It’s not surprising that rideshares and on-demand drivers-for-hire have fared well during the San Francisco Bay Area Rapid Transit (BART) strike. But for one startup, the strike became a testing ground for a controversial pricing strategy. Businessweek reports.
Uber has an app that connects people in need of a ride with drivers of luxury vehicles. The company sets its prices based on demand. When more people are looking for rides, it raises fares to encourage more drivers to get on the road.
This dynamic pricing is increasingly common, Slate explains, and flexible pricing in markets with elastic supply makes sense. But price controls on public services like transportation are seen as ways to keep them accessible to the public at large. After Superstorm Sandy, for example, law enforcement officials went after businesses that raised prices of gasoline and bread.
Other Bay Area startups, like Sidecar and Lyft, provide apps that let car owners turn their vehicles into autos for hire on a donation basis. During the strike, they didn't take their 20 percent commission on rides, letting drivers keep all of the money, they told Bloomberg.
Additionally, taxi drivers aren’t allowed to seek higher fares during the strike. Those rates are set by the Municipal Transportation Agency.
Uber, though, has fought against being held to the same regulations. It says taxi regulation serves primarily as a way for incumbents to strangle innovative competitors. While the company has not raised prices during the San Francisco strike -- despite more requests for rides -- it is holding out the possibility of doing so.
The company’s surge-pricing model has, however, drawn criticism before -- such as when prices for rides skyrocketed on New Year’s eve in 2011. The company also quickly reversed its price increases in the aftermath of Sandy, responding to consumer complaints. It opted to pay drivers more to get them on the road.
Image: Michael Dunn via Flickr