Does Uber Manipulate Surge Pricing? Looking Behind The Curtains

Uber’s surge pricing model has many users frustrated, sometimes spending much more on a fare than they would initially have liked.  However, as Christo Wilson, assistant computer science professor at Northeastern University, noted: “Uber is a black box: They do not provide data about supply or demand, and prices are set dynamically by an opaque ‘surge pricing’ algorithm.

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Christo Wilson and his co-authors Le Chen and Alan Mislove will present their findings at the 2015 Internet Measurement Conference in Tokyo, Japan.  BetaBoston spoke with the team, who reflected on the question of whether Uber manipulates surge pricing.

“The lack of transparency has led to concerns about whether Uber artificially manipulate prices, and whether dynamic prices are fair to customers and drivers.” So the authors set out to see just how Uber works. By creating 43 virtual versions of the actual Uber app and arraying them around midtown Manhattan and downtown San Francisco, the researchers were able to monitor the number and locations of vehicles, track estimated wait times, and get information about surge pricing around the clock – amounting to more than 18 million records that captured four weeks of data in granular detail.

So what did they discover?

  • Every city has “surge zones” with borders that apply the same fare multiplier across a part of the city.  In other words, a rush of demand in one part of a city could boost prices on the opposite side of the city.
  • Surge does not appear to increase the number of drivers coming into an area – something that is directly contrary to what Uber has said.  This finding was previously demonstrated in a Washington Post article.
  • Demand in San Francisco is so high that in one area, surge prices were in effect 57% of the time.  Even when they added to that demand with their created accounts, it did not appear to affect surge prices.

 

It is interesting to think of what happens behind the black box of Uber pricing, and this gives us a peek into that world.

Related: Travel Tips and Tricks – How to Avoid Uber Surge Pricing!

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  1. I am a part-time Uber driver. From my experience, the surge does draw drivers to the surging zone from nearby.

    However, Uber does manipulate the surge so that not a universal surging algorithm is applied to all zones. For example, there was no surge pricing in South Bay, East Bay, and Pennisula except for San Francisco in the highest demand New Year’s Eve night. I saw there were essential no Uber cars in the entire South Bay area between 12:30 pm to 2:00 pm because once a Uber car was available, it was immediately requested by riders. In such a high demand, you would think that there would have been a surge pricing.

    It has been unfair for Uber to treat the drivers not equally between different areas in SF Bay area and to drivers joined at different time. There are two examples

    (1) Uber take 25% of the fare from drivers who joined after June 2014 while Uber take 20% of the fare from drivers who joined before June 2014.
    (2) Uber manipulates the surge pricing so that only San Francisco drivers could get more income from surge pricing.

    Uber has made big money as a company but it rips off the drivers. Here is how the fare is calculated in SF South Bay: $1.95 Base fare + $0.20 per minute plus $1.10 per mile. A 14 mile trip which takes about 24 minutes driving, the total fare charged to a rider is $22.91. However, Uber takes $1.35 as Rider fee. The remaining 25% of $21.56 is also taken by Uber. The driver gets paid for $16.17.

    If you think that earning $16.17 is not bad in 24 minutes, you are too optimistic. A driver usually takes about 5-10 minutes driving to pick up the rider. This time is not counted. Usually a driver has to wait for a rider after arrival at the pickup location, which is between 2-5 min. A driver has idle time waiting for a ride request, which is between 10-30 min. This idle time becomes longer and longer as a result of high reward incentive to recruit drivers by Uber. This incentive is $750 in December for each driver referred by a current Uber driver who become eligible.

    Without surge pricing, average hourly gross income from a driver driving in peak hours is about $10-$12 in South Bay. Roughly estimate the net hourly wage is less than $8.00 based on my experience in last year.

    • Mike –

      I would love to hear more about your experiences with Uber. I have sent you an email to the email address you listed!

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