May 21, 2019 Uber Drivers Learn To Game Its Antisocial System Uber and other ride-hailing companies use surge pricing, also known as “dynamic pricing” or “demand-based pricing.” They increase the ride fare if the demand for rides is greater than the available capacity. In moments of heavy demand, they increase their fare up to three times the normal price. A 2015 Uber and University of Chicago, Booth School of Business, study claims that such surge pricing is beneficial for both sides, the drivers and for those that use the service: Uber operates in a market with large fluctuations in demand and a variable supply of driver-partners. Driver-partners are free to work whenever they want and must be incentivized to provide services. Under these conditions, economic theory tells us that using prices to signal to riders that rides are scarce and inducing driver-partners to forgo other activities will close the gap between supply and demand and lead to improved outcomes for both riders (as a whole) and driver-partners. Reality disagrees with what the economic theory tells us. In the U.S. Uber drivers are seen as independent contractors. The drivers say that the standard fare is too low, or Uber's 35-40% share of it too high, to make a living. They therefore looked for and found ways to game the system: Every night, several times a night, Uber and Lyft drivers at Reagan National Airport simultaneously turn off their ride share apps for a minute or two to trick the app into thinking there are no drivers available---creating a price surge. When the fare goes high enough, the drivers turn their apps back on and lock into the higher fare.

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“All the airplanes we know when they land. So five minutes before, we turn all our apps off all of us at the same time. All of us we turn our apps off. They surge, $10, $12, sometimes $19. Then we turn our app on. Everyone will get the surge,” one driver says. It is wonderful to see such worker solidarity: "And does everyone oblige? Does everyone do it?, Sweeney asks. “Yes 100 percent. Everyone do it. Everyone knows it’s not worth it. They know if they take a ride from here without surge, without pumping the surge up, it’s not worth it.” In less than a minute, about 50 drivers are locked into the surge. “It’s like we work as a family, like a team together. Like as a team. We do it. Every night. We do it again. We drop off, come back again, it’s a routine. We do it to 12 o' clock." The business idea on which Uber is based is not profitable. From its beginning it grew by breaking the law: Uber developed an aggressive expansion technique called “principled confrontation” in which Uber simply began operating in a city or region until being told that it didn’t have permission to do so. At that point the firm would mobilize public support for its service, using an array of lobbyists, followed by a political campaign to change the local regulations. It’s a method that worked in large and small communities, but not everywhere – even in the USA and Canada. That strategy made it impossible to build its business in Europe and elsewhere. Even while it exploited its drivers the company never made money. In the 4th quarter of 2018 it lost $800 million. The company was immensely hyped with an estimated value of $120 billion before it was recently taken public. But the initial public offering was a total flop. The opening stock price was $42 and fell to $36 within the first two days. The underwriting banks had to step in to prop up the price to $41.85 today, which sums up to a total evaluation of some $70 billion. That is still way too high. The private investors who bet on Uber during the last years lost money: From May 2015 on, Uber sold convertible preferred stock to venture investors on the private market at prices of $40 or higher, including 15 transactions with experienced investors at $48.77 each, totaling about $6 billion. All those investors are underwater today on their Uber shares. Uber says it will make profits when self driving cars become available, allowing it to eliminate those pesky drivers. But while driver assistance systems are more and more common, it is highly doubtful that truly autonomous cars will evolve within the next decade. When they do they will be easy to sabotage. Unicorns like Uber, Tesla for example, will also have strong competition from genuine car manufacturers with very deep pockets. Uber and the like also create high external costs, that the public only now starts to see. They increase the total amount of traffic while hurting public transport and other valuable businesses. The too low worker compensation for its 'contractors' means that the public will, in the end, have to pay for their well being. The company lost $12 billion during the last four years. Its price dumping, financed by its investors, destroyed decent paying jobs in the taxi industry. Over time these costs will create more resistance to such companies and demand for regulating them will increase. The so called smart investors, who early on bought into Uber and allowed for its failing strategy, will hopefully learn from its upcoming crash and their own high losses. For the society as a whole such anti-social companies have no value and should not exist. Posted by b on May 21, 2019 at 17:51 UTC | Permalink Comments next page » next page »