Technology and Predatory Pricing, the Uber Story

Big Red Car here.  Ahhh, 70F and sunny in the ATX.  You know that’s pretty damn sweet, ya’ll.  On Earth as it is in Texas, indeed.

The Boss is still skiing in Steamboat and he’s reporting 35F and sunny — sunburn, Boss.  Get the SPF working for you.  Sunscreen, the most dependable service available and the best advice ever.

So, have you been following the saga of the Uber pricing in NYC during the recent snowstorm which has given rise to outcries of predatory pricing.  Predatory pricing, you say, Big Red Car.  Do tell.

Uber

Uber —  https://www.uber.com/ — is a transportation service like a limo or taxi company which through a smartphone app allows one to summon a car.

It is currently operating in a bunch of cities but they are cities in which “car for hire” services are attractive — dense cities.  They are in North America, Europe, Africa, Middle East and Asia (including Australia).  No Uber in ATX but Uber in the Big D, Dallas.

Their special sauce is the recruitment of first rate drivers operating first rate vehicles.

The Boss has used them several times in New York City and Philadelphia.  They are very good.

Pricing model

It is not perfectly clear what the pricing model is but the service is generally a bit more expensive than a “normal” yellow cab.

When you use the app, you can do it all on a pre-approved credit card and you can affix an agreed upon tip.  You set the tip amount.

Upon completion of the ride, the driver will give you a receipt.  No fumbling to pay the driver.  Leap out and all is taken care of for you.

You can see that this could be perceived as a premium service with a premium price.

In many instances, the service is worth the price.  And why not?

Naughty or nice?

During the recent snowstorm in New York City, Uber engaged in a bit of behavior that has folks crying foul.  Well, the’re crying a bit more than foul, Old Sport.  A few folks were saying:  ”Uber, you are a rotten mother fucker!”  [Ooops, sorry that got away from the Big Red Car.  Sorry indeed.]

Why, you say, Big Red Car, why?

Uber raised their prices during the storm to:

1.  $35 per minute; and,

2.  $175 minimum ride charge.

Read these two stories to get an idea of whether Uber was being naughty or nice:

http://www.theverge.com/2013/12/18/5221428/uber-surge-pricing-vs-price-gouging-law

http://www.businessweek.com/articles/2013-12-17/uber-explains-why-35-a-mile-is-the-right-price#r=read

Huh, Big Red Car, that’s a lot of damn money.  A lot of damn money.  Hell, it’s predatory!

Now, Old Sport, that’s for you to discuss and decide not the Big Red Car.  The Big Red Car brings you the info, you decide what it means.

Technology — bludgeon?

Uber is able to “see” how many cars it has out on the street at an instant in time.  This is the supply.

Uber is also able to see how many customers are requesting service and where they are located.  This is the demand.

This technology allows Uber to see the supply and demand match at any instant in time.  This is the pricing insight.

This intimate knowledge — created by the service itself — is the driver of the temptation to engage in a predatory pricing practice.

What is fair?

In any business transaction or contract, there is an expectation of fair dealing and good faith.  Has Uber met those expectations?

It is generally illegal to engage in “predatory” business practices and predatory pricing is the main stream of such complaints.

1.  So did Uber fail to deal with its customers in good faith or unfairly?

2.  Did Uber take advantage of its customers by engaging in predatory pricing practices?

In the opinion of the Big Red Car, the answer is unfortunately YES.  YES, Uber engaged in predatory pricing, bad faith and unfairness by manipulating its prices thereby taking advantage of the weather’s impact on its customers.  A lump of coal for Uber, please, Santa.

But, hey, what do I really know anyway?  I’m just a Big Red Car.  Uber — nice.  Uber pricing strategy — naughty.

 

 

 

  • pitbullstew

    so far as I can tell the entire business model is a predatory business practice and may even be subject to R.I.C.O. prosecution before everything is said and done

    • http://www.themusingsofthebigredcar.com/ JLM

      .
      There is no doubt it is going to get increasing scrutiny. The company itself is nothing if not “brash” and they pride themselves on it.

      BRC
      .

  • http://www.startupmanagement.org/ William Mougayar

    The way I see it is that Uber is playing in its own sandbox now, and they are lucky that lots of New Yorkers could afford this. But let’s think for a minute about the wider implications of this type of pricing. What if there was a universal bid/ask system for taxi dispatching, so the customer can place offers or orders, and taxis respond by accepting offers or bidding on rides. Then, the Ubers and Hailos and Taxis compete on a more level playing field. The technology can make this available.

    • http://www.themusingsofthebigredcar.com/ JLM

      .
      Hell, they are inviting regulation and a wholesale increase in the number of taxi medallions issued. No?

      It says something about their character and ethics. Not something good.

      I will never ride in another Uber. Ever. But hey how many Big Red Cars ever get a ride anyway?

      BRC
      .

      • http://www.startupmanagement.org/ William Mougayar

        The knee jerk reaction would be regulation. The more sensible one would be a level playing field with more openness and a price cap, maybe x3 max. But 10X price gouging is a white collar crime in my books. This isn’t a war zone where you can increase commodity pricing because of scarcity. It was a freggin snow storm. Obviously, this wouldn’t work in Toronto, Denver, Salt Lake City or Montreal, because snow happens there all the time.

        • http://www.themusingsofthebigredcar.com/ JLM

          .
          One thing is for sure — it was a very bad business policy under any circumstances.

          BRC
          .

          • http://www.startupmanagement.org/ William Mougayar

            I agree, although that move carried some marketing value for them, even with the bad rap it’s getting. Look how many people are writing about this and discussing it. Some people thought they were geniuses to pull this off, and others were appalled. It’s generating a healthy debate, and perhaps a better idea will emerge.

            It was a marketing Stunt. In the same league as Beyonce’s iTunes release (from a marketing viewpoint).

          • http://www.themusingsofthebigredcar.com/ JLM

            .
            If your first taste is a bad taste the hill becomes a bit harder to climb.

            BRC
            .

  • http://www.alearningaday.com Rohan

    Cheeky move. I’m sure they can justify it economically.. I just wonder if their customers will still love them.

    Short terms profits guaranteed. Is it a long term win?

    • http://www.themusingsofthebigredcar.com/ JLM

      .
      We Americans cannot hold a grudge. It is both a failing and a blessing.

      That is not how your “community” would treat you.

      I will never use them again.

      BRC
      .

  • http://www.pointsandfigures.com/ pointsnfigures

    There is no such thing as price gouging. Customers aren’t forced to use the service.

    • http://ohheyworld.com/ Drew Meyers

      agree with you on this one

  • http://askbetterquestions.com/ mikenolan99

    True leadership will be displayed now… How they handle this will speak volumes.

    Oh, and can you get rid of the annoying “Share” floating thingy that clutters the screen… Especially on mobile devices?

    • http://www.themusingsofthebigredcar.com/ JLM

      .
      The “share thingy” is a pain in the tail pipe, I admit. I thought it was fixed but apparently not. Sorry.

      The share thingy may be vacationing soon. Sorry.

      BRC
      .

  • http://blog.weatherby.net lance

    Sorry car, you have this one wrong. Predatory pricing is when a company charges an extremely low price to drive out competitors with the intent of rising prices once they are all out of business. The most famous predatory pricing example is Standard Oil. You know all this red, white, and blue gas stations the Boss takes you to? They used to be one big company called Standard Oil that used predatory pricing to drive all the other gas stations out of business. The USG did not like that so they made John Rockefeller break them all up.

    Not saying what Uber did was nice, but it was not text book predatory pricing.

    • http://www.themusingsofthebigredcar.com/ JLM

      .
      The Lance is absolutely correct as it relates to the legal definition of the term “predatory pricing” when it is used in a strictly legal context.

      The Big Red Car — who failed to complete law school BTW — was using it in a more generic sense in that Uber’s pricing strategy preyed upon the snow storm victims.

      The Big Red Car will be much more careful in the future and apologizes for any mischaracterization. Never take legal advice from a car, even a Big Red Car.

      Sorry, ya’ll.

      BRC
      .

      • http://blog.weatherby.net lance

        That is called gouging and Uber is guilty.

        • http://www.themusingsofthebigredcar.com/ JLM

          .
          Gouging indeed.

          BRC
          ..