<\/p>\n\n\n\n
![\"\"\/](\"https:\/\/lh6.googleusercontent.com\/3nVJqZMMZ9D1-QtI92-TtBc_lfsdHBczHk5G0U6Kni9BRB37-HLFfyMBTrFlk5g3pgWKY5qE2uZEj2qkLlzAot8AA1vT9tfnSTifFp0NRuU_J76kOVSImGpSkOCdZ-mHQYQjXPo6AjLjyw0nBc0\")
<\/figure>\n\n\n\nIs it foolish to expect fairness in the profit-seeking, or do some rules still need to be followed?<\/p>\n\n\n\n
What is surge pricing?<\/strong><\/h2>\n\n\n\nThe literal translation would be a price increase<\/strong>. Enough to make buyers shake their heads and sellers rub their hands.<\/p>\n\n\n\nThe concept of surge pricing is nothing more than a dynamic pricing<\/a> method used in periods of higher demand and limited supply. Therefore, surge pricing is used to bring the market back to equilibrium by setting higher prices which decrease the demand.\u00a0<\/p>\n\n\n\nIt\u2019s well-known that time is a very influential factor when it comes to defining prices. That\u2019s why surge pricing is often referred to as time-based pricing<\/strong>. The price dynamic will depend on the time of the day and expected demand. For example, research shows that people tend to order more during working hours<\/a>. Retailers are well aware of this, hence, the prices will be higher usually between 9 AM and 5 PM. In the evenings, however, the prices go back to their lower level.\u00a0<\/p>\n\n\n\nAnother used tactic is related to weather conditions<\/strong>. If the weather is bad, transportation companies will usually go ahead with this strategy. In that case, you will pay more for the ride than you usually do because the demand is much higher.<\/p>\n\n\n\nOver the years, surge pricing has become one of the most prevalent pricing strategies in the transportation industry<\/strong><\/a>. But we said that the beginnings of this strategy date back to the 1950s. Believe it or not, the problem with demand in the transportation industry still existed back then.<\/p>\n\n\n\nCrowded public transportation even in the 1950s<\/strong><\/h2>\n\n\n\nAnd you thought you were born at the wrong time and that is going to work used to be much simpler! Well, some problems seem to be universal.<\/p>\n\n\n\n
In the 1950s, the New York subway faced a problem familiar to everyone around the world. During the peak hours, it became overcrowded, while at all other times the transportation was almost completely empty. Trying to understand the problem, the mayor came to one conclusion – the flat fare of 10 cents needs to be revised.\u00a0<\/p>\n\n\n\n
One of the economists who were in favor of this idea was William Vickrey. He suggested that it would be wise to adopt a structure where the ticket price would depend on the length, location, and time of the ride. In other words, peak hours would be more expensive. Thus, those were the very beginnings of surge pricing.\u00a0<\/p>\n\n\n\n
Apparently a simple and smart idea, yet difficult to implement.\u00a0<\/p>\n\n\n\n
Hiring more ticket clerks was out of the question – that would only increase the overall costs. An ideal solution would be to create an automated solution that could calculate different rates depending on the factors mentioned above. Of course, that was a very challenging demand at that time, so it wasn\u2019t delivered.\u00a0<\/p>\n\n\n\n
The concept of surge pricing is nothing more than a dynamic pricing<\/a> method used in periods of higher demand and limited supply. Therefore, surge pricing is used to bring the market back to equilibrium by setting higher prices which decrease the demand.\u00a0<\/p>\n\n\n\n It\u2019s well-known that time is a very influential factor when it comes to defining prices. That\u2019s why surge pricing is often referred to as time-based pricing<\/strong>. The price dynamic will depend on the time of the day and expected demand. For example, research shows that people tend to order more during working hours<\/a>. Retailers are well aware of this, hence, the prices will be higher usually between 9 AM and 5 PM. In the evenings, however, the prices go back to their lower level.\u00a0<\/p>\n\n\n\n Another used tactic is related to weather conditions<\/strong>. If the weather is bad, transportation companies will usually go ahead with this strategy. In that case, you will pay more for the ride than you usually do because the demand is much higher.<\/p>\n\n\n\n Over the years, surge pricing has become one of the most prevalent pricing strategies in the transportation industry<\/strong><\/a>. But we said that the beginnings of this strategy date back to the 1950s. Believe it or not, the problem with demand in the transportation industry still existed back then.<\/p>\n\n\n\n And you thought you were born at the wrong time and that is going to work used to be much simpler! Well, some problems seem to be universal.<\/p>\n\n\n\n In the 1950s, the New York subway faced a problem familiar to everyone around the world. During the peak hours, it became overcrowded, while at all other times the transportation was almost completely empty. Trying to understand the problem, the mayor came to one conclusion – the flat fare of 10 cents needs to be revised.\u00a0<\/p>\n\n\n\n One of the economists who were in favor of this idea was William Vickrey. He suggested that it would be wise to adopt a structure where the ticket price would depend on the length, location, and time of the ride. In other words, peak hours would be more expensive. Thus, those were the very beginnings of surge pricing.\u00a0<\/p>\n\n\n\n Apparently a simple and smart idea, yet difficult to implement.\u00a0<\/p>\n\n\n\n Hiring more ticket clerks was out of the question – that would only increase the overall costs. An ideal solution would be to create an automated solution that could calculate different rates depending on the factors mentioned above. Of course, that was a very challenging demand at that time, so it wasn\u2019t delivered.\u00a0<\/p>\n\n\n\nCrowded public transportation even in the 1950s<\/strong><\/h2>\n\n\n\n
![\"Surge](\"https:\/\/lh5.googleusercontent.com\/TOK9btRBEBOzZ0VVEKBMW7GpaKSwQbMtkDvGuxZC3dC0taoLPNgvjHPO9FeXchnTDKyQq2bl7tr77CadJLfYmHLEm1_CLVkcB3GSdL7uAvoluKeL7a6OIhKWwtIPS05UAx_j-0Pq6M4u-T2uu3k\")
<\/figure><\/div>\n\n\n\n![\"Surge](\"https:\/\/lh3.googleusercontent.com\/sq3yZlBzlIO13TXzZlWeCT-gWqDiq6gfMT1BQrdujlciAexfdFgs6aJX2z2DQJJSNMF1mAL0vydBVaZXoG4o70NDGOh7WlsBiR9pAm6ihYCXOEpueqSmEbyM1lNE08I8dcCicsyslzMVve2cidI\")
<\/figure><\/div>\n\n\n\n