Uber Takes Flack for Increasing Rates During Flood to Lure More Drivers

Blog, Local Government, Regulation, Steve Lafleur (historic), Uncategorized

“Price gouging” during crises is a sensitive issue. Comments on a recent Huffington Post piece by my colleague Peter McCaffrey illustrate just how angry some people get over the issue. As mean spirited as raising prices to “take advantage” of soaring demand may seem, the case for price increases during natural disasters is incredibly straightfoward. Price increases ration goods so that people don’t plunder the shelves for goods they may not even need, and, equally as important, they give companies an incentive to increase supply in short order (which is very expensive, and businesses don’t exist to lose money). For a “progressive” defense of price gouging, I encourage you to read Matt Yglesias’ article in Slate on the topic written in the wake of Hurricane Sandy.

While it is understandable that many people get angry when a large chain raises prices, even though doing so is actually socially beneficial, the anger directed at car service Uber for raising prices (1.75 times the normal rate) during Toronto’s flooding is absolutely vexing. For context, Uber is a smartphone application that uses GPS to connect passengers with available for-hire cars (much like a taxi service). City councils all around North America are trying to shut them down for meeting needs that aren’t being provided under restrictive taxi licensing systems. Their Toronto operations consist of uberTAXI, which operate just like regular taxis, but use their app. UberBlack and UberSUV are run by independent drivers who work through their system.

The price increase, which only applied to UberBlack, was to encourage as many drivers as possible signed up with Uber to get on the road and pick up passengers. It’s telling that the price increases were enthusiastically marketed to drivers, as opposed to being reluctant disclaimers to consumers. Remember, a large portion of these drivers are not full-time drivers. Asking them to operate during storms (which is risky to themselves and their vehicles) without a price premium would result in less cars on the road, and more stranded commuters. I can’t think of a single ethical argument against allowing people to choose whether they’d like to be stranded or pay an inflated fee to get a ride.

While price increases can’t solve everything during times of crises, they are a crucial tool to incentivize both conservation, and more supply of goods and services. Private charity and governments services are crucial, which is precisely why we should unburden both to the greatest extent possible by allowing markets to work.