Many industries charge more for their services and goods during peak periods. But, the fact that Uber Technologies Inc,established a supply-and-demand basis surge pricing policy that is imposed on the “independent contractors” (or driver-partners, as the firm labels them) who drive for them is the basis of an antitrust lawsuit in federal court.
The company hoped to get the class action suit, which is technically against the company’s CEO Travis Kalanick not the firm, dropped. However, U.S. District Court Judge Jed Rackoff denied their motion for dismissal on Thursday.
The lawsuit filed by a passenger group, led by Spencer Meyer from Connecticut, maintains that Kalanick conspired to increase prices on days with high demand volume (so-called surge pricing). The ride-sharing service’s fares are set by their algorithms, but the litigants are arguing that the rideshare service’s drivers cannot negotiate rates and may fare better if they could set their own rate.
The litigants allege Kalanick conspired to push up prices for greater profits. They argue that the peak-period surcharges are unfair to customers.
New Year’s Eve is often cited as an example of a period when surge pricing rose to exorbitant (0r, according to some, extortionist) levels. In some areas, fares reached up to nine times their normal pricing that night.
The subject illustrates the big difference in pricing between taxis and ride-sharing apps like Uber. Taxi prices are based on time and/or distance traveled. So a brief distance in traffic could potentially be nine times the rate with no traffic. Uber rates are based on distance and supply-and-demand. A rider getting into a taxi does not know what the price for the ride will be, but an Uber rider does.
Riders are notified about the time period’s pricing directly within the app when they check on rides. They are asked to confirm and accept (or reject) the increased fares. They can also request to be notified when prices drop, according to the company. The surge pricing – and final price for a given ride – are spelled out before someone gets in a vehicle.
Airlines, hotels, Broadway shows and even amusement parks like Disneyland and Universal Studios now charge more money for tickets or rooms on high demand days. However, the price difference is not passed on to the pilot, actors, hospitality staff, etc.
While one may or may not agree with the basis of the lawsuit, the Uber pricing situation is different, largely because of their business model, which shares the increased fares with the drivers. Because the drivers are independent contractors and they can choose when they want to work, earning more money during storms or crowded driving conditions give them a greater incentive to work during less desirable time periods. Like taxi drivers, they wind up earning more for 5-mile drive in traffic than a 5-mile drive with open roads. That extra money makes driving New Year’s Eve and other surge periods worth the hassle.
The plaintiffs also suggested a conspiracy to fix helped eliminate rival ride-share services. The judge noted in his ruling on the Uber surge-pricing policy lawsuit this week, “The advancement of technological means for the orchestration of large-scale price-fixing conspiracies need not leave antitrust law behind.” It is not clear, however, why Uber’s pricing model eliminated rivals, who could have charged similar or better rates. Or, how the existence of competitive means of transport, like taxis, will play into the ultimate court ruling.
Written and Edited by Dyanne Weiss
Wall Street Journal: Judge Denies Motion to Toss Uber Price-Fixing Suit
Christian Science Monitor: Why Uber faces a price surge lawsuit
Reuters: Uber CEO must face price-fixing lawsuit by passengers: U.S. judge
Bloomberg: Uber Surge-Pricing Antitrust Suit Green-Lighted by Judge
Screenshot and photo courtesy of Uber