RENEE MONTAGNE, HOST:
This is MORNING EDITION from NPR News. Good morning, I'm Renee Montagne.
These days, you can hail a ride in some cities with the quick tap of a smartphone. The app for Uber connects drivers for hire to riders. And that car service has gotten attention lately because of its pricing system. At times, Uber rides can be cheaper than metered taxis. But when demand for a ride is high, the fare can be three, five, or even nine times as much as the regular rate.
Lisa Chow of NPR's Planet Money Team took a ride with an Uber driver, during this week's big snow storm in New York City, to explore the fast-changing rates. ...
... CHOW: ... Uber tracks customers and drivers down to the street level. So sometimes fares are popping in one part of the city and not another. And in theory, what should happen is as more drivers see a part of the city where fares are high, they all go there. Now supply has met demand, and prices should come down.
[Uber driver Kirk] Furye says, he sees that happen all the time. It's a pain in the butt.
FURYE: When I first started out, I used to chase the surge. But that became exhausting because it would always go somewhere else by the time I got there.
CHOW: And did you ever catch it? Catch the surge?
FURYE: Do I ever catch the surge? When I was running for it, I think I might have caught it, like, once, twice tops. And then I realized it wasn't worth it. I missed it a lot more times than I caught it.
CHOW: So this appears to be working as it should. But it doesn't feel like that to a lot of people.
Would you pay double the price to get a cab today?
SHALONDA MCNICHOLSON: No.
CHOW: Shalonda McNicholson is near Penn Station waiting for a cab. She had never heard of the company Uber. When I explained the way Uber prices its rides she said this...
MCNICHOLSON: That's ridiculous. Ridiculous. It's not fair. We didn't ask for the snow.
CHOW: Richard Thaler, an economist at the Chicago Booth School of Business, says no matter what most economists say surge pricing just feels inherently unfair to most people, which means Uber might be treading in tricky territory.
RICHARD THALER: I think the question will be: How big a multiple the market will stand up for. And my intuition is it's a number in the ballpark of three.
CHOW: That consumers will tolerate three times the normal fare but not really more than that. Thaler says, if you look at industries in which prices do respond quickly to demand. Take hotels, for instance. If you're booking a room during Christmas, you'll probably pay a lot more. But you'll rarely pay more than three times the normal price. Uber sometimes goes way above that - seven, eight, nine times.
But Uber is hoping this gets their drivers to do what my driver did. When I called Furye the day after the storm, he told me he ended up working a 17 hour day; riding the surge as long as he possibly could.
Hat tip: TMM