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Surge Pricing Reaps Gain from Customer Pain

Surge Pricing Reaps Gain from Customer Pain

Dynamic Pricing: The goal of dynamic pricing is to allow a company that sells goods or services over the Internet to adjust prices on the fly in response to market demands.—WhatIs.com

Ride-Share-Surge-PricingThe so-called “ride-share” services, or as the California Public Utilities Commission named them in 2013, Transportation Network Companies (TNCs), use a dynamic pricing model, or “surge pricing.” Under the surge pricing model, when demand for rides is heaviest, say on “party” holidays such as St. Patrick’s Day or New Year’s Eve, at the end of championship ball games, or during wet, cold weather, the price of the ride goes up.

It’s just business, right? Except it’s not just business… at least not on an even playing field.

Unlike TNCs, taxi companies are and historically have been regarded by local government as a public convenience. That’s because taxis are an important component in an area’s public transit system—they provide an essential public service, just as buses, paratransit vans, and light rail trains do.

Because taxis are a public transportation convenience, in Sacramento the rates taxis can charge per mile are set by the city. Just as your water or gas company must have the approval of government regulators to raise your rates for water or heat, taxi drivers are not allowed to raise the cost of your ride home simply because it’s a busy night and lots of people are calling for a taxi. Doing so might be considered akin to “price gouging”: Taking advantage of a certain market condition to make a windfall profit—something publicly regulated services are not allowed to do.

For you, the consumer, the city’s regulation of taxi fares is a real benefit. If you are someone who takes a taxi to the same destination regularly, you know ahead of time how much it’s going to cost you. You don’t have to worry about getting home by a certain time in the evening or avoid traveling during holiday peak hours. It’s going to cost you the same amount, any time you make that same trip, day or night. If you’re an occasional traveler, you figure out after a trip or two how much it costs to get from your home to the airport or the River Cats game, and are able to estimate approximately what it will cost to go a similar distance.

So-called “surge pricing” is a distinct disadvantage to the consumer, as evidenced by the “surge” of customer complaints from all over the U.S. in the wake of Halloween night TNC price surges. (Read more about this here and here.) Even though TNCs placed an alert on customers’ smart phone apps some were still caught unawares or were simply shocked at the size of the price surge, to several times the usual rates—at the very hour that nightclubs were closing, Halloween parties winding down, and Halloween revelers really in need of rides. Those who were fortunate enough to take a taxi—easy to do here in Sacramento with our free, downloadable app for iPhone and Android—rather than a ride-share car found they made it home quickly, safely and only the cost of a normal taxi trip lighter in the wallet. Not a bad way of doing business.