There was an explosion in the Chelsea area of New York City last Saturday night; as a result, there was a large number of people wanting to get themselves away from the area. Many used the Uber app and found to their horror that the cost of their rides, despite the circumstances, had been subjected to what is termed “surge pricing”. After social media outcry, the surge price was abandoned. But many were still unhappy at the action.
We know the excuse for this practice, as it has been wheeled out by Uber’s apologists ad infinitum - and, indeed, ad nauseam - and that is that all we are seeing is supply and demand in action. More demand, not enough supply, price goes up in order to restore equilibrium between the two. This, to practitioners of classical economics, is a result with which they are exceedingly comfortable, as one has told today.
Ryan Bourne, who is head of public policy at the Institute of Economic Affairs, given a platform by like-minded City AM editor Christian May to defend what many will see as the indefensible, has opined “the public are wrong to think that Uber’s ‘surge’ is an example of greedy profiteering. In fact, so-called surge pricing actually helps in instances such as emergencies”. And how might this help manifest itself?
You’ll love the explanation: “The key point is that prices are merely messages that reflect the underlying reality of aggregated decisions of customers and drivers”. See here all you aggrieved New Yorkers, your getting ripped off is nothing more than a message!
But he’s away: “This price rise, far from being an unalloyed bad thing, actually has two major benefits in times like this. First, it deters those who might have wanted to use Uber but do not actually need to … More importantly, it signals to drivers that it is valuable to be on the road … It’s an incentive not just for more drivers to ‘clock on’ at that time, but for others already on the road to move towards Chelsea from areas where demand and prices are lower”. Right. Someone is missing something here.
And that something is called The Real World. There was an emergency, a potential terror attack, and here is Ryan Bourne giving economics lectures. And what he is telling us is that it is indeed “greedy profiteering” - at least by Uber, who take a percentage of the fare and so rake in more money for doing nothing - except jacking the fare up.
Moreover, the idea that more drivers should move towards the scene of a potential terror attack in an already crowded city is an interesting proposition. So is the complete absence of self-awareness from Bourne: we are talking about an emergency situation here, as well as ignoring rather more than a few decades of real world history.
Where does Bourne think regulation of taxi fares came from all those years ago? Because the public dislikes uncertainty, and being ripped off even more. Hence the 1934 London Cab Order, which may offend his desire for economic purity, but ensures drivers and riders know exactly what the deal is. Plus the idea that Uber, or anyone else, should expect to play incentives during an emergency really is taking the biscuit.
There is a difference between economics textbooks and the real world. Ryan Bourne and his fellow flat earthers may not like it, but rather than try and explain away predatory pricing as he has, he should take on board that it exists. Unlike his economic utopia.