1 Case Study No. 1: Uber Technologies, Inc. Marvin L. Cuyos Cle Marven P. Balaga Mary Rose A. Frames Maria Rowela M. Payao School of Business and Economics, University of San Carlos MM 1305: Operations Management Engr. Jovenal M. Arnaiz, MMBM February 20, 2021 2 INTRODUCTION Uber is a tech startup that provides ride sharing services by facilitating a connection between independent contractors or drivers and riders with the use of an app. Its other services include food delivery, package delivery, couriers, and freight transportation. Uber has expanded its operations to 58 countries with 93 million monthly active users worldwide and is valued at around $41 billion. To use Uber, the consumers download the app into their smartphones. When they want to request a ride, they can use the app to contact a driver in the near vicinity. The app allows consumers to track the location of the car and alerts them to when the car arrives. STATEMENT OF THE PROBLEM This case study on Uber Technologies Inc. aims to answer the following questions: 1. Why is Uber adapting a surge pricing technique? 2. How do their consumers perceive their surge pricing technique? 3. What are the common complaints and violations issued against Uber? 4. How do Uber respond to the legal and regulatory issues linked to the company? ANALYSIS AND FINDINGS Surge Pricing is an algorithmically fueled technique that Uber use when there is a demandsupply imbalance. A demand-supply imbalance occurs when there is a downward shift in both the rider’s demand and driver’s availability. In an online article of A. Pattnaik (2019) entitled “How does Uber do Surge Pricing using Locator Data”, the factors of why Uber adapted surge pricing includes: normal peak-hours, bad weather conditions, events, traffic conditions, and unseen emergencies. Surge pricing is essential in a way that it helps in matching the drivers' efforts with the demand from consumers. According to Hall, J., Kendrick, C., & Nosko, C. (2015), the first beneficial effect of surge was to increase the number of driver partners in the area and the second was to allocate rides to those that value them most. Meanwhile, Castillo (2019) cited other benefits 3 of surge pricing. First, surge pricing brings allocative efficiencies, which only benefit riders. Second, riders have a much higher value of time than drivers. Third, surge pricing allows the platform to set lower prices on average, transferring welfare from drivers and the platform towards riders. On the other hand, Uber riders have vociferously complained that surge prices fluctuate wildly from one moment to the next. One study reported that surge prices changed every three to five minutes. Others have pointed out that surge prices are highly location-specific. Prices may be several times higher in one neighborhood than an adjoining one a few blocks away. Uber’s rapid success is creating challenges in the form of legal and regulatory, social, and technical obstacles. The taxi industry, for instance, is arguing that Uber has an unfair advantage because it does not face the same licensing requirements as they do. Others accuse Uber of not vetting their drivers, creating potentially unsafe situations. Some major cities are banning ride sharing services like Uber because of these various concerns. Additionally, Uber has faced various lawsuits, including a lawsuit filed against them by its independent contractors. Its presence in the market has influenced lawmakers to draft new regulations to govern this “appdriven” ride sharing system. ALTERNATIVE COURSE OF ACTION Uber’s surge pricing has a major image problem. Concerns about surge pricing stem from the way in which it is structured and also from how it is explained to consumers. These factors lead to rider dissatisfaction and lots of bad press. In his online article entitled “Everyone Hates Uber’s Surge Pricing – Here’s How to Fix It”, Dhokolia (2015) suggested four actions on how Uber can solve the problems associated with surge pricing: (1) cap the surge multiplier at a reasonable number and communicate the cap clearly; (2) reduce the volatility of price fluctuations; (3) market the beneficial consequences of surge pricing to riders; and (4) rebrand the surge pricing concept. To reestablish its reputation and address the concerns on safety, Uber has added a “safe ride checklist” to its app which is a pre-pickup notification that encourages riders to confirm the license 4 plate number and verify their driver’s name and appearance before entering a vehicle. Uber has developed a rating system to help assure this trust and reliability between passengers and drivers, called a rideshare ratings system. CONCLUSION Uber’s surge pricing offers a good example of how technology and economics have combined to create a sophisticated pricing approach — but without adequately bringing customers into the equation. After all, it is riders who choose Uber over a taxicab or a bus, experience the service, and pay the asking price. So, it is vital that their assessment of the approach be considered carefully. Just because technology allows speed and continuous price change does not mean this is the best thing to do. Uber has a bright future and expansion opportunities are great. It is therefore important for Uber to ensure the safety of their riders and the drivers. They should also adopt controls to ensure that independent contractors using their app obeys relevant country laws. Uber has to address these issues to uphold the trust of their customers and achieve long-term success. REFERENCE Pattnaik,. A. (2019). How does Uber do Surge Pricing using Location Data? https://medium.com/locale-ai/how-does-uber-do-price-surge-using-location-data Hall, J., Kendrick, C., & Nosko, C. (2015). The Effects of Uber’s Surge Pricing: A Case Study. https://www.valuewalk.com/wpcontent/uploads/2015/09/effects_of_ubers_surge_pricing Castillo, J. (2019). Who Benefits from Surge Pricing? https://economics.sas.upenn.edu/system/files/2020-01/JMP_Castillo.pdf Dhokolia, U. (2015). “Everyone Hates Uber’s Surge Pricing – Here’s How to Fix It” https://hbr.org/2015/12/everyone-hates-ubers-surge-pricing-heres-how-to-fix-it Uber Technologies Inc. Managing Opportunities & Challenges. http://danielsethics.mgt.unm.edu
