Does Uber really deserve an F grade from the Better Business Bureau?

 
Guy Bentley
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Uber gets an F (Source: Getty)

Uber received some bad news on Thursday, receiving an F grade from the 100-year-old Better Business Bureau.

The US nonprofit gave the taxi app its lowest possible grade, primarily because of the company's price surging policy.

Surge pricing means the price can shoot up when demand rises sharply, such as New Year's eve or during snow storms. The policy sees users sometimes paying multiple times the amount they would have paid during normal circumstances.

Uber users angry at the practice in San Francisco posted a number of complaints on the BBB page.

An Uber spokesman responded to BBB's decision:

Uber has revolutionised riders’ ability to provide feedback in cities like San Francisco. Uber’s direct channel for two-way feedback is regularly reviewed and acted on to ensure a high-quality experience. The fact is that consumers in 220 cities around the world have made their opinion known by taking millions of rides with Uber.

While customers have complained strongly, it should be noted that the user is repeatedly informed price surging is in place and is required to confirm they are aware of this before ordering a ride.

Surge pricing is not, as some have argued, a way for Uber to exploit its customers but instead is the best way to allocate scarce rides and get more drivers onto the road.

In 2006, a paper by Mark Armstrong of Oxford Unversity argued this very point. If companies maintain one price for all customers regardless of circumstance, those who value the service more may miss out.

One of the other benefits of price surging is getting more Uber drivers on the road during times of high demand. Uber drivers get 80 per cent of any fare if they drive their own car giving them a big incentive to go to work when the price surge is in operation.

Back in January, a poll of academics overwhelmingly concluded that using higher prices to allocate transport services is good for consumers.

78 per cent of the IGM Economic Experts Panel agreed with the statement:

Using surge pricing to allocate transportation services — such as Uber does with its cars — raises consumer welfare through various potential channels, such as increasing the supply of those services, allocating them to people who desire them the most, and reducing search and queuing costs.

Darrell Duffie, Dean Witter distinguished professor of finance, said:

This is basic microeconomics. Pricing different services differently improves the allocation of services, assuming no serious externalities.

Some consumers may feel hard done by from the price surge but it is certainly debatable whether Uber should receive such a poor grading for a practice so overwhelmingly endorsed by mainstream economists.

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