How Uber's surge pricing works (and how you can avoid it)

by Adam Cecil
How Uber's surge pricing works (and how you can avoid it)

The idea behind surge pricing is very simple. When a lot of people are requesting Uber rides in a particular area, Uber will automatically raise the price. This, in theory, will attract drivers to the area, as they will be paid more for each ride.

In reality, it may be driving them away.

According to new research by three researchers at Northeastern University, reported on by ProPublica, surge pricing does not necessarily bring an influx of new drivers into an area. Instead, they saw many drivers leave areas with surge pricing in effect because they anticipated fewer rides being ordered.

So, according to the study, here’s how surge pricing actually works:

  1. A lot of people request rides in an area.
  2. Uber raises prices to attract more drivers.
  3. Less people order rides because it's too expensive.
  4. Drivers leave the surge area.

The study, which was conducted over a four week period in San Francisco and Manhattan, found that most surges are short-lived, and that the majority of users would be better off waiting for surge prices to disappear before ordering a ride.

The conclusion that surge pricing does not necessarily lead to more drivers was also reached by a separate study carried out by Nicholas Diakopoulos at the Washington Post last April. Diakopoulos studied neighborhoods in Washington, D.C., and found that while surge pricing did help reduce wait times in some neighborhoods, it didn’t help in all neighborhoods.

Diakopoulos found was that while drivers already on the road and close to neighborhoods with surge pricing may be attracted to the area, drivers further away or not already on the road were not. His theory is that surge pricing just isn’t attractive enough – surges are usually less than +0.5 multiplier, and most last for mere minutes. As Diakopoulos puts it, "prices surges are like an elaborate game of algorithmic whack-a-mole" for drivers.

None of this really matters for riders – surge prices, for the most part, are not particularly expensive and disappear within minutes. Surge prices are less of a "rush hour" and more of a "rush minute." You can also usually walk a few blocks in another direction to get out of the surge.

There are, of course, outliers, which get a lot of media attention. Holiday riders can be hit with surge multipliers of +9, leading to stories like this one.

How riders can avoid surge prices

  • Wait a few minutes. Most surges end within five minutes.
  • Move to a different area. If you can, walk a few blocks in the direction of a different neighborhood.
  • Find alternative transpiration options on high traffic days like holidays.

But how do surge prices affect drivers? As Diakopoulos found, surge pricing is not really about adding new drivers to the system. Instead, surge pricing helps Uber re-allocate their drivers to areas with more demand. And Uber drivers know which neighborhoods are more likely to get surges – they’re the neighborhoods that already have high demand. Drivers are more likely to stick around these areas, not only because demand is already high, but to also quickly capture surge prices before they disappear.

It’s amazing how much time and energy researchers and journalists are throwing into their attempts to crack Uber’s code. Uber’s surge pricing, while a simple concept on the surface, is actually driven by thousands of data points in every city on every day. And all of it goes into creating an experience that is as seamless as possible to users.

For drivers who are supposedly Uber’s "partners," the experience has to be a little disheartening: it’s becoming more and more clear that Uber drivers are merely cogs in an algorithmic machine, test pilots for a system that would run even more smoothly if they didn’t have to worry about human drivers at all.

Image: Thomas Hawk