Notes from a pilot's kid

Uber Surge Pricing in Touristy Places

In my experience, Malaysian cities (both KL and Penang) suffer from a lack of available taxis, a lack of taxi drivers willing to use their meters, insufficient around-town public transportation (though it might be sufficient for commuters), and insufficient pedestrian access in the form of usable sidewalks and crosswalks. UberX in both cities seems affordable, rarely exceeding 10 Ringgit (USD2.40) for a 15-20 minute ride with the normal fare. So despite a general preference to walk or take public transit, I’ve ended up using Uber here, and using Uber as a tourist worries me a little.

In theory, Uber is priced in accordance with local incomes so that it’s an affordable option for a large part of the population it could potentially serve. It markets one of its options as “The low-cost Uber” and emphasises on every local page that “Uber connects you with a reliable ride in minutes.” Perhaps there’s a distinction to be made between a “reliable” service being offered and user “relying” on that service, but it seems like Uber is communicating to potential customers that it’s an option to rely on.

But Penang has a lot of tourists. When tourists show up (and tourism in Penang is continually increasing), their additional demand for services from Uber can trigger surge pricing.

What I am wondering is whether Uber considers in markets like Penang that when the marginal increase in demand from tourists probably causes some of the surge pricing, it effectively prices out the locals. For a tourist, who likely has a much higher income than a typical resident of Penang, 2x or even 4x surge pricing would still be more affordable than a similar ride in, say, Hong Kong or Shanghai. For a local, a tourist’s demand is causing the affordability of what is marketed as a “reliable” service to be unreliable.

How could this be fixed? Blindly implementing a system where Uber discriminates who is subject to surge pricing in a certain market (for example, in Penang’s case, making tourists pay surge pricing but not locals) undermines surge pricing’s intentions, which is to increase supply by offering a more compelling incentive to drivers. But perhaps Uber could boost surge pricing on tourists in accordance to the ratio of tourists to locals: if the current demand is 50% locals and 50% tourists, and the surge pricing that Uber determines is appropriate to increase supply is 2x, then pay 2x to all drivers but charge tourists 3x and locals 1x. Some sort of formula like that could work.

But the reality is that Uber has no obligation or incentive to discriminate pricing by income level unless not doing so reduces Uber’s “reliability” value proposition to locals to the extent that they stop considering it when seeking transportation. But if tourists are booking enough rides that Uber is not worried about the loss in revenue from locals who can’t afford a service made unaffordable by the tourists, then my guess is Uber probably wouldn’t do anything.