BUSINESS

Toronto subway shutdown puts Uber's surge pricing model in spotlight

06/08/2015 01:47 EDT | Updated 06/08/2016 05:59 EDT
TORONTO - Uber calls it surge pricing. Some of its users call it gouging. But whatever the name, many Torontonians found themselves paying a lot more than usual for a lift to work Monday after massive subway disruptions left thousands of commuters stranded.

Under surge-pricing, also known as dynamic pricing, the ride-hailing service uses an algorithm to lure more drivers to areas where demand is particularly high by increasing the rates in those areas.

The practice has incited controversy among some users who have called it "price gouging."

Some tweeted that Uber was charging up to four times the usual rate in certain parts of the city. But Uber spokeswoman Susie Heath says that as soon as the company became aware of the transit shutdown, it capped its dynamic pricing at three times the normal rate.

Heath says Uber always communicates to users that surge pricing is in effect.

"Dynamic pricing solves the perennial challenge of never being able to get a ride on New Year's Eve, after a major sporting event or during bad weather," Heath said in an email.

"Because Uber doesn't employ drivers, every driver has a choice of how he or she spends his or her time. Dynamic pricing helps bring demand and supply into line, when necessary, by incentivizing more drivers to come onto the platform. Once demand falls or supply increases sufficiently, prices quickly go back to normal."

This isn't the first time that Uber has faced heat over its dynamic pricing practices. The company publicly apologized for jacking up fares by as much as four times the usual rate during a deadly hostage incident in Sydney, Australia, last December.

Uber also drew ire for trying to implement surge pricing in the wake of hurricane Sandy in New York. The company was later forced to backtrack.

Although some users have expressed frustration with Uber's surge pricing model, others said they would happily pay more for reliable service.

Elena Yunusov, a Toronto resident who runs her own marketing agency, says she recently decided to stop buying transit passes, opting for Uber instead. Public transit is simply too unreliable, she said.

"When I go to meet with clients there are contracts at stake and I just cannot be late for that," she said. "Every meeting matters."

Ian Lee, an assistant professor at Carleton's Sprott School of Business, says he's surprised at some of the negative reactions to Uber's dynamic pricing.

"It's simply good old-fashioned supply and demand," said Lee. "There's no evil person sitting behind a computer screen trying to exploit people. It's purely using an algorithm in the software ... that says if there's an imbalance between the demand for Uber taxis and supply of Uber taxis, the software prices you upwards."

Lee says a number of other industries — including airlines, hotels and car rental companies — also use dynamic pricing but are simply less transparent about it.

"When you fly to Europe, you pay a lot more going in the summertime than you do going in the winter," he said.

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