Second problem: To deal with high demand during the early hours of 2013, San Francisco-based Uber is instituting surge pricing, which will likely lead to some serious transportation expenses.

Well, don't say you weren't warned. The company emailed customers over the weekend, explaining its surge pricing policy in advance, giving fair warning to the prices they can expect during the New Year's crunch.

NYE pricing is not for the faint of heart. The average surge multiple will likely be 2x normal prices, but during extreme spikes it could cost you $100 MINIMUM before time and mileage charges! So be careful with those Uber ride requests. Uber rides will be reliable on New Year’s Eve, but they’ll also be pretty pricey.

Here's a helpful graph:

In case that wasn't enough, Uber founder Travis Kalanick and Ryan Graves, the company's head of operations, livestreamed a Q&A session to explain the surge pricing scheme. The basic gist: By charging customers higher fees during periods of heightened demand, Mr. Kalanick said the company creates incentive for more drivers to pick up fares from Uber.

"We work with limo companies and their drivers," he said, speaking generally of the service in cities around the world. "On New Year's Eve, these guys have alternatives. They can rent their car out for $1,000 and sit around all night. In some cities, drivers might have relationships with hotels or restaurants where they can get filled very quickly."

With Uber's surge pricing system, he said, "drivers know the price is coming up, they go on the system, they stay on the system longer, and more drivers come onto the system."

Surge pricing, Mr. Kalanick insisted, is more or less revenue neutral for the company, which takes 20 percent of total fares for its black car service: When surge pricing takes effect, demand tends to come down on a roughly linear basis. "When the price goes from 1x to 2x, we're seeing half as much conversion," he said. "When it goes from 2x to 3x, we're seeing a 30 to 40 percent decrease of the number of people requesting a ride."

Mr. Kalanick has good reason for communicating clearly on surge pricing. Not only is New Year's Eve the "craziest time of year" for Uber, but 2013 is going to be a crucial period for e-hailing, at least in New York. Earlier this month, the Taxi & Limousine Commission approved a year-long pilot program for taxi apps that will let New Yorkers flag down yellow cabs with their smart phones as early as February.

Meanwhile, with the pilot set to launch, Uber competitor Hailo is said to be closing on a $30 million Series B that will help the company ramp up in the New York market, with Union Square Venture's Fred Wilson reported as the probable lead investor in the round.

In addition to the livestream and the warning emails, Uber unveiled what it calls a sobriety test for the app: If you want to use your phone to hail a car during a surge period, customers have to enter the multiplier they're paying to use the service amid high demand. That system worked out well in Sydney, Australia, which Mr. Graves pointed out has already rung in 2013.

At peak hours, Australians paid about 4.7 times the regular Uber fare, but Mr. Graves reported that the company had only received one angry email thus far. Of course, New York is not Sydney. "Australians generally polite in social media channels," said Mr. Graves. "We hope you'll be nice to us. We're doing the best that we can."

"This way," he said, "We can maximize the number of drivers on the road." Turning off the surge pricing will result in "huge losses for the business," he noted. But Uber will "do it as long as we can today while we figure out more sustainable ways to keep supply up while the city is in need."

In response to complaints about prices doubling today, when many commuters are left stranded by Sandy, Uber's NYC community manager Ed Casabian had defended the company's position, noting that rising prices help increase supply:

@frankdenbow Higher prices means more drivers will come out and work. We've seen nearly a 50% increase in supply this morning.

— Uber New York (@Uber_NYC) October 31, 2012

Although Uber's since-shuttered beta service for yellow cabs in New York only cost riders a 20 percent tip (shared with drivers), Uber's black car and slightly cheaper hybrid car options come at a considerable premium. And this morning, the additional surge charge left local users frustrated:

Remember the good old days when "demand pricing" after a supply/demand shock like a hurricane was called price gouging? cc/ @uber

— Jeremy Fisher (@jeremyhfisher) October 31, 2012

However, the press-friendly about-face has its critics too:

Good of Uber to operate surge pricing in NY today, defend it on economics grounds and only finally to back down once everyone was furious

— Paul Carr (@paulcarr) October 31, 2012

Slate's Matthew Yglesias mounted a nuanced defense of so-called "price-gouging" in Slate yesterday.

"Stopping price hikes during disasters may sound like a way to help people, but all it does is exacerbate shortages and complicate preparedness.

The basic imperative to allocate goods efficiently doesn’t vanish in a storm or other crisis. If anything, it becomes more important. And price controls in an emergency have the same results as they do any other time:  They lead to shortages and overconsumption. Letting merchants raise prices if they think customers will be willing to pay more isn’t a concession to greed. Rather, it creates much-needed incentives for people to think harder about what they really need and appropriately rewards vendors who manage their inventories well."

And that's how your free market capitalism gets made, ladies and libertarians.

UPDATE 10/31 1.30 p.m.: Betabeat just spoke to Uber general manager Josh Mohrer by phone. He noted that Uber only had surge pricing for riders turned on for less than one hour today--squeaky wheels, everybody!--before he and Mr. Kalanick decided to drop it. "Most of our drivers live outside of Manhattan, so it was difficult for them to get in yesterday," which is why surge pricing seemed like a good option, Mr. Mohrer said. "But this is really an extraordinary circumstance."

Drivers are currently making double and demand is pretty high with most subways and mass transit options out, he said. As for when and if surge pricing would be turned back on for riders, Mr. Mohrer wasn't sure. "Obviously this is a real time situation."