Question

Relevant interventions for the pricing strategy change (surge pricing) at Uber, using models, frameworks and other research findings

Answer 1

Supply and demand model or framework very well explains the relevant interventions for the pricing strategy change (surge pricing) at Uber as below:

Suppose the demand for Uber cabs has increased significantly in a particular area in a period of time. Now since the supply of cabs is limited, hence in order to keep up with the increased demand, Uber uses surge pricing to escalate the price of cab hire in that area at that period of time. This does two things; One- it segregates the customers who are willing to wait for the fares to become normal again from the customers who are OK with paying premium price for the ride, Two-it gives a chance to the drivers who are in that area to earn more during that period of time. Hence in this way, Uber keeps a balance between supply and demand of cabs. When the demand of cabs in that area falls back to normal, the cab hire prices also become less, i.e. supply and demand are again balanced. Hence the pricing is dynamic in nature and is controlled by algorithms which keep a track of supply and demand and dynamically increase or decrese the cab hire prices based on customer demand.