The Economics behind Uber's Surge Pricing
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Case Code: MKTG370 Case Length: 12 Pages Period: 2015-2017 Pub Date: 2017 Teaching Note: Available |
Price: Rs.400 Organization: Uber Technologies Inc. (Uber) Industry: Transportation Service Countries: United States Themes: Managerial Economics, Business Economics, Economics of Strategy, Consumer Behavior, Marketing Management |
Abstract Case Intro 1 Case Intro 2 Excerpts
Abstract
The case is about Uber's pricing strategy under which the company increased the cost of a ride in a particular area when the demand for rides in that area went up. Uber is known for revolutionizing land transportation costs with its surge pricing, which required riders to pay more during periods of heavy demand. The company’s surge pricing strategy aimed to encourage more drivers to pick up riders and to control the available supply to customers who valued the service the most. However, the surge pricing strategy had always been a critical driver of its success and also the source of much controversy. Many complained that the ride-sharing company took advantage of rush hours by compelling passengers to pay more to get their ride. Uber defended its surge pricing saying that it ensured commuters got a ride when they required it. Travis Kalanick claimed that without surge pricing, there would be lack of supply and passengers could not get a ride in time. In a bid to reduce customer complaints, Uber introduced an upfront pricing feature in its app that enabled riders to know the exact cost of a ride before booking it. But, by launching the new fare system, Uber had no intention of doing away with surge pricing as the company believed that this was the only way to ensure that people could always get a ride when they needed one. Kalanick had ambitious growth plans at a time when the company was entangled in a number of controversies including world-wide protests against surge pricing. With Kalanick’s resignation, will Uber be able to find a solution to the surge pricing problem and will that help it become a profitable company?
Issues
This case is designed to enable students to:
- Examine Uber's surge pricing system and how it benefits or costs consumers, drivers, and the company itself
- Understand the issues and challenges related to Uber’s surge pricing and discuss whether the pricing is justified
- Examine whether Uber's new upfront pricing system can replace the demerits of surge pricing
- Understand Uber's rationale in continuing with surge pricing in its upfront pricing system
- Explore the strategies through which Uber can fix the challenges related to surge pricing
- Discuss how consumers can avoid surge pricing
Contents
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Introduction
The Birth of Uber
Business Model
Uber's Pricing Strategy
Criticism
What Uber has to Say...
Upfront Fare System
The Road Ahead
Exhibits
Keywords
Pricing; Surge pricing; Price discrimination; Price skimming; Price gouging; Price ceiling; Price floor; Elasticity of demand; Price elasticity of demand; Marginal cost; Marginal utility; Law of Supply and Demand ; Demand curve,Market structure – oligopoly and monopoly; Perfect competition market; Market concentration; Regulatory intervention,Cost advantage; Marginal cost of production; Social cost,Allocative efficiency; Gig economy
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