Will D.C. taxis mimic Uber with surge pricing?

by on April 8, 2014 at 12:31 am in Economics, Law | Permalink

There is now talk of this:

Washington could become one of the first U.S. cities to allow its cabdrivers to ignore their meters and adjust fares depending on demand.

D.C. Council members Mary M. Cheh (D-Ward 3) and David Grosso (I-At Large) have introduced legislation that would allow the city’s taxi drivers to embrace “surge pricing,” a practice used by popular mobile-dispatched car services such as Uber, in which prices are adjusted in real-time according to demand.

The council members say that the shift, which would apply only to passengers who use their smartphones or tablets to book a ride, will allow traditional cabs to better compete with new app-based ride services that have sprung up in the District and across the country.

The move could benefit riders by allowing them to comparison shop. But surge pricing has its critics, who say the practice can lead to gouging.

There is more here.

1 prior_approval April 8, 2014 at 12:56 am

I wonder if the Washington Flyer Taxi will also get approval for surge pricing from the Metropolitan Washington Airports Authority – why offer lower cost fares when competition allows you to charge higher ones?

The free market is a mysterious thing – unless one looks at it from the perspective of the one with the most money enjoying the privileges that used to be reserved for hereditary nobility. In which case, the free market is a glorious confirmation that the rich are indeed entitled to whatever they want, including cutting in line whenever they wish.

2 Locke April 8, 2014 at 1:00 am

I’m not sure that word means what you think it means.

3 Ryan Allen April 8, 2014 at 1:29 am

Pff. You are losing your touch. The old p_a would have the temerity to link any topic to tenure.

4 Cliff April 8, 2014 at 1:43 am

Yeah, wasn’t it great when paying a lot for a nice taxi reserved with a smartphone was a right reserved to the hereditary nobility?

5 prior_approval April 8, 2014 at 2:20 am

Well, I assume you being from NoVa would at least have an idea what the Washington Flyer Taxi is.

A service that currently does not actually believe in the idea that the person with the most cash is the one automatically entitled to get to the head of the line, with or without a smart phone.

Surge pricing is a wonderful idea for the person who can bid the highest. Of course, there are other concepts, such as waiting one’s turn. But such a concept does not, in any sense, provide any benefit to a person who feels that their time is worth more than that of anyone else. Line cutters of all stripes tend to think that way, of course.

The same would apply to getting on the shuttle bus to pick up a rental car – the fact that 10 people have been waiting for the bus does not entitle anyone to simply walk to the head of the line, merely because they have a smart phone and cash. Unless one believes in the sort of framework that hereditary nobility used to feel was normal, of course. Modernized to replace god’s blessing with money’s.

6 Marian Kechlibar April 8, 2014 at 5:44 am

“Line cutters of all stripes tend to think that way, of course.”

So, is the very idea of trading money for time immoral/abhorrent?

I do not think so, these are both scarce resources and I can’t think of any rational reason why to forbid their exchange, especially in a business such as taxi service, where the risk to someone’s life and limb is negligible. I would understand this argument with organ transplants, but taxi? Seriously?

Aside from that, the established model is no paradise garden full of selfless angels, the market-before-Uber could be described as government-approved cartel.

7 prior_approval April 8, 2014 at 9:03 am

‘So, is the very idea of trading money for time immoral/abhorrent?’

Of course not – that is what makes most of us wage slaves, after all.

But the example I gave was pretty specific – there is a taxi service from Dulles Airport in DC, with fixed rates, and a more or less accepted idea of first come, first served.

If surge pricing was to become accepted, this particular taxi service is extremely unlikely to do anything differently – except charge more.

8 Cliff April 8, 2014 at 10:11 am

It would be absurd for a government-granted monopoly to be given the ability to charge whatever they want based on “demand”. There is absolutely no possibility of that happening.

9 Opaque April 15, 2014 at 9:54 am

Marian Kechlibar you’re absolutely correct but let’s not forget there are other government-approved cartels: power companies, petroleum companies, railroads, banks, hospitals, investment industries and defense industries are all protected by government-approved cartels. Here’s the formula for government-approved cartels = congressmen and women + lobbiest / industries * wealthy business men and women. Another view is shred business men and women protecting their interest.

10 Jody April 8, 2014 at 6:01 am

In the not-so-long run, it’s a wonderful idea for the person who *can’t* bid the highest as well.

The presence of outsized profits is a signal that encourages additional market entrants, which then leads to more resources being provisioned where it’s needed most. Or more taxis available when demand is highest, thereby reducing wait times.

This is why [insert your favorite technology] used to be a play-thing only of the rich and is now a mass-market item.

But if you take away that signal, there’s a much reduced incentive to match supply to demand.

11 prior_approval April 8, 2014 at 9:10 am

‘Or more taxis available when demand is highest, thereby reducing wait times.’

I was pretty specific in my example – and considering the traffic around Dulles, reducing wait times in a taxi is hard to imagine. Until the Metro line opens, that is, and thus no longer using a motor vehicle forced to deal with NoVa traffic.

‘used to be a play-thing only of the rich and is now a mass-market item’

Jets and yachts are now mass marketed?

‘But if you take away that signal, there’s a much reduced incentive to match supply to demand.’

Well, that is the problem with the Washington Flyer – they can raise rates in this scenario, without any need to change anything else.

Because in this particular case, surge pricing does not lead to ‘competition,’ it leads to higher rates.

12 Cliff April 8, 2014 at 10:12 am

You are creating this scenario out of whole cloth. It’s not going to happen. No one is suggesting that it will (except you).

13 Jody April 8, 2014 at 10:13 am

Air travel and cruises are certainly mass market now.

And FWIW it’s been less than a week since I’ve been to Dulles.

It’s not that hard to imagine quicker pickups, just allow taxi pickups in more locations, e.g., the parking lot. Maybe you could arrange such a pickup via a smartphone app without the taxi line getting in the way. Yeah, that app would be so awesome we would have to call it something like Uber.

14 Andre April 8, 2014 at 1:02 am

Good new way to gouge people without bringing back the zone system.

15 Mark Thorson April 8, 2014 at 1:15 am

I dislike use of the term “gouging” in place of “market price” because it brings along unstated implications. If you have such implications, state them plainly, and be prepared to argue your objections to such things. (I have a similar complaint about “patent trolls” — this is a term used by infringers of patents held by the innovative inventors we should celebrate and reward, not denigrate.)

It’s like the term “cult”. If it’s my church, it’s a religion. If it’s your church, it’s a cult. Despite my loathing for the Church of Scientology, I call them a religion. An evil, abusive religion based on the rantings of a drug-addled lunatic liar, but a religion nonetheless.

Any time you hear terms like “gouging”, “patent trolls”, or “cult”, you should interpret that as an attempt to manipulate the context with value-laden language, rather than an honest debate based on facts.

16 Marian Kechlibar April 8, 2014 at 5:50 am

This loading of language is mostly about the narrative of “evil private sector vs virtuous public sector”. The people who describe market pricing as gouging would never use the same word for a congestion charge system with higher fees during rush hours.

17 JWatts April 8, 2014 at 7:59 am

To be fair, both sides do it, and it’s just as bad when somebody on the capitalist side, equates a given social program with Communism. However, such narrative driving language does seem to be more prevalent by the Left on this site.

18 prior_approval April 8, 2014 at 9:12 am

Prof. Tabarrok has written about patent trolls – there is even a curve in his name.

19 JWatts April 8, 2014 at 11:58 am

Speaking of trolls….

20 Urso April 8, 2014 at 4:58 pm

“I dislike use of the term “gouging” in place of “market price” because it brings along unstated implications. If you have such implications, state them plainly,”
Seems to me that the word “gouge” states its own implication pretty plainly. Of course, so does the phrase “market price.”

21 Mark Thorson April 8, 2014 at 9:35 pm

No, if you think it’s illegal, you should say it’s illegal and be prepared to cite the law which is being violated. If you think it’s unfair, you should say it’s unfair and be prepared to explain why you think it’s unfair. But just to say “gouge” is to put a spin on it without being accountable for what that spin is or whether there is any substance backing it up. When people do that, it’s almost always because they can’t back up their position with any facts or rational argument. If they could back up their position, they would use the stronger form of argument that plainly states their complaint and the justification for it.

22 Urso April 9, 2014 at 2:01 pm

I’m not in the habit of demanding that people provide me with a detailed apologia to defend every offhand comment they make, but different strokes, right?

23 Alexei Sadeski April 8, 2014 at 4:30 am

Gouging is evil therefore this is evil.

24 charlie April 8, 2014 at 6:25 am

Uber is only profitable when it surges.

25 ant1900 April 8, 2014 at 7:43 am

Boston seems to have this figured out. They allow cab drivers to take cab fares through uber: “Use Uber to request and pay for a taxi, at standard taxi meter rates plus a $1 booking fee. A 20% gratuity is automatically added for the driver by default.”

Everyone wins. Uber expands its driver base. Cabs get their traditional pickups but also can get extra business from Uber users (and anecdotally cab drivers are in fact getting extra income from using Uber). Cab drivers are also plugged into the surge pricing. Passengers have more options.

26 Rahul April 8, 2014 at 8:10 am

How can it be “standard taxi meter rates” & surge pricing both at once?

27 Charlie April 8, 2014 at 11:35 am

Cliff above has it right. There is typically rate & price regulation on all government granted monopolies. This has been a legal restriction in most areas for at least 100 years. If DC wants its taxis to compete on price based on market conditions, why not just eliminate the monopoly privilege?

28 Rusty Synapses April 8, 2014 at 5:54 pm

Yes – I have no problem with this if it’s a true free market, but (1) that’s not what the cabbies want (they’re trying to keep out uber etc. from DC) and (2) I’m not going to get the words right, but I think you need some marketplace mechanism (like uber, or if it’s just from the airport, I suppose something on site could work) – while I enjoy negotiating, I don’t think people want to haggle.

29 Insight April 9, 2014 at 1:32 am

No, because taxis have inelastic supply and Uber does not.

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