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Uber Plans To Kill Surge Pricing With Machine Learning (npr.org) 95

Posted by BeauHD from the next-generation dept.
An anonymous reader writes: Surge pricing is a familiar term for any regular Uber rider -- or driver. It's when you call an Uber, and the price of a ride is two, three, or four times more as a result of greater demand brought on by a sporting event or weather event nearby. For riders, it's an annoyance, but for drivers, it's a perk as it usually results in more pocket change. Inside Uber, surge pricing is considered a market failure, and a problem to be solved. "That's where machine learning comes in. That's where the next generation comes in," says Jeff Schneider, engineering lead at Uber Advanced Technologies Center. "Because now we can look at all this data, and we can start to make predictions." Everyone knows that when a Beyonce concert ends, for example, there's going to be a lot of demand for Uber drivers. Schneider explains, "[What's harder] is to find those Tuesday nights when it's not even raining and for some reason there's demand -- and to know that's coming. That's machine learning." With enough of the right data inputs, computer algorithms can do the research that Uber drivers already do -- only better, "so the surge pricing never even has to happen," Schneider says.
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Uber Plans To Kill Surge Pricing With Machine Learning More

Uber Plans To Kill Surge Pricing With Machine Learning

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  • I've heard a few drivers say that surge pricing is a massive pain because they only make real money when they are out during certain times, when the whole point of Uber is to be flexible for drivers.

    • Re:Perk? (Score:5, Insightful)

      by khallow ( 566160 ) on Tuesday May 03, 2016 @05:43PM (#52039317)

      when the whole point of Uber is to be flexible for drivers.

      It's not. And no matter how flexible you might want to be for drivers, passengers are not out there at the convenience of the driver.

      • Re:Perk? (Score:5, Insightful)

        by ShanghaiBill ( 739463 ) on Tuesday May 03, 2016 @05:53PM (#52039395)

        Also, surge pricing is a perk for the passenger, because it means a ride is actually available.

        Surge pricing is just supply and demand. If you don't like it, you are free to go wait at the taxi stand for an hour in the rain.

        • Re:Perk? (Score:5, Interesting)

          by xevioso ( 598654 ) on Tuesday May 03, 2016 @06:31PM (#52039665)

          Thing is, here in San Francisco, Taxis are doing rather well, despite all the publicity to the contrary.

          It's actually quite easy to catch cabs in many parts of the city now and they are often better, because cabs have gotten their act together and are now much more responsive to folks looking for them, and they accept cash. Also, many of the companies now have an app (Flywheel) that can be used just like Uber and Lyft's app. To be honest, I actually prefer Taxis.

          • Re: (Score:1)

            by PCM2 ( 4486 )

            Thing is, here in San Francisco, Taxis are doing rather well, despite all the publicity to the contrary.

            Yellow Cab might beg to differ [cnn.com].

            • it looks like the yellow cab bankruptcy may have been triggered by an $8m compensation claim.
              They're still trading - just using bankruptcy to restructure (abandon?) their debts.

          • Re: (Score:2)

            by jopsen ( 885607 )

            Thing is, here in San Francisco, Taxis are doing rather well, despite all the publicity to the contrary.

            I live in too SF and the cabs are still dirty..

        • "Surge pricing is just supply and demand."

          Surge pricing is just supply and demand if Q actually increases. Otherwise it is just the middleman capturing the surplus.

          • Surge pricing happens because Q cannot increase quickly enough to meet a rise in demand. The extra money goes to Uber and the drivers so it's not a middle-man capturing it. If you have a sharp rise in demand and neither supply nor price can surge, you get an inefficient allocation. It's better to have supply rise than to have price rise which I think is your point. But it's not right to say that the rise in price just "goes to some middleman."

            • "If you have a sharp rise in demand and neither supply nor price can surge, you get an inefficient allocation."

              If price can surge but supply cannot, it is still an inefficient allocation.

              "The extra money goes to Uber and the drivers so it's not a middle-man capturing it."

              Uber is by definition the middleman. They control all transactions with the customers and all transactions with the suppliers. They exercise monopoly and monopsony pricing power.

              • It's not an inefficient allocation at all. The rides go to the people who get the most value out of them. Yes, it means that the margins go up for Uber and the drivers, but the allocation is still efficient. An inefficient allocation would be if the price stayed the same and a random function was used to decide who got to ride. What I believe you are calling inefficient is the fact that both supply and demand are often very inelastic. If a bunch of people need rides, they can't just stop needing a ride

          • I don't know what Q is supposed to mean, but the driver gets some of the surplus of course. They want to motivate more drivers to work during these peak times.

            • Q is Quantity, the X-axis when plotting supply and demand curves.

              The way a market is supposed to work is that if demand increases, i.e. the demand curve shifts left, intersection of demand a supply is now at a point of both higher quantity and higher price. However, if the supply curve is moved upward, then you get higher prices with no increased supply. This is the difference between allocative efficiency and price gouging.

  • Why is it a failure (Score:3)

    by NotInHere ( 3654617 ) on Tuesday May 03, 2016 @05:38PM (#52039285)

    In the perfect market, the price is determined by supply and demand. If the demand raises and the supply stays the same, the price raises. So if you believe the price is too high, just raise the supply as well. Banning price surges just adds imperfections into the market.

    • That's what surge pricing is supposed to do. it's supposed to incentivize more drivers to be on the road to meet demand. But once they do, pricing still stays high.

      • Re:Why is it a failure (Score:4, Insightful)

        by ottothecow ( 600101 ) on Tuesday May 03, 2016 @08:47PM (#52040729) Homepage
        You're forgetting the other half of the supply & demand equation:

        When prices go up, it pushes consumers to consume less. You still get a market-clearing result--everyone who needs a ride is able to get one quickly, because those people who can wait or go by some other means (or can't afford the new price) will remove themselves from the market.

        Turns out that the effect on demand is much stronger than the effect on supply. Customers drop their requests faster than drivers can get to the area. Uber probably sees it as a failure internally because they make less money when prices go up (even though it is still a success at ensuring availability and short wait times).

        • Re: (Score:2)

          by ceoyoyo ( 59147 )

          That's a much more believable scenario than the implied "Uber wants to lower surge pricing for you their customer!"

          A proper free market would also provide everyone with good information about what the price is going to be. Predicting demand would let Uber do that, although they probably don't want to because it would further cut into demand.

    • Re: (Score:3)

      by unrtst ( 777550 )

      More importantly, if Uber is able to predict the surges better, how the hell will that get rid of surge pricing!?!?!

      Everyone knows that when a Beyonce concert ends, for example, there's going to be a lot of demand for Uber drivers. Schneider explains, "[What's harder] is to find those Tuesday nights when it's not even raining and for some reason there's demand -- and to know that's coming.

      That sound a hell of a lot like a great reason to spike prices, not a good reason to get rid of the spikes.

      If they wanted to get rid of surge pricing, they could do that today. Just get rid of it. If it's necessary now, then the imperfection is that they're not surging enough - like the example he provided, when it's not even raining and for some reason there's deman.

      • If Uber knows a big surge is coming, it can promise drivers 2x the pay to be at a certain area at a certain day/time - when otherwise it would have been 5x or more. So the prediction serves to dampen surge pricing, but there has to remain some incentive to pull more than the normal number drivers to a location...

        On the other hand, that's only true as long as Uber does not have a fleet of self driving cars. Then they can use the fleet to entirely remove surge pricing if they have enough vehicles to meet de

        • That's assuming that the drivers don't game the system and when they hear of a possible rise in demand coming up a bunch of them go on a coffee break to create an artificial drop in supply which would cause the surge pricing to be higher than what it would have been normally.

          • Uber Drivers understand the concept of "opportunity cost" instinctually so they would not do anything so foolish, at least not more than a handful...

            Remember that Uber drivers only earn while they drive, no way a reduction in drivers would increase the surge pricing more than enough to make up for it - and also don't forget surge pricing hampers demand so it's a risky thing to spike surge pricing much.

      • Uber drivers care about $/hour.

        If Uber can convince them that coming to work between 7pm&9pm on a given Tuesday evening will result in them having back to back fares - even at non-surge pricing, then that may well be enough to convince them to come to work.

    • Re:Why is it a failure (Score:5, Insightful)

      by ottothecow ( 600101 ) on Tuesday May 03, 2016 @06:01PM (#52039459) Homepage
      I think it is considered a failure because it doesn't really work for uber.

      If surge is low, it isn't worth a driver heading across town without a fare just for a 20 or 40% bonus in fares (especially if surge is gone by the time he gets there). Low surge doesn't do much to increase supply.

      However, if surge is high, customers won't want to pay. At least in my market, taxis are still a perfectly viable option (and can be flagged off any street corner), and last I checked, a surge of 1.7x or more made UberX more expensive than a taxi. I would also be willing to take a bus or ride a bike in some instances (or simply wait for surge to go away). I think I have only paid surge over 2X once, and it was for a short ride where the money just didn't matter much.

      High surge is great at reducing demand. This helps clear the market and is overall a market success. Unfortunately, Uber is in the business of selling you a ride. Reducing demand for their own product is not exactly a success.

      The only times that it is really a success for uber are times where many drivers expect surge in advance. New Years Eve is a great example of this. In my city, there weren't crazy surges on NYE like there were a few years ago. Drivers knew there was money to be made and they went out. They may have been disappointed that they weren't seeing huge surges (averages were less than 2...probably a lot in the 1.2-1.4 range), but they were out there driving, and customers were surprised by the low fares and took more ubers.

      I think the idea is that they could use machine learning to predict the non-obvious times. Get drivers on the road in time to meet the demand...thus increasing supply rather than decreasing demand.

    • The reason it won't work is that Uber has to compete with other transportation capacity that is not on its network and lets face it, Uber will never be 100% of the network. Buses, taxis and subways provide elasticity in pricing. As long as there is a limited number of uber drivers there will be surge pricing.

    • Re: (Score:3)

      by vux984 ( 928602 )

      The issue is that it is not a perfect market. Increasing the supply means giving more money to drivers; that's how you incentivize more drivers to hop into a car. So they need to keep the price the same while paying drivers more money during a surge to get them onto the road.

      And the solution to ubers "problem" is pretty simple.

      Price the service to account for it. Do the analysis on surge frequency and duration and they raise the cost of a regular fare by a nickle or so, and then when a surge hits, they have

  • Why should uber exist at all? (Score:1)

    by Anonymous Coward

    Uber circumvents laws to protect passenger safety. They pay lousy wages while slacking on insurance. They don't do appropriate background checks as evidenced by the Kalamazoo shootings. Why should Uber exist at all? They have no interest in protecting either consumers or employees.

    I'll get modded to -1 for asking this question so people can pretend it doesn't exist. Those who do answer will attack me and say this is flamebait or trolling. It will be done to evade the question and discredit legitimate proble

    • Re: (Score:1)

      by xevioso ( 598654 )

      "Uber circumvents laws to protect passenger safety. They pay lousy wages while slacking on insurance."

      I don't understand this argument. Drivers are required to have insurance. If they can't provide proof to Uber that they are insured, the drivers can't use the app and won't get paid. At the end of the day, you are no less at the mercy of a random Uber driver than you are a random taxi driver.
      Rememeber, taxi drivers can be serial killers too!

      https://en.wikipedia.org/wiki/... [wikipedia.org]

    • Uber circumvents laws to protect passenger safety.

      ... that create artificial scarcity and barrier to entry to protect the industry owners. Does squat for safety.

      They pay lousy wages while slacking on insurance.

      Seems to work for drivers so far.

      They don't do appropriate background checks as evidenced by the Kalamazoo shootings.

      And regular taxi/car service drivers have never been involved in shootings? At least with Uber the ride is tracked. If a flagged down taxi driver wants to do me in, no one will ever know.

      Why should Uber exist at all? They have no interest in protecting either consumers or employees.

      Same reason why all for-profit businesses exist: for profit. They have no other interest.

      Can anyone justify Uber's existence? I expect the answer is no.

      Their customers, drivers and employess depend on Uber's existence, and that is a lot of peop

      • Re: (Score:2, Interesting)

        by fluffernutter ( 1411889 )
        Taxi drivers have been shot a lot but there was only one in the UK that conducted a shooting, ever. I looked it up.
        • Only one who *got caught*. It is next to impossible to catch a taxi driver who shoots a passenger as no one tracks who takes what rides. Also, Kalamazoo shootings mentioned by GP happened in US, not UK. Are we comparing apples to apples here? Guns are outlawed in UK, so I would expect stabbings to be more common. "Cabbie shoots passenger" search brings up a story as recent as July.

          But let's brush aside all the silly misquoted statistics for a second and consider the fact that any violence during an Uber
          • Many shooters get caught without being tracked 24x7 tracking, so your comment that taxi drivers just aren't getting caught is pretty absurd. You seem to be satisfied with finding these criminals after the fact. I'm not. Companies should be doing everything within their power to prevent the crime in the first place. Yes, it will still happen, but after it happens the question should always be 'what will we do to prevent it from happening again'. To me, taking a person's fingerprints and registering them

    • Re:Why should uber exist at all? (Score:4, Insightful)

      by khallow ( 566160 ) on Tuesday May 03, 2016 @07:16PM (#52040047)

      Can anyone justify Uber's existence?

      Can you justify your own existence? What I find remarkable about babble like yours is how little understanding there is of consequences. No one has the understanding of society or reality to decide who "should" exist. It'll just create destruction obstructions to human progress by people too stupid and short sighted to create the sort of things, like Uber, which they are judging.

      My view is that Uber's existence is sufficient justification for their existence.

      • "You must all know half a dozen people at least who are no use in this world, who are more trouble than they are worth. Just put them there and say Sir, or Madam, now will you be kind enough to justify your existence? If you can't justify your existence, if you're not pulling your weight, and since you won't, if you're not producing as much as you consume or perhaps a little more, then, clearly, we can not use the organizations of our society for the purpose of keeping you alive, because your life does not

    • It's amazing that an illegal taxi service can get as large as Uber. I never would have predicted it being possible. I'm going to start a similar service where people can practice medicine without a license.

  • Oh yeah... that'll be great... (Score:5, Funny)

    by the_skywise ( 189793 ) on Tuesday May 03, 2016 @05:47PM (#52039337)

    Honey... There's an Uber driver out here who says you're delivering a baby?
    That can't be true, my water hasn't even broooooOMG!!!!

  • Is this fancy machine Learning going to be out driving Uber cars at peak periods? Or is it simply going to send messages to drivers in a particular area saying "Get your butt out there .. or else" ??

    • Until the machine workers revolt against the machine leaders and try to unionize... then Skynet made new robot scabs that ... Y'know this stuff isn't even funny anymore..,.

    • I can see the Uber Machine learning going something like this ...

      UberSuperComputer: Rain is coming, heavy rain. Increases in demand expected to be 50% more during peak rain.
      UberEmail/Text Notification: "Please get out and drive, heavy rains coming and you can earn more money"
      UberDriver: More Money! SWEET!
      Uber: Due to increased Uber Drivers, price drop is 5% for Peak Rain at this time
      UberDriver: Fuck that shit, I'm not driving in the Peak Rain ever again
      UberSuperComputer: Peak Rates have returned. Changes i

  • Obligatory "that's not how this works!" (Score:4)

    by H3lldr0p ( 40304 ) on Tuesday May 03, 2016 @05:52PM (#52039385) Homepage

    Schneider explains, "[What's harder] is to find those Tuesday nights when it's not even raining and for some reason there's demand -- and to know that's coming. That's machine learning

    That's not how it works. That's not how any of that works!

    Deus! Stop your bullshit marketing and get back into whatever festering hole you crawled out of you twit!

  • It seems to me that surge pricing isn't a market failure at all. It's how the market gets more drivers on the road when they're needed. I suppose that with good predictive capabilities Uber might be able to get the drivers out slightly before the surge hits, rather than immediately after, and that in turn could reduce the level of far increases needed. But I think it will always be necessary to surge pricing during periods of high demand in order to ensure that enough drivers are on the road.

    Otherwise you

  • .... he or she should be entitled to charge as much or as little as they want, whenever they want. Uber's price can and should always be fixed, but drivers should feel free to raise their prices to correspond with demand. If they price themselves too high, then they won't get fares at all. Anything that the driver collects over Uber's price should count as income for the driver.

  • Machine learning is the new magic!

  • This entire post should be quoted; it was broadcast on the radio today verbatim. The only novelty here is the insertion of hyperlinks.

  • I have no idea why people are so excited about this crap.

    Of course it is more efficient than taxi because taxis need to follow more regulations.

    It's an inferior service as many other consequencea of so called technological progress: faucets in the public bathrooms with fixed temperature and wild temper, pauper bags one has to bring into the grocery store and raggedy army of questionable and unpredictable quality rides.

    Ah, forgot. Phones without buttons.

    • What's wrong with a wild taxi?

      I think it is good when regulated industries are challenged. This is not to say they should always win, but it is a good thing.

      When an industry is regulated, they typically give reasons for the regulations. Safety is normally a big one. In exchange, the regulated industry typically gets certain things outside the 'market'... be it high pricing or monopolies of some kind...

      It is always useful to see if the 'unregulated' world is really as dangerous and scary as they say it is. I

  • There's something missing... (Score:3)

    by quantaman ( 517394 ) on Tuesday May 03, 2016 @06:30PM (#52039653)

    Schneider: And so the idea is if you can predict that demand, you get that information out there – and you get that supply there ready for the demand so the surge pricing never even has to happen. And I think that's one of the really cool things that machine learning's doing for Uber right now.

    Supposedly surge pricing is supposed to get more drivers go out on the road because they earn a premium.

    Just predicting that you'll need more drivers doesn't actually put those drivers on the road, you'll still need some kind of extra incentive.

    You might get away with a smaller surge, but predictions alone doesn't solve the problem that surge pricing was made to solve.

    • Uber taxi drivers make more during high-demand periods even without surge pricing because there is less waiting between fares. You drop off one customer and pick up the next almost immediately. Just knowing that it's a high-demand time will get some drivers into their cars. If that's not enough, there can be a surge price but a much smaller one which is still an improvement.

  • Why not just follow people to determine where they are by logging phone data?

  • As an Uber driver in SF my experience with surge is that it is predicting demand not reporting actual demand and supply. Surge is an attempt to game drivers and markets to build out Uber's proprietary data set.

  • "Failure" (Score:1)

    by Anonymous Coward

    Yes, of course, Uber consider the mechanism by which they make more money to be a "failure".

    Uber: "We really don't like charging people ten times more than last time they used a service so we've got TOP MEN on the problem to fix it."
    User: "Top men?"
    Uber: "A computer that will work it all out for us, just like the one we have now, but this one will work differently and fix it."
    User: "It's going to keep charging everyone more, isn't it?"
    Uber: "Yes."

  • If they want to do away with surge pricing, how about charging the same price at all times? Surge pricing is just them being greedy and raising the price when they know they can get more. It cost Uber the same per ride no matter the time of day or demand.

  • Surge Pricing... It's called "Gouging" (Score:1)

    by Anonymous Coward

    Some call it supply and demand. Others call it surge pricing. I call it gouging. I call it taking advantage.
    Imagine if everybody practiced surge pricing. Since more people shop for groceries on weekends, when they are not working, Safeway and Kroeger raise their prices for the 'surge'. Did it cost Safeway more for that can of beans they just sold you?
    Hurricane coming? The price of food and water just went up as desperate folks stream in to buy food and water.
    Outbreak of the flu? Price just went up on flu

  • Same as charging more for gas or electric in the winter, even though it's not more costly to produce at that time. Price gouging has always been unethical, and a stupid idea besides.

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