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 To Build a More Organic Internet (And Stand Up to Corporations)
Internet access has become such a necessary tool for participating in society that it has been declared a “human right” ...
Panayotis Antoniadis
Fri, 3 Feb 17
When Things Go Wrong In An Automated World, Would We Still Know What To Do?
We live in a world that is both increasingly complex and automated. So just as we are having to deal ...
Peter Fisher
Mon, 27 Mar 17
Searching Deep and Dark: Building A Google for The Less Visible Parts of The Web
In today’s data-rich world, companies, governments and individuals want to analyze anything and everything they can get their hands on ...
Christian Mattmann
Wed, 11 Jan 17
The Meditation That’s Banned in China, But Welcomed Around the World for Uplifting Health and Morality (Video)
Many practice meditation as a natural and cost-effective way to achieve better physical and mental health, and in ancient times ...
NTDTV
Thu, 5 Jan 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
Join us today!
AcuSLIM - Acupuncture Weight Loss Programme
An Epoch Times Survey
Read about Forced Organ Harvesting
BUCHERER
Sports Elements