The Don’t Be An Asshole Rule
medium.com
medium.com
The author is completely missing the fact that the flip side of "price-gouging" is making sure that a scarce resource is only utilized by those who need it the most.
If there are only 20 taxis, and there are 20 people desperately stranded who need a taxi, and 200 people who would just "like" a taxi, then if a taxi costs $200, those 20 people will happily pay for one.
But if a taxi costs only $20, then the taxis will mostly be used by the people who don't desperately need them, and the ones that do might die (if it's that desperate).
Likewise with charging $100 per bottle of water or batteries. It doesn't necessarily make you an asshole -- it's the simplest way of making sure a scarce resource is only allocated to those who truly need it.
And more than that, it incentivizes people to provide that resource -- extra taxis ferrying passengers, extra people supplying water or batteries -- even incentiving people with extra water/batteries at home to sell them to others.
Sure, when there are good networks of trust in a society, and the resource in question isn't really scarce, price-gouging can be unfortunate. And ideally, in cases of disaster, the government should be providing essential resources for all.
But the author of this post seems to be completely and utterly unaware of the positive and possibly life-saving effects of scarcity pricing.
You can't just assume that everyone CAN pay whatever price is set, and just decides not to because they don't need it enough. In this scenario, the poor people die and the rich stay comfortably unaffected while using the resources others are far more desperate for.
$200 would dissuade me, in situations where $20 wouldn't (unless I was in a heavy bind). This isn't true for everyone, but it seems to work well in the middle.
I think Uber did nothing wrong, but maybe they need to work on how to not be perceived as assholes, they could have had customers queue up for lower prices, and specify their need, and worked through the queue judging each persons priority (but maybe you'd have even more angry folks).
The author is completely missing the fact that the flip
side of "price-gouging" is making sure that a scarce
resource is only utilized by those who need it the most.
If there are only 20 taxis, and there are 20 people
desperately stranded who need a taxi, and 200 people
who would just "like" a taxi, then if a taxi costs
$200, those 20 people will happily pay for one.
That is true. On the other hand, it is, so far as I'm aware, the closest anybody's managed to come to reliably, consistently figuring out who does.
It also generates a huge amount of goodwill that cannot be bought in any other situation.
If you want to build slack into the system, allow people to make profit off of extra inventory. You want the hardware store to carry a couple crates of batteries in the back in case of emergency? Let them charge enough money in the once-in-a-lifetime storm to make it worth their while.
Taxis take risks riding in storms, if you want them to be available, let them make money.
And, Kahneman argues, when basic economic theory conflicts with peoples' perception of fairness, it's in a firm's long-term interest to behave in a way that people think is fair.
On New Year's Eve in NY I don't think there's anything in the world wrong with increasing the price to the maximum that customers are willing to pay.
The flood is different but I'm not sure where the line gets drawn? Uber already has rates that range from similar (for very specific trips) to drastically more expensive than taxi rates.
Something else not mentioned: incentivizing additional drivers to go out and work during a flood / the aftermath.
Is tripling the price on New Years Eve in NYC gouging? Not really - it's the same as prices going up for flowers around Mother's Day or Valentine's Day. Demand will be high and would likely not be met if prices remained the same.
Small bumps in price will probably be tolerated due to acts of God, but not outright gouging.
If you don't raise the price, people who desperately need whatever it is that there is temporarily a shortage of, may not be able to get it at ANY price because people who don't actually need it are using more than they would at the market clearing price. These users who wouldn't pay up do not receive as much benefit from the resource as those who desperately need it and would pay up. This ultimately leads to a reduction in the overall benefit that accrues to society as a whole.
What Uber did here is absolutely the "right" thing. Ultimately the problem is a scarcity of whatever the resource is. If you don't raise the price, you still have to allocate it and you can't just allocate it based on some arbitrary "need". The fundamental reason communism/socialism always fails is because a you can't ever truly judge how much someone else "needs" something. By asking people to pay up or not you make them evaluate the intensity of their own "need" while at the same time creating strong incentives for people to find substitutes, do without and for producers to produce more.
You're making an assumption that everyone can afford the increased prices and it's just about making a rational decision to "pay up" or not.
However, when your business sells a necessity (like public transportation or runs a hospital) don't expect your customers to understand that your decision to charge them much higher prices during an emergency is simply done "to better allocate a scarce resource". Keeping poor people from using all the scarce resources is probably not the best thing to do if you want repeat business.
Poor people don't use Uber. Poor people very rarely use taxis. Poor people ride the bus or walk.
And yes, it sucks to be poor.
Everyone defending Uber here seems to be either deploying the 'where do we draw the line' fallacy, or claiming that there's no such thing as price gouging.
If you want to defend Uber, you need to show me why what they did isn't price gouging. Or you need to show me that price gouging doesn't exist.
The point is that Uber does not appear to have included the PR cost of surge pricing in their calculus, and subsequently tried to deny that it happened in order to recoup some of the PR losses. Perhaps they should have included an earlier human intervention option.
Comments regarding the risks drivers bear going out in a storm also merit some attention. Possible responses that come to mind easily:
* Cut the margin the company takes off the fee * Allow drivers to enable some form of hazard rate when things get dicey * Providing additional advice and hotlines and such things has nothing at all to do with rates, and gets PR points, if Hailo's experience is any indication
I'm sure the rest of y'all can come up with more suggestions. The point is that demand pricing is not evil, but PR costs matter.
It looks Uber is invoking this clause to increase their pricing during a really bad storm over Toronto. If this is true, please, Uber, have some decency and help out the community.
Or you could act entitled and call them assholes.
The mayor stepped in to say that this kind of opportunism is illegal. Maybe the laws are different in Toronto.
If your service doesn't figure out what your response is going to be before the disaster hits, then you are no better off than Enron diverting power to another state in order to price gouge.
Name calling doesn't solve problems. Childish bickering doesn't get results.
And it has been! My own personal take is that this is bad policy. Calibrating price to demand is well and good, doing it automatically is clever, but not keeping an eye on it and overriding the algorithm in situations like this is dumb. There's no way the few hours of extra income will make up for the lost business over time.
Plus, Uber depends on a lack of regulation to operate. Doing stuff that only helps the argument for regulation, and makes them look bad in the public eye, could be suicidal for their business model.