The Surge Pricing Controversy

by Reihan Salam

Recently, the social transit start-up Uber sparked a great deal of anger and resentment over its “surge pricing” strategy. To guarantee the availability of vehicles on demand, the service dramatically increases prices during periods of high demand, like New Year’s Eve, etc., in popular, dense cities. Uber has done a good job of explaining its reasoning, in my view. Either you use surge pricing or you simply tell customers that cars are not available even at a high price that at least some of them are willing to pay, which is really strange. Brendan Mulligan offers an alternative: he suggests that a clearer indication of what exactly surge pricing entails would help mitigate some of the frustration.

This minor dust-up serves as a reminder of the embeddedness of economic transactions. People feel as though Uber was taking advantage of them, despite the fact that the service leapt in to fill the void created by an overregulated taxi marketplace. One is reminded of Michael Munger’s critique of anti-gouging laws and, more broadly, his work on euvoluntary exchange.  

Relatedly, Munger links to a really thought-provoking essay by the democratic socialist philosopher Michael Walzer on the ethics of competition — it is one of the best critiques of market I’ve ever read, partly because it is so subtle and intelligent. Other critics of the market could learn a thing or two from Walzer. But they probably won’t.