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Limiting Uber’s Surge During Juno Makes Bad Situation Worse

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Limiting Uber’s Surge During Juno Makes Bad Situation Worse

January 27, 2015

As Storm Juno bears down on the Northeast, New York Attorney General Eric Schneiderman is taking a strong stand against price gouging. “My office will be vigilant in monitoring potential price gouging before, during, and after this potentially historic storm,” said Schneiderman. One company that the Attorney General will not have to worry about is Uber. The AG’s office came to an agreement to cap the company’s “surge pricing” during emergencies and natural disasters.

Though the agreement may help Uber in terms of public relations, it will harm New Yorkers when they need the ridesharing service the most. 

For most people outside the taxi industry, surge pricing is their main complaint about Uber. When demand for rides increases, Uber raises its fares to entice more drivers to get out on the road. On Halloween in New York City, an Uber ride cost about 3 times as much as a usual trip—and as high at 7 times. In addition to increasing the supply of drivers, surge pricing discourages people who do not really need a ride from requesting one, lowering demand. Many people feel this is wrong, even though the alternative is standing on the side of the street hoping that an empty taxi happens to drive by.

Advances in technology allow companies to better match supply and demand through pricing that dynamically changes. This policy not only benefits businesses—it benefits customers. Because of surge pricing, people can usually get an Uber within 10 minutes, even in times of high demand. It is simple economics. 

According to the Attorney General’s website, the deal reached with Uber “sets a cap on its pricing during emergencies and natural disasters limited to the normal range of prices it charged in the preceding sixty days—while also limiting the allowable range of prices by excluding from the cap the three highest prices charged on different days during that period.”

Uber had to come to this agreement because under New York State law it is illegal to sell products at an "unconscionably excessive price" during "an abnormal disruption of the market." There is nothing as frustrating as government officials using vague legal terms that lack any hard-numbers or specifics. Who determines what constitutes excessive or abnormal? At least the Uber agreement makes it possible for the company to know if it is breaking the law, a luxury not given to most other retailers and service providers in New York. 

When price gouging is illegal, those who truly need rides during emergencies and disasters cannot get them since the supply of transportation is usually low while demand is high. When Uber rides are normally priced, people who want to ride out a blizzard by drinking at a bar will request an Uber. But when surge pricing triples the costs of that ride, all of a sudden drinking beer on a couch looks much more appealing. 

This is not the first time New York’s price gouging laws have harmed residents. In November 2012, Hurricane Sandy battered the Northeast, causing massive property damage and nearly 300 deaths. Thankfully, due to hard work from first responders, bridges were quickly reopened. Surprisingly, even with most trucking routes open, no gasoline was coming through. Sandy caused supply chain disruptions by badly damaging refineries in New Jersey, but this problem extended far beyond a break in the supply chain.

Instead, the gas shortage was created and perpetuated by New York’s anti-price gouging law—the same law that is limiting Uber’s surge pricing. 

Calling in orders from other refineries throughout the country would have been a simple solution to end the gas shortage that lasted for two weeks in some areas. Clearly, because shipping oil from Ohio rather than New Jersey is more expensive, the gas brought from elsewhere would cost more. But, because of price gouging laws, there was little incentive to bring in gasoline. 

Meanwhile, citizens of New York were left waiting in gas lines for hours, dodging outbreaks of fistfights, since people had not adjusted their driving habits to the information a market price would have immediately conveyed. Cheap gas sends a message that there will be plenty of available supply to satisfy future demand and that people can drive with little regard for conservation. On the other hand, gas above $5 a gallon encourages consumers to cut back on unnecessary usage. 

The gas shortage after Sandy was a predictable result of New York’s misguided price gouging law, and soon there was no gas to be found at all. This persisted for almost two weeks in some areas after the hurricane made landfall. America is not immune from the same negative effects of price controls that lead to toilet paper shortages in socialist Venezuela. 

Opponents of surge pricing claim that it discriminates against the poor and only benefits the rich. But this is not a class issue. As the aftermath of Hurricane Sandy showed, getting gas at $5 a gallon is preferable to not being able to get any gas at all—regardless of one’s income. The same logic holds for transportation, as having the option to get somewhere by paying more is always better than being stranded.

While the intentions behind price gouging laws are noble, policies need to be judged on their effects. Limiting price gouging may be politically popular, but elected leaders should not make life more difficult for their constituents—especially in times of emergency and disaster. Uber surge pricing is a powerful tool that should be embraced, not proscribed. 

 

Jared Meyer is a fellow at Economics21 at the Manhattan Institute for Policy Research. You can follow him on Twitter here.
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