax this month.
2. I'm driving at 110 kph when the limit is 100. I pay $80, but I got paid $4000 after tax this month.
Fair?
1. I'm climbing a tree when I ought not to and fall and break my legs. I'm a poor construction worker which means I am now out of work.
2. I'm climbing a tree when I ought not to and fall and break my legs. I'm a wealthy programmer and just keep on going to work since my hands and brain still work fine.
Fair? Or should the tree break my hands and give me a concussion on the way down in order to level the playing field?
Tickets are never treated as a revenue stream by state and local governments. /s
If so, then why not use that exclusively and get rid of speeding tickets?
Why? Probably because rich people statistically tend to have better long term thinking and lower impulsivity, which is why they’re rich in the first place.
This is a straw man argument. It would be a decent allegory for jail terms that favor the rich, though.
What we want is for no one to drive dangerously. To discourage this, we give tickets for speeding.
For rich people, the fine doesn't mean anything to them because it is not enough money to matter, so they have no incentive to stop speeding. They keep speeding, putting everyone in danger.
The point of a fine (at least for something like speeding) is to discourage the behavior. If you want the DISCOURAGEMENT to be equal (because a rich person speeding is just as dangerous to other drivers as a poor person speeding, so we want to discourage them equally), then the fine needs to vary based on how wealthy the driver is.
this is probably not true. if you look at accident statistics, you'll notice that more expensive, newer cars tend to get into significantly fewer accidents per mile. rich people can afford more capable vehicles and they can afford to maintain them properly.
$4k for 10-over is the kind of fine you'd expect in a draconian dystopia that cuts off people's hands for theft.
That said, as someone who drives vehicles that don't exactly project an image of wealth I'd be perfectly happy with a scaled fine system since rather than getting singled out a fishing stop as a result of going 5-over in a shit car I would be more likely to be ignored in favor of someone who appears more likely to pay a larger fine.
What is the difference between price discrimination between classes of individuals (to your point, business vs leisure travellers), and individuals themselves?
Nearly every pricing guide on this site recommends offering an ‘invoiced’ pricing plan for enterprises for substantially more than the same service on credit card billing. Price discrimination at its finest and, I would argue, a good thing for suppliers to extra more of the benefit they are providing to consumers.
If the price of the Uber ride is higher than you value that ride... just don’t buy it. Otherwise enjoy the value you have extracted from Uber
The surplus from a trade is divided between the buyer and the seller, and each party's surplus ranges from epsilon to 1-epsilon. Your claim that a move towards universally giving one party ~0% surplus and the other ~100% doesn't matter is self-consistent, but it shouldn't be surprising that society would concern itself with how surplus is divided (eg antitrust laws or any other competition-regulating policy)
Companies already price by predicting what people are willing to pay, by theory and experimentation. I wouldn't expect them having perfect information change much other than quicker convergence to the prices they would set anyway.
Simply having another player in the field is not competition, despite the federal government's claims.
It is, however, hard to get drivers and customers FOR your ride sharing app.
But even if they were, the drivers are in a competitive labor market. If you get the customers with lower prices then you can also get the drivers because they'd rather be working for your rate than not at all.
Plenty of Uber/Lyft competitors have tried and failed. Heck, a few different companies tried here in Austin once we grew a spine and banned Uber/Lyft, only to die as soon as they came back to town.
Thus, you have economies of scale for multiple reasons (big upfront investments for app and marketing, network effects).
As such, there are high barriers to entry.
then why are there only 2?
So does anyone else who is doing work. For example, have a contractor come by your home to give an estimate on roof repair. It'll be highly dependent on him sizing up you and what you can apparently afford.
When I had my roof replaced, estimates ranged from $12,000 to $75,000. We got 11 bids and paid $14k. That’s market forces at work, but also an example of a market without high capital costs.
The 54k bid included a whole house energy audit with positive pressure tests and some stupid stuff. The bids from 6k to 32k were for the same literal shingles (architectural ) with the same installation and the same tear off and the same warranty.
The one pattern I noticed was the bids over 25k showed me a video with company values. (One talked about how Christian the owners were) The bids under 25k I got like a 5 minute explanation and a chance to ask questions.
Think I spent like 7k on the roof and it’s great.
My dad got a siding company that quoted $120k to do the job in the middle of winter for $30k.
When you have no jobs, you'll take almost break even to prevent employee loss.
Now, it may not play out as direct collusion, but if only one company engages in it, they won’t be competitive for their wealthier customers, so it doesn’t make much sense. But if both participants in a duopoly do it, you have no options. It wouldn’t be possible to enact price discrimination for something with lots of competition
Sure they will. You don't charge too much so that the customer will start feeling that its worth their time to look for alternative offers. That upper limit it usually higher the wealthier (or "spending happy") the customer is. So it totally makes sense to establish that limit individually per costomer.
If you do, you've already experienced this sizing-up. A contractor comes to the house and sees you can afford 2x what they'd normally charge. A mechanic for your Lexus charges N times as much as the same mechanic would for your Toyota, even though they're the same parts and manufacturer.
Seriously, auto dealers STILL try to do this and it pissed me off to no end the last time I had to buy a car.
Except one company. I sent in what I wanted on email. They sent back the quotes on 3 cars in stock. The quotes were all reasonable and slightly below the average. I went in and bought the car.
Since then, seven other people in my social circle bought from the same auto dealer the same way. Sure, individual salesmen aren't making commissions, but that dealer is up probably up $25K in profit for roughly 15 hours mostly spent signing paperwork (it takes 2 hours just signing and signing for all the paperwork even if you walk in with financing).
Attempting to "size me up" is almost always a good way to "piss me off".
Also, hourly quotes for even the most basic things around the house are a poor idea. Someone recently told me she had to move to fixed bids for everything with her handyman because he would just move really slow when it was hourly.
Erm, isn't the proper solution find another handyman?
If I think someone is ripping me off, "extra supervision" isn't the correct long term solution. I already distrust them, so I'm not likely to give them the benefit of the doubt. Complicated things have to run on at least some trust between parties--you can't write everything into a contract. If that trust is dead, you really can't continue the relationship.
(But the most important part of economically hosting a wedding is to not hire a wedding planner, it’s like their whole job is to separate you from your money. It’s a surprising amount of work to do everything yourself, but it’s the difference between a $5000 wedding and a $20,000 wedding)
What I’m saying is your nice house may cost 2x because your nice house has nice things that increase labor costs. Just like that upsized vehicle manufacturer..
(I never used an Uber and have no idea if that would work)
I moved into a nice house that was about to be foreclosed a couple of years back and after moving in, we had to get some of the same things done that we’d had at our previous home. The quotes were usually 2-3x higher for the exact same job.
If this leads people to work harder to find a better price, their software isn't working right... it should be charging that person less (just lower enough to not trigger this 'find a better price' desire)
How much time a person is willing to spend to save money is going to be very proportional to how much money that person has, and this makes total sense.
Willingness to pay more also tells you a lot about the person's need and if the person is willing to pay more it is a signal that the person needs to more. Servicing those needs first is often beneficial for the whole society. For example a person traveling for an important business meeting that will help him earn lot more would be willing to pay more than teenagers going to the mall. A person trying to catch his international flight worth $$$$ might be willing to pay more than someone just going to get a haircut.
Not only this sort of differential pricing makes sense it benefits everyone without hurting others.
However, in this case, Uber and Lyft are not actually using willingness to pay. They are using ability to pay. To make the system more efficient, as you suggested, they would do best to implement a bidding system so that customers could directly opt to pay more (directly indicating their level of need).
The algorithms in the article would unfairly prioritize wealthier drivers over poorer ones, if used to maximize margins, regardless of the level of need of either party. Wealth (ability to pay) is not an indicator of how badly you need to be somewhere else. Willingness to pay is. Their system is flawed.
The differential pricing you've described might be beneficial to society, but the differential pricing discussed in the article is most certainly not.
You are absolutely right here. A bidding system would do wonders IMO but they are likely to release their version of auto-bidding system that would use person's personal data to approximate the bid.
You might be mistaken that personal wealth would be a big factor. I think the target destination would be a bigger factor. For example drops to international terminals, Urgent Care, romantic dinner target locations would have a higher price rather than home, 7/11 or social security office.
If I was an engineer or product manager that is how would I design the algorithm to maximize the margins. But sooner I would move to user bid prices.
(Asking rich people to pay is not bad either, you can think of it as voluntary redistribution of wealth from rich to poor drivers).
Take a taxi, pay with cash. Private.
A millenium ago when you bought everything haggling in the market, the rich guy was paying 3x as much as everyone else because the vendors knew they could make him. Meanwhile, the impoverished grandmother gets the unsold leftovers for free. (The specifics obviously are made-up, but you get the gist. It's still the same in much of the world today. Foreigners visiting China pay much, much much more than locals.)
This is the same human principle, just data-driven. It's kind of like progressive taxation, too: those who can afford to pay more, do.
Now you may object: Uber doesn't need the money. But it does need to be able to sustain itself long-term. So much like first-class airplane fares allow economy flights to be as cheap as they are, similarly Uber passengers with the ability to pay more are exactly what make it cheap enough for other passengers to afford at all.
What if Lyft or uber have data that you have a flight to catch, are 9 months pregnant, or disabled?
Some years ago, I had an epiphany on the reverse-equivalent of this: foreigners visiting Switzerland pay exactly the same as locals. And it has pretty much the same effect.
This ignores that ubers and lyfts are a bandaid on our abysmal public transit and are a play by the wealthy to corner the transportation market until they can jack up the price for their own benefit.
Did he though? Or did he send his servant to the market for him and chastise the servant if ever he over-payed by a penny or more?
It's a real stretch to try to add a moral imperative to Uber's price gauging. Speaking of historical references, why don't we mention Uber's history alongside this rich old man of yours?
https://www.investopedia.com/ask/answers/042415/what-are-dif...
First Degree: This type of pricing strategy takes place when businesses can accurately determine what each customer is willing to pay for a specific product or service and selling that good or service for that exact price. (ie car sales)
Second Degree: Companies price products or services differently based on the preferences of various groups of consumers. (ie Costco vs Whole Foods)
Third Degree: Companies price products and services differently based on the unique demographics of subsets of its consumer base, such as students, military personnel, or seniors. (ie flights)
The purpose here is for a company to identify the maximum consumer surplus it can acquire. As commented below, this surplus also changes based on supply/demand. Supply/demand change based on competitive products or substitute products.
A policy like the one you're imagining would have the effect of punishing those individuals who are willing to pay premiums and unwilling to "shop around" or use alternative services.
That is, it is a policy that in practice rewards the frugal and the poor at the expense of the wealthy and spendthrift. Is that... a bad thing? It sounds like a good thing to me.
Charging different customers different prices for the same fare should be illegal.
That sounds like something discriminatory that should be illegal to me.
If, after paying drivers fairly, complying with local laws, reaching profitability etc., we find that prices are where most people can still afford to take Ubers everyday - great! If not, well, that's how things have been for ~150 years. Keep urging your city to invest in public transit and bike lanes.
Uber, or any company of this sort is not magical lifestyle company, its merely an app for a driver and a rider. This is easily replicated.
Uber became a poster child only because the barrier to enter is so high in so many western economies. There is a ton of smaller competition elsewhere.
It's similar to why you don't really see, for example, maids in middle class homes in high-income countries, but those are relatively common where wages are lower.
When I expressed what the general cost was to my [rather cheap] parent who still lives in 1973, he was astounded. "Why are you shocked and horrified? $45 is a good deal for a 1am taxi at that distance. I cannot believe you've suddenly forgotten about inflation. If you want 1973 taxi prices, go back to 1973 or do an uber."
It appears that a latter part of my quip shall become null and void in a near future.
I used to ride with Uber and Bolt a lot, however they've been raising pricing during rush hour and I'm not stupid enough to not notice the bill at the end of the ride and these costs add up.
So several months back I stopped taking car rides altogether. I walk a lot, I don't mind walking 3 Km on foot. I ride my bike to and from work, which is actually more efficient than driving a car in this city. And now in winter due to weather I also use public transportation. I also have a driver's license and own my own car.
I'm not worrying about prices set dynamically. People can notice the bill and Uber is not competing just with Lift or taxis, it's competing with walking on foot, with public transport, with owning your own car and if their prices aren't reasonable, they won't survive.
That is, workers are starting to successfully unionize. Both companies have delayed it as long as possible, but it’s going to happen. And when it does, it will either burn more of their cash or up the customer cost.
But when time has come to make their own money they will discover it is not so easy as thought.
Given that the entire value-added of a company like Uber is getting a taxi to you slightly faster it's not surprising at all. Uber didn't make cars cheaper, drivers faster or added productivity in any other way plus they have a gigantic and expensive tech overhead, so it was never at all clear to me how they're supposed to be both competitive and more profitable than a regular bunch of taxi companies.
It's just like movie pass. As long as you have investors throwing money at you you can pretend that you're actually doing something but selling people a dollar for 75 cents isn't a business.
On an economic level, if anything Uber suffers from inefficiencies because every driver being their own insurer, repairman and so on is a disdavantage compared to employment by a traditional taxi business. Which is of course why taxi drivers organise in firms to begin with. In a way, the entire sharing business model is a sort of weird backwards move that wilfully ignores the division of labour.
even if their value add is just getting a driver to me a little faster, this isn't nothing. the difference between a five minute and a ten minute expected wait isn't just five minutes of wasted time; at the margin, it's whether the customer decides to purchase a ride at all.
Uber had just gotten into LA a couple of months back. I downloaded Uber and within a couple of minutes, I had a ride on the way, and I could see exactly where the driver was and how long it would take to get there. Hate the company, but the product definitely added value.
There are lots of factors here that could drive a decision to raise prices: both went public this year = increased scrutiny, moviepass & wework fiascoes = decreased tolerance for bad business models, driverless experiments have failed.
But it also feels like there's a wink happening.
If the DOJ / courts takeaway is 'yes it's collusion and they're getting slapped with a company-killing fine', it has interesting implications for the ability of unicorns to operate at a loss for long periods.
Effectively banning negative unit economics for large companies would be a new chapter for the startup economy.
Actually ended up getting to places faster than taking Uber, since I didn't end up waiting 10-15 minutes for the Uber to work its way through traffic to me, or the extra 10-15 minutes taking an Uber would entail due to drivers missing turns or getting lost (despite having a phone providing directions right in front of their faces...).
In cities like Vancouver, taxis seem to spend much less time idling than Ubers in SF.
They also don't have to commit to set hours.
These should have the effect of increasing the supply of drivers (not to the full extent of all ride-share drivers, of course).
They also don't have to front the capital cost of a medallion.
Ride share prices are sensitive to market demand in near real-time rather than being set by the taxi commission (in some long-term relationship to supply/demand).
Combining those effects, I can easily see ride share prices settling somewhere below taxi rates and still leaving profit for all players.
Except depreciation and other costs are pretty heavily a function of miles rather than time. (Especially outside of the snow belt where the number of winters plays a big role in salt damage.)
>They also don't have to front the capital cost of a medallion.
That's true but how many places is that a big factor?
We can argue the details and you're right that it's hard to compare dynamic pricing to long-term negotiated fixed pricing.
But I'm not really making a case for exactly where pricing/costs will end up assuming sustainable ride-share businesses. I'm just saying that taxi fares in most markets are probably a reasonable benchmark whether or not ride-share on average settles a bit higher or a bit lower.
The most ridiculous one I saw was a drive with a cracked iPhone 7 Plus three days after release. In my half hour ride I saw 4 overdraft notifications and 2 please pay your bill notifications. We talked about waiting in line to get the phone and how she regretted not paying $50 for the case. She was also interested in buying a lot of stuff.
Many of them will do something stupid like trade-in their car impulsively, or total it backing into a pole where mileage doesn't really matter.
A lot of them will use the Uber gas card to get gas and then drive for Lyft to get the cash. Then next month when they need money they forgot they owe Uber and now have to drive to pay off the gas debt to Uber before they can earn anything.
I've only met three people who were willing to admit using it as a payday loan, they were all grad students. Two had financial aid delays, one blew too much money on his girlfriend.
I've also met quite a few older people (usually men) with high incomes that were laid off and need quick cash. These are often singles living paycheck to paycheck on $200k in LA and they can never figure out what to cut.
this isn't really true of most mainstream cars. as long as people perceive the 2020 civic as an improvement over the 2019 model, a 2019 civic with zero miles will be worth less (you can verify this by visiting any dealership that still has the outgoing model in inventory). this is even more true of high-end cars until you get into stuff that's truly rare.
But if I already own a car, how long I will continue to be able to drive it is far more determined by the mileage than by how old it is within reason. This is admittedly from the perspective of someone who basically drives cars until it's no longer economically sensible to do so.
I do think that new computer tech-type features may be shifting the equation to make older vehicles less attractive more quickly. Although I'd argue those are probably more important for the driver than the passenger--modulo some safety features.
People quit when the numbers stop making sense for them, they don't always just stay in the underclass. The high cost of acquisition and incentives they did historically reflect a lot of driver churn.
They've adjusted but limo companies also used to gravitate towards the various body of frame models including other variants on the Crown Victoria. Apparently they were very attractive for high-mileage uses because of maintenance/rebuilds.
When I hail a ride, I say: I’m going from A to B and am willing to pay C (which Uber can recommend to me) for it.
Now if nobody responds, I increase C until they do. This way the drivers know where they are going, how much I’m paying, etc. When a driver “accepts” a ride, I see their vehicle and rating, and get to choose from the people who have accepted.
And on the other end, they bid on my ride. If I offer $20, they might ask $25 instead, and it is up to me to either accept or reject that.
I really want a system where the drivers are happy, the riders are happy, and everything is transparent and open for negotiation.
More info: https://www.businessinsider.co.za/indriver-lets-drivers-hagg...
Seems like some kind of collusive price signalling announcement to Lyft. Eg, “we’re going to up our prices, here’s your chance to do the same”.
How rich I am has nothing do with it per se.
So when does it turn into price fixing when they both independently figure out how much I am willing to pay and charge the same amount?
Right now they are uncannily good at charging the same amount for the same trip. Maybe the price is already competitive?
Yeah but come on though, the cut the driver has to take, the cost of car maintenance, the cut Uber is entitled to for giving you a reliable service of connecting you to a driver (and co-pool-riders) and making this process smooth -- compare all of that with what a taxi used to cost, it's still pretty cheap in my opinion. Well, at least in the center city where I am (5 dollars yesterday for a ~5 mile ride, not bad).
Yesterday it cost me $30 to go 5 miles via Uber, and I chose that over Lyft's $40. Not a busy time of day so no price surging. This is in San Francisco for a frame of reference.
I'd imagine renting the car is cheaper before you take into account parking, time, and potential theft. Car break-ins here are so bad people have become blasé about it. I went looking for a news story (there are many about how problematic property crimes are in SF) but found this instead:
I don't mind them raising prices as is needed.
I'm complaining specifically about price gouging. For example, it cost me $8 to travel from my house to a bar the other night, to meet up with some friends. Then it started drizzling, and I had to pay $40 for the ride home.
I get that they're taking advantage of temporary increased demand, but it's not a good customer experience, and next time I'll arrange another way to travel.
These days I prefer to get myself around without either, but if circumstances prevent or make that option look unattractive, I’ll generally favor government transportation over Lyft or Uber and only call a cab from one of them if I’m in a hurry.
a) the algos don't collude, but simply adjust driver "supply" in particular geos across each other's platforms via surge adjustments until they act like they are colluding; or
b) the algo designers try to make their algos not collude and they inadvertently use data from the other platform that is nonpublic or in a way that can be determined to harm consumer welfare.
Both a) and b) create a situation where every pricing decision by the algorithm - in every city, across every driver/rider interaction - has to be done in a way that is not collusive. All the DoJ has to do is find an anomalous pricing pattern - which isn't hard - and then pin both these companies with a fine and onerous compliance regulations. Ironically enough, this may be what kills them.
More and more companies without the massive VC support Uber and Lyft have will pop up fragmenting the market.
That said, absent their price advantages because of subsidies, I don't doubt a more fragmented market would probably arise.
So if the outcome is that the price has fluctuated back to the norm, but the service provided is of a higher quality, then the consumer has won.
What will be interesting to see is what consequences will arise from a corresponding drop in demand when met with the normalisation of prices to the previous mean. Especially given that you can't actively chose between the drivers available to you through these apps i.e. if there's less demand, supply will likely drop to meet demand (drivers don't want to be sitting around all evening, or just doing 1-2 gigs per night), and there's no way for the cream of the crop to come to the surface amongst their competition by way of superior service and hence selective demand / consumers.
Intuitively, maybe it will result in harsher ratings from consumers (expecting better service given higher prices) which, with sufficient accumulation, may take lower quality drivers out of circulation and leave those deemed to be best in the marketplace.
I mean, I was a little sad, it was really really nice being driven everywhere... but fundamentally, I'm not quite rich enough to pay market-clearing prices to get driven everywhere. My own impression was that for the last few years, softbank has been subsidizing my own luxury rides, which was really nice! but it was also obviously not sustainable.
my own observation all along was that a lot of the price variation was "specials" - it used to be I could count on some discount several times a week. the biggest price increase I experienced, the one that pushed me to buy my own car, was seeing fewer of these.
Interestingly, now that I have a car and only use uber/lyft when drinking or otherwise away from a car, I get more discounts and specials again.
From talking to drivers, it's similar for them; a significant amount of their income consists of specials, for doing X drives in Y time period.
When the investors stop propping up Uber and Lyft, both will collapse like they've never been, leaving both investors and drivers high and dry. While the company managers laugh all the way to their banks.
It's weird to me that this sort of price discrimination is legal.
E.g. given this information, my incentive as a rider is to never tip (so that their algorithm doesn't identify me as "willing to pay" more). Maybe I could also make a new Lyft account every time I need a ride?
> It's weird to me that this sort of price discrimination is legal.
I don't interpret this as charging different customers different prices per se. But there are different prevailing conditions with different pricing justified (other than simple congested/not congested). Knowing what your service is worth to customers so you can extract a greater fraction of this is pricing 101.
Based on my experience Lyft and Uber charge different prices to different customers with identical trips. I've tested this by asking friends with who I'm about to share a ride with to request the same trip as me, and compare prices. We've observed differences of 10-20%.
> Knowing what your service is worth to customers so you can extract a greater fraction of this is pricing 101.
Where this becomes problematic is in the age of big data. When a company can build an accurate profile of me, they can extract maximum prices from me. We need laws that mandate what definition of "profile" is allowed to be used for pricing.
I'm not sure why we accept price discrimination at the individual level for airlines and Lyft/Uber. I'm pretty sure people would be outraged if Amazon started price discriminating based on your purchase history.
But, in any case, dynamic pricing at both the individual and the collective level is pretty widespread these days. By and large--there are some exceptions--companies don't have to sell at a fixed price to all people at all times.
The funny thing is criticism of these two companies has been vociferous on Hacker News since the very beginning. I'm not sure what company I'd even call a darling. Every example I can think of FAANG, Dropbox, Slack, etc all have various criticisms. Perhaps Spotify? But it's not a Silicon Valley company.
1. The margin is high but the idea is easily copied
2. A ton of money has already been invested, and still not making money
3. Other things I can't remember at this moment
I think SV has some sort of problem when it comes to starting businesses. Rarely something is organically growing. It's like SV people just throw money at a wall until something sticks, so it explains the thousands of failure companies.
Seeing SV companies through the eyes of an investor, I'd be ultra cautious. Companies and ideas are a dime a dozen there from what I see. Until you find out each has had +$100,000 pumped into it various ways and operating at a loss. It's almost like they want to force you to think the idea is good because "look, it's existed for X years!".
Yes the odds are terrible that you happen to fund the next Google. But, the allure is the same thing that gets people to play the lottery even with negative expected returns.
Some of the worst companies get on there, SV or not. Think about it, why would a good company need to go on Shark Tank? They can raise from much better investors if it was a good company.
Yes I completely agree with everything you're saying. ST definitely attracts certain kinds of companies with monetary needs.
You're right though, if HN is at all representative of Silicon Valley, Uber and Lyft are hardly its darlings.
That is of course unless Uber asks way too high of a price.
That's basically what happened with the Yahoo auction
Insofar as what they burn on being the peeps that figure out self driving cars... I mean that's looking to hit the sweepstakes. Chances are They won't be the ones to cash in that particular ticket.
Downvoting me??...
1) Stop making the ride App free. Charge $2.99 payable with the first ride.
2) Stop letting people sign up to drive for free. Charge $9.99 to sign up.
3) Start UberPay... sell prepaid rides for a discount then Lend that money out via Uber Credit Cards to select peeps--> like the drivers.
4) No shot I'd share this idea. This is One is The Obvious idea I mentioned in my Parent post.
Cheers