Earlier this week, as police in Sydney, Australia were surrounding a café where a mentally unstable man with a shotgun had seized dozens of hostages, the rates charged by the city’s Uber drivers shot up by a factor of three. Australians were outraged by what some denounced as “price gouging.” When Twitter lit up with complaints, Uber—the app-based transportation network that connects riders to drivers via their smartphones—entered damage-control mode, paying the costs of all riders fleeing Sydney’s central business district.
It was smart PR: When a city is in a state of terrorized panic, even corporations are expected to display a spirit of selflessness and solidarity. But Uber had no legal or moral obligation to pay for anyone’s ride. The company is quite upfront about its “surge pricing” business model. When demand spikes (during a snowstorm or a mass-transit outage, for instance), an algorithm automatically jacks up rates, which in turn draws more Uber drivers onto the roads, thereby giving everyone faster (albeit more expensive) service.
In other words, surge pricing is just microeconomics at the simplest undergraduate level. And the system works beautifully—which is why, in the space of a few years, Uber and other ride-share companies have made the old-school model of a fixed pool of city-registered taxis charging set rates seem absurdly obsolete. The problem for Uber is cultural acceptance of this massive change to an established industry. As the Sydney example illustrates, many of us simply haven’t yet been conditioned to accept the laws of supply and demand being applied in such an up-close-and-personal way.