Report says Uber surge pricing has a twist: some drivers flee

John Sollars cruises through the Mission District waiting to pick up passengers requesting the UberX ride service in San Francisco, Calif. on Tuesday, Oct. 27, 2015. Sollars generally avoids areas designated by Uber for surge pricing and concentrates more on his own strategy. less John Sollars cruises through the Mission District waiting to pick up passengers requesting the UberX ride service in San Francisco, Calif. on Tuesday, Oct. 27, 2015. Sollars generally avoids areas designated by ... more Photo: Paul Chinn, The Chronicle Buy photo Photo: Paul Chinn, The Chronicle Image 1 of / 13 Caption Close Report says Uber surge pricing has a twist: some drivers flee 1 / 13 Back to Gallery

John Sollars, 50, is a whiz at driving for hire. A onetime cabbie, he now drives exclusively for UberX, putting in 60 hours a week and earning about $1,750 before gas and maintenance expenses, which he says makes him a top earner on the platform.

When his Uber app notifies him about a surge, a price increase in an area where rider demand is high, Sollars knows just what to do: He drives his black Ford Escape somewhere else.

“The seasoned drivers don’t pay any attention to surge,” he said. “By the time you get to that part of the city, the surge is over. Often, even when I’m sitting dead center in the middle of a surge area, I don’t get a ride request. Then, as soon as the surge is off — bam! — here comes a ride.”

Uber hypes its algorithm-based surge pricing as a core strength of its ride service, one that balances supply and demand. Both drivers and Uber make more when surge pricing kicks in. Critics call it high-tech gouging.

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Now researchers who have studied the controversial practice in San Francisco and New York have delivered a sobering critique. Surge is only modestly effective at luring drivers, and actually impels many drivers to go to other areas, the researchers said — although Uber disputed that finding. The researchers found that the main effect of surge pricing is to deter passengers from requesting rides.

“When an area is surging, it just kills demand, and a large fraction of the drivers leave the area and drive elsewhere,” said Christo Wilson, a professor of computer networking and security at Boston’s Northeastern University, who co-authored “Peeking beneath the hood of Uber,” a report being released Thursday. “It’s not incentivizing drivers the way they hope it would.”

Still, by quashing demand, surge ensures that passengers who are willing to pay more can get a ride quickly, achieving its basic goal. “One side is working; it definitely impacts demand, but the impact on supply is minimal,” Wilson said.

Uber responded that the researchers couldn’t really see what was going on with drivers.

Blanketing the city

The study created 43 Uber accounts and used GPS coordinates to blanket the city. The accounts, like any open Uber app, pinged Uber’s server every five seconds to reveal locations of the eight nearest cars. (The faux passengers did not request and cancel rides, which would have adversely affected Uber and its drivers.)

“They missed a lot of what surge does with respect to supply,” said Keith Chen, a UCLA associate economics professor currently on a two-year leave to work with Uber as its head of economic research, designing the third iteration of its surge system. During busy times, the study’s method would miss cars that “got gobbled up” by riders and instantly replaced by other cars, he said.

Chen said Uber’s internal data shows that surge affects drivers in several ways, including working longer shifts, moving toward surge areas and choosing to work at certain times.

“When we surge (to double the normal rates) or above, nobody stops driving,” Chen said. Surges also lure nearby drivers to relocate to the pricier area, he said. A more mild impact comes at anticipated periods of high demand, such as New Year’s Eve, when the surge brings drivers onto the road.

Chasing surges

Sollars said that newer and part-time drivers — who account for the vast majority of Uber vehicles — do chase surges. “The online message boards are full of questions about how to get surge pricing,” he said. But Ryder Pearce, co-founder of SherpaShare, which helps drivers analyze earnings, said that many new drivers become disillusioned after chasing surges that end or getting stuck in traffic jams en route.

“Without surge pricing, Uber is not really Uber — you can’t push a button and get a ride in minutes,” an Uber economist and an Uber data scientist wrote in a blog post last month about a different report on surge. It analyzed what happened when a glitch caused surge to stop for 26 minutes in New York City on New Year’s Eve, Uber’s busiest night of the year. Ride requests skyrocketed, but only a quarter of passengers got a ride — and the wait time rose sharply.

Uber has applied to patent its “method for dynamically adjusting prices for service,” which uses an algorithm to automatically respond to rising demand by increasing prices by a “surge multiplier.” That automation led to bad public relations when Uber prices spiked during the Sydney hostage crisis last year and Superstorm Sandy in 2012. Uber now pledges that local teams monitor surge to prevent overcharging during emergencies.

Short-lived bursts

The Northeastern researchers collected data from December through May but focused their paper on two weeks in spring. They said San Francisco had lots of short surges throughout each day, more than Manhattan. San Francisco surges tended to peak at double normal rates during morning rush hour, from 6 to 9 a.m. weekdays. Another peak, which sometimes tripled normal rates, came nightly at 2 a.m., when many bars close.

San Francisco surges reached as high as 4.1 times normal rates, although 1.5 or less was more normal, the study said. Surges appeared to update every five minutes. “The vast majority of surges are short-lived, which suggests that savvy Uber passengers should wait out surges rather than pay higher prices,” the study said.

Chen agreed that many surges are quick, and said that proves they work — although he said the paper overestimates how often San Francisco experienced surges. “We surge when there’s not enough supply in an area,” he said. “If a lot of drivers respond quickly and drive toward the surge, that is precisely why it doesn’t last long.”

Driver app updated

Uber is now updating its driver app with a more granulated map to help them decide how to respond to surges, Chen said. “We can tell you that if you are two-tenths of a mile away, you will make significantly more money” by driving to a surge area, he said. “Or we can tell you that by the time you get there, it won’t have been worth your time to make that trip.”

That updating implies that some drivers had complained about the “Lucy and the football” syndrome of rushing to surge areas, only to find out that they’d ended.

Wilson said, and Uber confirmed, that he found a bug in surge that showed different surge multiples to people at the same location. Uber was quick to fix that, Wilson said.