RENEE MONTAGNE, HOST:
This is MORNING EDITION from NPR News. Good morning, I'm Renee Montagne.
These days, you can hail a ride in some cities with the quick tap of a smartphone. The app for Uber connects drivers for hire to riders. And that car service has gotten attention lately because of its pricing system. At times, Uber rides can be cheaper than metered taxis. But when demand for a ride is high, the fare can be three, five, or even nine times as much as the regular rate.
Lisa Chow of NPR's Planet Money Team took a ride with an Uber driver, during this week's big snow storm in New York City, to explore the fast-changing rates.
LISA CHOW, BYLINE: I was in the car for about an hour, a ride that normally would have cost me 65 bucks. But when it came time to pay, my driver, Kirk Furye, was concerned for me.
KIRK FURYE: Are you going to get trouble with NPR? You are almost at three times the amount.
CHOW: Furye had been driving me around in the middle of a snow storm at a time when Uber was engaged in what they call surge pricing. In a snowstorm, there's high demand for cars. And when there's high demand, Uber raises it prices.
I'm a little worried. What's your guess?
FURYE: Three times the amount. Best guess, 150 maybe.
CHOW: Actually, the bill ended up being $192. A hundred and ninety-two dollars for a ride in a snowstorm. A lot of people might call this gouging. But Uber says this helps people because the high price sends a signal to all the drivers out there: Hey, you can make a lot of money if you stay out on the road. Case in point, my own driver, Kirk Furye, he hadn't even stopped for lunch that day.
FURYE: I take little breaks here and now. But when the surges are on, you want to try to push yourself a little harder. Ride it out. And you're also not doing it for the money. There's people out here that really just don't want to be standing out in the snow, in the cold, and you do what you can and get them to their destination safely.
CHOW: Money helps though, right?
FURYE: Money does help.
CHOW: In more ways than one. Uber tracks customers and drivers down to the street level. So sometimes fares are popping in one part of the city and not another. And in theory, what should happen is as more drivers see a part of the city where fares are high, they all go there. Now supply has met demand, and prices should come down.
Furye says, he sees that happen all the time. It's a pain in the butt.
FURYE: When I first started out, I used to chase the surge. But that became exhausting because it would always go somewhere else by the time I got there.
CHOW: And did you ever catch it? Catch the surge?
FURYE: Do I ever catch the surge? When I was running for it, I think I might have caught it, like, once, twice tops. And then I realized it wasn't worth it. I missed it a lot more times than I caught it.
CHOW: So this appears to be working as it should. But it doesn't feel like that to a lot of people.
Would you pay double the price to get a cab today?
SHALONDA MCNICHOLSON: No.
CHOW: Shalonda McNicholson is near Penn Station waiting for a cab. She had never heard of the company Uber. When I explained the way Uber prices its rides she said this...
MCNICHOLSON: That's ridiculous. Ridiculous. It's not fair. We didn't ask for the snow.
CHOW: Richard Thaler, an economist at the Chicago Booth School of Business, says no matter what most economists say surge pricing just feels inherently unfair to most people, which means Uber might be treading in tricky territory.
RICHARD THALER: I think the question will be: How big a multiple the market will stand up for. And my intuition is it's a number in the ballpark of three.
CHOW: That consumers will tolerate three times the normal fare but not really more than that. Thaler says, if you look at industries in which prices do respond quickly to demand. Take hotels, for instance. If you're booking a room during Christmas, you'll probably pay a lot more. But you'll rarely pay more than three times the normal price. Uber sometimes goes way above that - seven, eight, nine times.
But Uber is hoping this gets their drivers to do what my driver did. When I called Furye the day after the storm, he told me he ended up working a 17 hour day; riding the surge as long as he possibly could.
Lisa Chow, NPR News.