It Takes Two to Price

Ben Yi wrote a great piece on Uber’s surge pricing, how it works, and thoughts to improve it. 

I left a brief comment on Ben’s post which I’d like to share. I’ve argued before that a good business analyst frames problems from both the supply and demand side. Most people — especially marketers — consider the demand. It’s more natural, because most of us buy more often than we sell.

But every transaction has a buyer and a seller. Below are my thoughts — check out Ben’s whole piece. 

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Great thoughts on this problem for Uber! I don’t have a good solution for them, but I have considered this problem a lot (nerdy economist that I am.).

It’s helpful in these studies to consider the market from the supply side.

Everyone can pick a number on how much they’d spend for an Uber on NYE. How much, though, would you need to be paid to drive (likely intoxicated, unruly) people around on the rowdiest night of the year?

The supply side reminds us there are real-life drivers who need to be incentivized to provide rides. Surge pricing sends a signal that their driving is in higher demand. Surge pricing may cost Uber more in customer complaints than it’s worth, but it’s important to remember there are two peers in this peer-to-peer exchange!