Siege, Surge, and Compression

People don’t like Uber’s surge pricing. The case during the recent Sydney siege was especially controversial. Even though it is just an operationalization of market supply and demand (too much demand, too little supply, raise prices), it has problems.

First, it does not appear to have a mirror. When supply is too large, do prices drop significantly below the base? I think what happens is the drivers queue up (virtually).

Second, it seems to come as a surprise. People say “I started off the evening at regular fares, and end up later that evening with only surge prices available”, this seems unfair.

Other ways to deal with shortages include queueing, which is common on roads during peak hours, since we don’t generally price our roads.

There is a third way though. Compression. We can get more people into cars than we typically do. True shared rides, with multiple parties going to multiple destinations  could be the norm at peak times. This is similar to UberPool and LyftLine. This would split some of the difference between higher fares (more fares should lead to more revenue for drivers) and rationing (more destinations should equal more travel time, for at least one party, if not both, or more). There are of course limits to this, but the typical Uber vehicle holds 5 persons (4 passengers) with some compression of passengers in the back seat. While some parties already have 4 people, many are single or two passengers.

Everyone’s favorite Transportation Network Companies might consider this as an alternative to the surge default.