Another week, another city encountering the free market and spurning its benefits.
Monday morning, the city of San Francisco’s public transit system, the BART, broke down, leaving thousands without a ride during a busy morning commute. When the train broke down, many commuters jumped onto their ride-sharing apps to hail Ubers and Lyfts. The sudden and uncharacteristic spike in demand led to a spike in prices. This “surge pricing” is a feature that allows market-based ride-sharing apps to respond quickly to such sudden changes in a city, but many object to it, including some of the Bay-Area professionals who availed themselves of it Monday.
According to posts on social media, a ride from Oakland to downtown San Francisco was estimated to cost between $60 and $110. The surge also impacted the cheaper ride-sharing options, such as Lyft Line — with one estimate at $85 from an SFGATE review of prices.
Many commuters took out their frustration against the ride-sharing companies online, posting screen grabs of the costs.
So, here’s how this works. On a normal Monday morning, the city of San Francisco’s commuters only need a certain number of Ubers and Lyfts. When the BART breaks down, they need exponentially more. But how to get those extra Uber and Lyft drivers on the scene?
The absolute quickest, most efficient way to get the most drivers there to serve the most people in this situation is surge pricing. Surge pricing is a price signal that alerts many drivers that demand has gone up in a certain area at a certain time.
Surge pricing isn’t a bat signal from mean companies to drivers to tell them to go profiteering off a bunch of people’s bad fortune. Rather, it’s a bat signal from the market to a bunch of independent contractors that it might be worth their while to stick around or hustle to help in extenuating circumstances.
That driver who was headed home after a couple hours of nighttime driving with middling business? Might be worth it for him to take one or two more fares in the city instead of heading straight home. The driver who was going to start a shift a little later in the morning? Might be worth it for her to rush out the door and get downtown ASAP. Other drivers in other areas where their services were less needed knew where their services were most needed and could respond accordingly.
It’s not a perfect system, but in the absence of a working train system, it was better to have a bunch of Uber and Lyft availability than the normal weekday supply, which would have been exhausted immediately.
In disaster areas, Uber has agreed to cap surge pricing so it “strike[s] the careful balance between the goal of transportation availability with community expectations of affordability” after taking PR hits for surges during winter storm Sandy and other emergencies.
The company argued in those instances that surge pricing was needed to get drivers to take extra risk, putting their cars and themselves on the road in times of uncertainty. That’s true. New York argued the surges nonetheless fell afoul of the state’s “price-gouging” laws — a set of laws that while well-meaning often prevent the market from getting the very goods a disaster area needs to the places it needs them.
For instance, it’s easy to see how local Lowe’s and Home Depots might run out of plywood for boarding windows before a hurricane lands if price signals don’t incentivize them to change delivery and distribution plans to move plywood from a place like Montana, where it is less needed, to Alabama’s coast, where it is, but I digress. However you feel about price surges in disaster areas, I think we can all agree that a Monday BART breakdown is not that sensitive a situation.
If San Francisco, like Austin, would like its ride-sharing companies to act more like taxi companies, they will end up with ride-sharing companies that act like taxis. And many stranded commuters during BART breakdowns.