Uber and the Sydney hostage crisis

Uber, the car service startup was recently valued at $40 billion is being criticized for its jacking up prices during Sydney's recent hostage crisis. Reports the Washington Post:

"After an armed gunman took patrons of a Sydney chocolate shop hostageduring rush hour Monday morning, the transportation company Uber quadrupled its fares for panic-stricken customers fleeing the central business district. It charged a minimum of $100 ($82 U.S. dollars) to escape."

Critics are calling Uber "Ayn Rand's favourite car service" for the way it unabashedly sticks to the rules of supply and demand. Consider this tweet that Uber Sydney sent out in the midst of the crisis:

At the Daily Beast, Olivia Nuzzi defends Uber's pricing:

"If you don't like Uber's surge pricing, you are still welcome to travel by subway, cab, bus, camel, horse and carriage, or you can just fucking walk. If none of those options appeal to you, you might consider meandering over to a country with a different economic system."

She's right, of course. There's no law that says that the startup has to give things away. On the other hand, like other companies, Uber operates in a larger environment. As extraction companies are beginning to understand, corporations need a social license to operate. Without that social license, Uber can expect to continue to be challenged for its practice of rate-hiking, especially during times of crisis and need. At a time when Its ability to operate in some cities and countries is being challenged, the company can't afford to continue making these kinds of mistakes.

Instead of setting the 4X surge pricing, which the company has since refunded, the nominal reason that Uber hiked up prices was to encourage more drivers to bring people out of the central business district. There are several other ways they could have done this:

(1) Pay the surge pricing itself

As Alison Griswold over at Slate recommended, Uber could have paid the surge pricing itself. The number of drivers heading downtown would increase, and present (and future) customers wouldn't have to pay four times the going rate to head home. When the surge pricing controversy went public, this ended up being what Uber did anyways.

(2) Tell its drivers that there was a need for drivers

Uber may not realize this, but not every person is a profit maximizer. In moments of emergency, plenty of the company's drivers would likely be more than willing to offer rides out of the Central Business District free of cost. Since Uber has one of the largest networks of private vehicles operators, it could simply have told its drivers that there was a need for more drivers downtown. 

(3) Nothing

Sometimes its best to respond by not responding. Had Uber simply done nothing or shut off its algorithm, it's highly unlikely anyone would have noticed and the company would have avoided another PR headache.

The problem with supply and demand

Uber is actually a brilliant application of the laws of supply and demand. But the company needs to realize that at its heart, these economic laws are completely morally neutral. When it comes to operating a company in the real world, the perception of morality plays an important role. If Uber continues this way it could irrevocably damage its brand. It may be time for the company to implement some of the above ideas when emergencies such as the Sydney hostage crises emerges. The practice of surge pricing may be the reason for its innovation, but if Uber sticks adheres too stringently to its logic, it can also end up being the cause of Uber's downfall.

(Image source)

Howie Chong