The Economics Behind Uber’s New Pricing Model
Jordi McKenzie , 1 Jun 17
       

Uber is changing the way it calculatess fares. Ritchie B Tongo/EPA

Uber is changing the way it calculates fares, moving to a system that charges what customers are “willing to pay”, based on factors like whether you are travelling to a wealthy suburb. But while this change has been met with mild outrage, it is actually a very common practice called “price discrimination”.

Price discrimination is a firm’s attempt to capture the difference between the value a consumer puts on a product and how much they actually pay. Firms do this by charging different prices to different consumers and exploiting differences in willingness to pay.

While this sounds like it comes at the expense of consumers, economic theory shows that society as a whole can benefit if certain conditions are met. For example, if Uber’s new pricing means it can enter new markets or reduce customer waiting times, price discrimination could increase society’s overall welfare.

Price discrimination takes many forms, such as Coca-Cola’s infamous vending machines that increase soft drink prices as the outside temperature increases, or charging more for pink razors.

Cheap movie tickets on Tuesdays are another example of price discrimination, as are the different priced tickets at the theatre and concerts. Pharmaceutical companies charge different prices in different countries, and car dealers negotiate and give out discounts.

The airline industry is often regarded as the champion of price discrimination. It price discriminates on almost every aspect of a fare - from the time a booking is made to the type of seat booked, and, of course, the actual route flown.

The only surprise is that Uber hasn’t implemented such a system before now. Its success has, in large part, been driven by a business model that so cleverly mimics a free-functioning market, notably with its “surge pricing”.

Sign in to view full article

       
How Hot-Deskers are Made to Feel Like the Homeless People of the Office World
If you work in an open-plan, hot-desking environment, you have probably at some point found yourself trudging through the office, ...
Alison Hirst
Thu, 16 Feb 17
Why We are Willing to Pay for Mega Expensive Things
It may not seem logical or good value for money, but there are plenty of us that will fork out ...
Paul Harrison
Wed, 15 Feb 17
Our Experiments Taught Us Why People Troll
“Fail at life. Go bomb yourself.”
Justin Cheng, Michael Bernstein, Cristian Danescu-Niculescu-Mizil
Mon, 6 Mar 17
Karl Marx, the Racist
It’s been nearly 100 years since Karl Marx’s ideas triggered the world’s first communist revolution in Russia on March 8, ...
Jack Phillips
Sat, 11 Feb 17
We Change Our Voice When We Talk to High-Status People, Shows New Study
Imagine going for a job interview and the employer sitting across from you is truly intimidating. He’s big, bold, loud ...
Viktoria Mileva, Juan David Leongómez
Wed, 5 Jul 17
At Epoch Times, We Care :o)
An Epoch Times Survey
An Epoch Times Survey
Sports Elements
BUCHERER
Sports Elements