Letter: Surge pricing is a lose-lose game in most consumer markets

I rarely disagree with Tim Harford, but in his latest column “Embrace surge pricing, it makes the world a less wasteful place” (Opinion, Magazine, March 16) he makes the mistake almost all economists make sooner or later: elevating economic factors above social ones. And an article by Madhumita Murgia, published in the same edition, partly explains why (“One man against an algorithm”, Magazine, March 16).

Harford’s examples of surge pricing — the phenomenon whereby product prices change in real time — are out of economics 101. In the real world, Murgia’s Uber Eats delivery rider, who one day decides he wants to fight back against the algorithm that controls his day, faces the problem inherent in all surge pricing — namely information asymmetry.

Uber knows lots; riders and customers know little. The Uber algorithm can exploit both customers and riders without them having much idea how. That’s the reason most of us dislike surge pricing. We feel we’re being exploited, because we know the seller/provider knows more than we do. Armin Samii, the tech-savvy Uber Eats rider, had to do a lot of work to demonstrate flaws in Uber’s algorithm.

In a heavily regulated market like electricity generation and distribution, there’s enough transparency for surge pricing to work, and it’s hard — though not impossible — to game the system. And surge pricing with price transparency can be accepted by consumers. For example, we accept it with airline ticket pricing because price comparison engines give us the information we need, so there is enough trust to facilitate the transaction.

But what will happen if businesses try to use it where they hold an information advantage? They will motivate their customers to distrust them and use the algorithmic skills displayed by the Uber rider to game the system and turn the tables. And enough customers will be so angry that the reputational damage for businesses is likely to outweigh the gains.

I suggest that in most consumer markets surge pricing would be a lose-lose game, and that economists should acknowledge that social factors will always, in the end, outweigh economic ones.

Chris Gilchrist
Exmouth, Devon, UK