Can the Disruptive Nature of Rideshares Be Tamed?

By: Bridget Clerkin June 25, 2018
A cap on surge pricing—temporary, demand-based cost hikes—by rideshare firms
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Hawaii may be known for its laid-back lifestyle, but Aloha State lawmakers just delivered the harshest rideshare model reforms in the nation.

Earlier this month, the Honolulu City Council passed a new measure to limit how companies like Lyft and Uber price their rides. Called Bill 35, the law is specifically aimed at capping “surge pricing,” the amplified amount users get charged when ordering rides at periods of particularly high demand.

The move marks the first time a legislative body has swiped back at the disruptive rideshare industry, which rose to prominence so quickly largely by skirting long-established regulations designed to keep similar but more traditional businesses in check. And the new-age companies aren’t happy about their new place in the pecking order.

Officials at Uber urged Honolulu’s Mayor Kirk Caldwell to tank the bill with a last-minute veto and have sent messages to their Hawaii customers, warning that the measure would usher in “outdated taxi-style requirements” on their rides.

Still, it seems all but certain that the bill will stick—setting a possible precedent for other cities and states looking to reel in the rights of freewheeling rideshares.

Protect and Serve

Honolulu lawmakers first became aware of the surge pricing issue earlier this year. That’s when it was reported that U.S. Navy sailors disembarking at Pearl Harbor were being charged as much as $221 to travel 10 miles to Waikiki—a trip they could have made in a cab for $44.

It was reported that U.S. Navy sailors disembarking at Pearl Harbor were being charged as much as $221 to travel 10 miles to Waikiki.

Uber officials quickly countered that the quoted price was for a ride in the more-expensive Uber Select tier, during a particularly busy time. (Though predicting rideshare fares is incredibly difficult, especially during periods of surge pricing, an Uber estimate calculator puts the minimum charge for the trip around $42, on a day with little-to-no traffic.)

A number of other rideshare proponents also came to the defense of the pricing scheme at the city council meeting where the bill was approved. The Uber and Lyft apps’ “upfront pricing,” in which riders are shown the estimated total before approving a ride, works to reduce sticker shock and acts as the user’s complicit agreement on the price, drivers argued.

Still, the council passed the measure in a 6-3 vote and sent it to Caldwell’s desk.

Should he sign it and the law remain on the books, Honolulu’s director of customer services must establish a cap on what rideshare companies can charge during peak demand. The man currently in that position, Randy Leong, aired his discomfort with that fact several times at the meeting, saying, “The department is in opposition to setting a maximum fare.”

And while local taxi drivers rejoiced at the decision (a group holding signs reading “Equal rights for taxi drivers” were also in strong attendance at the meeting), Uber has reportedly threatened to halt its service on the island in response. Still, it remains to be seen how much impact the change will actually have.

Crunchy Numbers

Surge pricing” is an example of dynamic pricing, a system allowing businesses to use flexible prices for products and services based on market demand.

The concept is famously utilized by the hotel and airline industries, which can charge wildly different rates depending on a number of factors. It also comes up when selling tickets for live events or putting retail items on sale.

Uber and Lyft adopted the method nearly from the start, implementing it at times when the number of rides requested outweigh the number of available drivers.

Through an algorithm measuring myriad factors in real time, a multiplier is developed, which is then applied to a standard rate. Variables are so specific that surge pricing can impact one neighborhood completely differently from the community next door. Usual culprits include rush hour, bad weather, and special events.

The concept works by luring more drivers to an area through increasing the amount of money they could make off the rides, rideshare company advocates said. That, in turn, should help offset the demand, bringing the number of drivers and riders into a more reasonable balance.

But establishing a real-time balance of supply and demand is a tricky task—one Leong, the Honolulu official charged with establishing a surge pricing cap, said his office was not yet equipped for.

“It would be difficult to determine the maximum fare given we are new to this,” he told council members at the meeting. “We just don't have the knowledge at this point of where to begin."

The Search for a Problem

It’s not the first time the surge pricing schemes have come under scrutiny.

After Uber charged riders the higher-priced fares in the aftermath of Hurricane Sandy, then-New York Attorney General Eric Schneiderman accused the company of price gouging. (A majority of states have long had anti-price-gouging legislation on the books.)

An agreement was later reached between the city and the ride-hail giant to cap its own fares during times of emergency—though where that cap should be set, and what constitutes an emergency, is still highly subjective.

Last year, Uber and Lyft customers in Chicago got refunds for the boosted prices they paid during an emergency that temporarily shut down a number of trains going in and out of the city. And as recently as this May, Uber was in hot water with the state of Massachusetts for charging surge prices during a declared state of emergency.

Still, Uber and Lyft officials in Hawaii say their 300,000 Aloha State customers have issued “zero” complaints about surge pricing. Uber senior operations manager in Hawaii, Tabatha Chow, went on to say that her company typically charges 40% less than taxis on the island of Oahu, calling the surge pricing cap “a solution in search of a problem.”

Uber and Lyft officials in Hawaii say their 300,000 Aloha State customers have issued “zero” complaints about surge pricing.

And some transportation experts say that problem was already solved, when Uber introduced “upfront pricing” in 2016. (Previously, customers would only be shown the surge pricing multiplier during times of high demand, and not know a final fare until agreeing to the ride.)

But the move may also usher in a new form of balance in the supply chain, allowing the government to demand more of the notoriously regulation-averse companies.

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