[ex-cabbie]

Uber's current fare structure has the intention - leaving aside the ludicrous assertion that Uber wants to impoverish its drivers - of increasing its profits. Assuming that it's not based on a "predatory" model of undercutting the competition, then it has to be derived from a model of the demand curve at various price points. Uber must believe that the current fare structure maximizes the TOTAL revenue better than at other price points.

But from whence does Uber get this hypothetical demand curve and does it conform to reality?

I'm guessing that Uber is basing its projections on data they are getting from surge pricing. They are tracking the demand at various surge prices and calculating the optimum price point from these. If the demand at 1.2, 1.4,1.6, and other points indicates a fall in demand that would result in total revenue lower than at the basic rate then they project that this rate is at the optimum point.

But do surge prices accurately reflect EVERYDAY demand at various price points? The assumption is that the demand at a 1.2 surge is IDENTICAL with a basic rate 20% higher than the present one. But what if riders have a psychological opposition to ordering Ubers at any sort of surge prices? - the old "wait until the surge price subsides" that we drivers know so well. In other words, surge data doesn't allow for the psychology of the situation and may be dramatically different from the demand situation if the higher basic rates were an every day thing. There may well be a much higher demand at a basic rate of $1.20 a kilometre than at a temporary surge of 1.2.

So does Uber need to change the way they decide how to evaluate projected fare structures?

 

[haldriver]

In other words, surge data doesn't allow for the psychology of the situation and may be dramatically different from the demand situation if the higher basic rates were an every day thing. There may well be a much higher demand at a basic rate of $1.20 a kilometre than at a temporary surge of 1.2.

Demand has nothing to do with price.
World wide Uber has based fare structure at about 66% of local regulated Taxi fares.

People need on demand transport when they need it not when it is cheap. With Taxis if there was a shortage they waited but paid the same. With Uber they have the choice of waiting or paying more which means others wait even longer but that is only in times of demand/shortage.
Uber wants to kill surging, which was a gimmick to get drivers onboard. Now they are on board in masses they no longer need surge. When the taxi industry does die and those ex-cabbies join Uber surge will no longer exist.

Mission completed for Uber. They will have 100% of market and service providers at $1.00 a km rather than 50-60% of market at occasional $1.20 a km.

 

[Diesel i30]

Many of the passengers I talk to about Uber mention that they would rather catch a taxi when Uber is surging.
I worked out (roughly) that if Surge is under 1.6 then Uber is still the cheaper option.

I think that their reasoning has a lot to do with the negative press around NYE surges in the past. Surge will obviously become less as more drivers hit the road. This works for Uber in that as more pax ride with Uber there will be less business for taxis. Less surge more pax travelling at $1.00 per km.

The flip side is that part time drivers who just work when it's surging will drive less so more work for those that drive full time. The equation still relates to very marginal earnings for all drivers.

 

[ex-cabbie]

Demand has nothing to do with price.
World wide Uber has based fare structure at about 66% of local regulated Taxi fares.

People need on demand transport when they need it not when it is cheap. With Taxis if there was a shortage they waited but paid the same. With Uber they have the choice of waiting or paying more which means others wait even longer but that is only in times of demand/shortage.
Uber wants to kill surging, which was a gimmick to get drivers onboard. Now they are on board in masses they no longer need surge. When the taxi industry does die and those ex-cabbies join Uber surge will no longer exist.

Mission completed for Uber. They will have 100% of market and service providers at $1.00 a km rather than 50-60% of market at occasional $1.20 a km.

Demand has NOTHING to do with price?!!!!!!!! So if Ferrari's were $20 you still wouldn't buy one? And if Uber's were $200 a kilometre people would still use them as much as they currently do? After all, demand is a matter of NECESSITY, not option, you say.

And why should Uber not want surge pricing if their revenue is strictly derived from how much riders are getting? At three times surge, Uber gets three times as much per ride. Generally, getting three times as much is looked on as a Good Thing in the corporate world.

Many of the passengers I talk to about Uber mention that they would rather catch a taxi when Uber is surging.
I worked out (roughly) that if Surge is under 1.6 then Uber is still the cheaper option.

I think that their reasoning has a lot to do with the negative press around NYE surges in the past. Surge will obviously become less as more drivers hit the road. This works for Uber in that as more pax ride with Uber there will be less business for taxis. Less surge more pax travelling at $1.00 per km.

The flip side is that part time drivers who just work when it's surging will drive less so more work for those that drive full time. The equation still relates to very marginal earnings for all drivers.

Here is the awful truth: driver earnings are ALWAYS going to fluctuate around a figure that reflects the pleasures and benefits of the job, ease of entry, and the alternative employment available at the time. In a depressed economy with lots of retrenchments, earnings will be lower than at boom times.

But driver earnings are never going to rise much further than a point where they are much higher than the available alternatives. If they do so, Uber drivers making two grand a week, say, while alternative work is only getting half that much, then there will be an influx of new drivers looking to get a share of that money. After a while, earnings may even drop below that equilibrium point, which should result in drivers leaving the industry or cutting down on hours worked.

In other words, any boom times for Uber drivers are going to be short lived. But the reverse holds, happily for us. When earnings drop below a certain point, some drivers will quit, less people will enter the industry, and some drivers will work less, thereby increasing the earnings back towards the equilibrium point.

 

[haldriver]

Demand has NOTHING to do with price?!!!!!!!! So if Ferrari's were $20 you still wouldn't buy one? And if Uber's were $200 a kilometre people would still use them as much as they currently do? After all, demand is a matter of NECESSITY, not option, you say.

Demand is based on need. Use is based on supply availability and cost. Price is then determined by what the market will pay and what competition there is that may sway their patronage to a particular service or product supplier.
I could manufacture some need for a $20 Ferrari I would buy it but if I had no use for it I would be wasting my money buying even at that price. Do you buy every item in a supermarket that is 1/2 price?
If I, or a member of my family, needed medical attention I would pay whatever it takes to sustain life.
If I needed to get to a doctor and Uber was the only means of transport I would pay the $200 a km (just like NYE surge).
If Uber were 1 cent a km I still wouldn't call one unless I needed to go somewhere. Having said that I would see if I could request you as a driver and then my need wouldn't be for transport but to annoy you personally.

ODT is used on a needs basis. If the price is too high or the supply erratic then its use will be reduced. This is commonly called the supply/demand ratio but the actual demand is based on need.

If they do so, Uber drivers making two grand a week, say, while alternative work is only getting half that much, then there will be an influx of new drivers looking to get a share of that money. After a while, earnings may even drop below that equilibrium point, which should result in drivers leaving the industry or cutting down on hours worked.

In other words, any boom times for Uber drivers are going to be short lived. But the reverse holds, happily for us. When earnings drop below a certain point, some drivers will quit, less people will enter the industry, and some drivers will work less, thereby increasing the earnings back towards the equilibrium point.

Yeah,... How did that work out for the Taxi industry. There is an unlimited supply of workers willing to work for a pittance. This will be the case until government actually closes/polices the loophole allowing use of visas fraudulently.
Your economic theory is based a the pure level field where there are no disruptors.