Surge pricing is a dynamic pricing approach used by ride-hailing services like Uber and Ola to adjust prices based on supply and demand. When demand increases, algorithms raise prices to act as an incentive for more drivers to go online, increasing supply. This helps balance supply and demand so wait times are reduced. An example showed how without surge pricing during a New Year's Eve outage in NYC, driver supply dropped as it was no longer lucrative, causing completion rates to fall from 100% to 20% as demand increased. Surge pricing benefits both riders and drivers by incentivizing drivers and improving efficiency.

1. SURGE PRICING
ECONOMICS OF A NECESSARY EVIL
Presented By:
Mahima Chouhan
Shivam Pandey
Karthik Subramaniam
Mayur Bhonsle
Mavaru Sai Sudheer
Anup Serrao

2. WHAT EXACTLY IS SURGE PRICING:
• Dynamic or real time pricing
• An approach to set flexible prices
• This in turn helps companies to adjust price in
order to meet increased demand.
• Algorithms are used to adjust prices as per
business norms.
• In order to set price, factors like Customer’s
location, time of the day, day of the week, level of
demand, competitors price are taken into account.

3. IS IT A NEW CONCEPT?
• Hotels: Cost of booking is relatively high on a new year’s day
• Flight Tickets: Airlines often charge more depending on no of
days before the flight, festivals.
• Retail: Online retail in particular adjust their prices based on
demand and traffic.
• Vegetables Market: When supply is short, vegetable often sell
for higher prices.

4. WHY CABS?
"Surge is absolutely make or break. If there was no surge, ever, I wouldn't be able to afford doing this at all.“: Uber Driver

5. UNDERSTANDING THE BUSINESS MODEL:
• Unlike hotels, airlines, supply is not constant
• Uber drivers are independent agents.
• Each day and each hour, these drivers might
decide whether or not accept the request of
customers.
• Drivers are not bound by exclusivity, works for
multiple platforms.
• Uber/Ola retains only 20-25% earning per ride.

6. CAN WE USE ECONOMICS?
• Surge pricing is demand and supply in action
• When demand outstrips the supply of car surge
price kicks in.
• Surge pricing serves dual purpose
• First, at increased price, some of the customers
wait until price falls, demand goes down.
• Second, act as an incentive to drivers and motivate
them to go on the road, supply is increased.
• So, no of people wanting a ride(demand) and no of
drivers(supply) come close together.
• Wait time is drastically reduced.

7. REAL EXAMPLE: UBER WITH SURGE(MARCH 21,2105)
• Demand of uber cabs following end of Ariana
Grande show.
• Following high demand, surge price kicks in.
• After seeing surge price, the actual demand
fall down to blue dots.
• So only those who value their rides most
made a ride request.
• Increased economic efficiency

8. HOW DRIVERS RESPONDED TO SURGE PRICE
• Drivers supply increased by up to 2X the pre
surge baseline
• For drivers surge indicates it is good time to
be on the road than home
• Net win for riders for they can now get their
rides

9. THE NET EFFECT
Drivers supply( Green line) was able to met the increased demand(Blue line) and wait time is
drastically reduced.

10. REAL EXAMPLE: UBER WITHOUT SURGE(1ST JAN,2015)
• On new year’s eve 2014-15, it was a busy day for
uber in NYC.
• Surge pricing was in effect following high demand
• However, due to technical glitch, surge pricing
algorithm broke down for 26 minutes.
• Surge multiplier falls down to normal i.e. 1X

11. EFFECT OF THIS OUTAGE
• Percentages of request completed fell down drastically following surge outage.
• Drivers value their leisure time more, at normal rates, for such busy traffics.
It’s a new year day, where is multiplier!!!!

12. EFFECT OF THIS OUTAGE: KEY PARAMETERS
• Demands spiked up, no one wants to miss such lucky rides(small fares)
• Supply of drivers dwindled following low rates 1X the normal rate.
• As a result waiting time spiked up as there were only few drivers on the road.
• Completion rate falls from 100% to 20%

13. CAN YOU GIVE ME A COMPARISON OF PRICES?
• Even with surge, Ola/Uber is cheaper than other taxis.
• Currently government mandated rates for AC city taxis, in
Delhi, are Rs. 25 for first km and thereafter Rs. 16/Km
(6:00 AM To 11:00PM )
• There is 25% increase in normal fares as special night
charges(11:00 PM-5:00AM)
• Ola charges Rs. 10/km for Mini and Rs. 6/km for micro while
uber charges Rs. 7/km on a normal day.
• Now you can check out for surge multipliers 2X, 3X
Source: Delhi Traffic Police fare calculator