When A $65 Cab Ride Costs $192

Jan 24, 2014
Originally published on January 24, 2014 10:37 am

I was in the car for about an hour, rolling around Manhattan in the middle of a snowstorm. The ride normally would have cost me $65. But when it came time to pay, my driver, Kirk Furye, was concerned for me.

"Are you going to get in trouble with NPR?" he asked. "You are almost at three times the [normal] amount."

Final cost of a one-hour cab ride: $192.00.

I had found Furye through Uber, a company that makes an app that connects cabs and cars with people who are looking for rides. One thing about Uber: When there's a lot of demand — like, say, in the middle of a snowstorm — the price goes way up.

Uber calls this surge pricing; a lot of people might call it gouging. But Uber drivers aren't employees with hourly schedules; they choose when and whether to drive. And, Uber says, raising prices when demand is high is a way to get more drivers on the road to meet that demand.

Uber tracks customers and drivers down to the street level, and even in normal weather there can be brief price surges in neighborhoods when demand spikes.

"When I first started out, I used to chase the surge," Furye said. "But that became exhausting, because it would always go somewhere else by the time I got there."

In other words, the surge system was increasing the supply of drivers to busy neighborhoods so quickly that, by the time Furye got there, prices had fallen back to normal.

But even if it works in the short run, surge pricing could hurt Uber in the long run if taken to extremes, says Richard Thaler, an economist at the Chicago Booth School of Business at the University of Chicago.

Other industries that raise prices when demand is high, like hotels, put limits on their own surge pricing in order to keep customer loyalty. Hotels will rarely charge more than three times the normal price, even though they could charge far more at peak periods, Thaler says.

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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.

LISA CHOW, BYLINE: I was in the car for about an hour, a ride that normally would have cost me 65 bucks. But when it came time to pay, my driver, Kirk Furye, was concerned for me.

KIRK FURYE: Are you going to get trouble with NPR? You are almost at three times the amount.

CHOW: Furye had been driving me around in the middle of a snow storm at a time when Uber was engaged in what they call surge pricing. In a snowstorm, there's high demand for cars. And when there's high demand, Uber raises it prices.

I'm a little worried. What's your guess?

FURYE: Three times the amount. Best guess, 150 maybe.

CHOW: Actually, the bill ended up being $192. A hundred and ninety-two dollars for a ride in a snowstorm. A lot of people might call this gouging. But Uber says this helps people because the high price sends a signal to all the drivers out there: Hey, you can make a lot of money if you stay out on the road. Case in point, my own driver, Kirk Furye, he hadn't even stopped for lunch that day.

FURYE: I take little breaks here and now. But when the surges are on, you want to try to push yourself a little harder. Ride it out. And you're also not doing it for the money. There's people out here that really just don't want to be standing out in the snow, in the cold, and you do what you can and get them to their destination safely.

CHOW: Money helps though, right?

FURYE: Money does help.

CHOW: In more ways than one. 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.

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?


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.

Lisa Chow, NPR News. Transcript provided by NPR, Copyright NPR.