NYC Disrupts Disruptors

Now It’s Uber In Attorney General’s Sights

The AG Goes After Uber for Surge Pricing
Surge cap

Uber argues that their surge pricing is simply a matter of supply and demand.

Attorney General Eric Schneiderman has spent his spring going after New York’s most successful start-ups. First, it was Airbnb, the room-sharing site that finds itself asked to turn over customer data. Now it’s Uber’s turn. Mr.  Schneiderman is investigating the car-hailing app for its surge pricing. He believes that it may violate New York laws on price gouging. Uber is either famous or notorious for its surge pricing. While a usual ride in an Uber is only slightly more expensive than a yellow cab, during particularly bad weather, a holiday or major city event, it can be up to eight times more than usual.

During a storm this past December, Uber experienced major kick back on social media when they set surge pricing to eight times more than the norm. A cross town ride cost Michelle Beadle $132. Getting across town would be no more than $20 in a yellow cab, maybe $40 in a black car, but Uber is a much more convenient service, arriving at your doorstep and eliminating the freezing, soggy hunt for a cab. Additionally, Uber warns its customers about surge pricing before they order a car.

In the event the surged cost is too much for the customer, they can back out before ordering and go for a less expensive, and less convenient, alternative. When the weather changes or rush hour ends, the demand for cars decreases and the price evens out again. Uber argues that their surge pricing is simply a matter of supply and demand, “surge pricing helps maximize the number of Uber cars on the system durMichelle Beadle caping times of extreme demand.” Drivers are incentivized to pick up Uber customers, even during winter storms, drunken holidays or gridlocked traffic conditions, because they are earning much more.

Regardless of Uber’s logic for surge pricing, Schneiderman believes that it can be compared to gas station price gouging during Hurricane Sandy. He writes in a New York Times op-ed, “We are investigating whether this is prohibited by the same laws under which I’ve sued gas stations that gouged motorists during Hurricane Sandy. Uber makes some persuasive arguments for its pricing model, but the ability to pay truly exorbitant prices shouldn’t determine someone’s ability to get critical goods and services when they’re in short supply in an emergency.”

While the snow storm on December 15th was unpleasant, it was by no means equivalent to the emergency conditions of Hurricane Sandy, the main distinction being the availability of public transportation. The law Schneiderman references, General Business Law § 396-r, expands the definition of ‘emergency’ to “during periods of abnormal disruption of the market caused by strikes, power failures, severe shortages or other extraordinary adverse circumstances.” This is a relatively broad definition of abnormal, though a snow storm in December in New York City is by no means abnormal.

Disruptors

There is also a matter of what goods and services to which this can be applied. The law states, “During any abnormal disruption of the market for consumer goods and services vital and necessary for the health, safety and welfare of consumers, no party within the chain of distribution of such consumer goods or services or both shall sell or offer to sell any such goods or services or both for an amount which represents an unconscionably excessive price.” While gasoline is undoubtedly vital for the safety and welfare of consumers, a high end car service seems incomparable. Is an Uber vital to health, safety or welfare of consumers? There are, after all, alternatives: yellow cabs, livery cars, and public transportation. A door to door Uber car is not the only way to get around the city in during a period of abnormal disruption.

At a breakfast forum sponsored by Crain’s, Mr. Schneiderman said his investigation of Uber applies only for its actions during Hurricane Sandy: “We are not going after the Uber business model. We are looking at a price gauging statute that I have to look at by law, that only exists in cases like Super Storm Sandy, it’s a very narrow focus. Uber is an interesting business model, again though, we are looking at changes in technology and the law is always slow to catch up to changes in technology.”

However, the e-hail app actually offered New Yorkers a stellar deal during the storm. They initially increased surge pricing to two times the norm to encourage drivers to work through the storm, as “doubling drivers’ fares tripled the number of cars on the road and kept them out there far longer,” according to the company. They removed this quickly after experiencing complaints. They continued to pay their drivers twice the normal rate to be sure they remained on the road, but removed the surge pricing for customers. This cost the company $100,000 in a single day, but benefited countless New Yorkers; nevertheless the Attorney General appears determined to find  fault in this act of generosity.

In the cases of both Airbnb and Uber, two tech companies that have found New York’s arms less than open to their disruptive business models, Mr. Schneiderman insists that it is his responsibility to look at existing statutes. Others wondered if this aggressive enforcement — Mashable called it “New York Goes to War Against Airbnb” — isn’t really just a way to maintain status quo in a way that benefits the well-organized hotel and taxi industries.

At the breakfast, Mr. Schneiderman insists that “there are clear definitions in the statute, this is not a vague concept. If you’re passing on increased costs, fine, that’s not price gouging. But if you’re just taking advantage of an emergency situation, and this only applies in times of emergency, [it violates the statute].” However, it seems that in the case of Uber, the existing statute does not provide enough clarity; as it cannot possibly adjust for the modernity of an app where increased costs improve experience.

Follow Polly Mosendz via RSS.