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Why surge pricing is only one of Uber’s troubles


After the Karnataka Government stayed its decision to ban surge pricing in the state, online cab aggregator Uber has put up a blog post explaining the need for surge pricing. In it, Bhavik Rathod, general manager at the company, says that the availability of cabs drops due to high demand, when cabs are already on trips. This increases the wait duration for a user.

Rathod adds that Uber’s goal is to make sure that users get a ride within minutes even when Uber cabs are busy, and that’s possible due to surge pricing. Surge pricing is a technique used by Uber to increase fares (1.5x, 2x etc.) to provide drivers the incentive of keeping their cab running, while also making it available for the user, no matter how much the demand for one.

Surge pricing profits go to drivers
Uber hasn’t had a smooth run with respect to surge pricing it implemented, either in India or globally. Most recently, a user saw prices as high as 7.3x in Hyderabad making it impossible for him to get a Uber cab. Despite this, the company states that ‘nearly all’ of surge pricing profits go to the drivers as part of their fares. Rathod adds that Uber isn’t the first company to use surge pricing, giving examples of airlines and hotels which increase prices as demand drops etc. but the option to not use a cab in surge pricing is also available, in the interest of transparency. On Uber, surge pricing means you always have the choice to get a ride when you need one, Rathod concludes.


US surge pricing case
In the US, Uber is fighting a case which alleges that the company is illegally coordinating high surge pricing fare. Uber founder and CEO Travis Kalanick stated that such ‘a conspiracy involving hundreds of thousands of drivers was implausible and physically impossible’ but was rejected by the judge.

Driver retention
In Karnataka’s cab aggregator rules, drivers have the option to drive on any platform they like. This is another pain point for cab companies who would ideally like to see their drivers stick with one platform. In an interview with MediaNama in September last year, Karun Arya, Uber’s then communications lead for Southeast Asia and India said that Uber’s attrition rate was pretty low. At that time, Uber was adding more drivers through driver marketing and drivers’ word of mouth, every day. Arya said that most of these drivers had other jobs and weren’t necessarily driving full time on Uber.

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Drivers cancelling rides; offline troubles
He said that to address complaints of drivers cancelling rides, Uber trained drivers to not cancel trips. This has proven to be more than a challenge to Uber which delisted as many as 60 drivers from Pune last month, owing to ghost trips drivers were making in order to reach daily incentive and pay packages (an example of a a user charged when a driver cancelled here). This is in addition to the fact that Uber drivers from Bangalore and Hyderabad have protested previously, with aid from local unions, when Uber changed its incentive policy. (The struggle of driving a Uber cab in Pune and Mumbai here.)

False bookings
Last month, Uber also dragged Ola to court for making false bookings on Uber by setting up fake rider accounts, misleading drivers through fake calls impersonating Uber and providing misleading information. Ola has denied these allegations calling them frivolous and false. Albeit, in return, Uber has also been accused of ordering and cancelling more than 5,000 rides from US competitor Lyft.


Bottom image credit: Sunny Raj from Facebook

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Written By

I'm a MediaNama alumna from 2015-16 (remember TinyOwl?) now back to cover e-services like food and grocery delivery, app based transport and policies, platforms and media in India.

MediaNama’s mission is to help build a digital ecosystem which is open, fair, global and competitive.



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