Illustration by Jan Buchczik
This article appears in the June 2024 issue of The American Prospect magazine. Subscribe here.
The internet nearly exploded this February when Wendy’s CEO Kirk Tanner announced that the fast-food chain intended to embrace “surge pricing,” raising the prices of a burger and a Frosty in line with customer demand.
The company had included a mention of “dynamic pricing” in its fourth-quarter earnings presentation, but clarified after the kerfuffle that the announcement of its new digital menu displays had been “misconstrued in some media reports as an intent to raise prices when demand is highest,” and said that it had “no plans to do that.” Instead, the new system would merely allow Wendy’s to “offer discounts and value offers to our customers more easily.”
The snark, which included Sen. Elizabeth Warren (D-MA), ranged from pure outrage to questions of whether the company would also offer “surge pay” to its low-wage workforce. But it’s not like Wendy’s invented price-gouging. A quarter-century earlier, Coca-Cola’s CEO mused about equipping its vending machines with thermometers, and triggering them to raise the price of a soda on a hot day. People hated that too; we just didn’t have social media then.
Wendy’s and Coke aside, surge pricing is spreading. Since deregulation in the late 1970s, airlines have used a form of it, with flights costing more at short notice or at high-demand times of year. Now, the practice has crept into golf courses, hotel rooms, gyms, pubs, and concert venues. Amazon alters its prices every ten minutes. Like Wendy’s, brick-and-mortar retailers are moving to digital price tags, allowing them to surge at will. Consulting firms like Sauce Pricing promise automatic surge pricing at restaurants to boost revenues. A chain bowling alley called Bowlero charged $418.90 for two lanes one day last year. Surge pricing “will eventually be everywhere,” the Financial Times, that chronicler of modern capitalism, said last September.
Customers tend to want to know in advance how much something will cost, and though we’re used to the cost of a gallon of gas, or even a quart of milk or a can of Coke, changing over time, those things tend not to fluctuate rapidly over the course of a day or even an hour. People make a distinction between things you need right away and things you could wait for; between luxury items, like market-price lobster at the hottest restaurant in town, and something we all know is cheap and easy, like a Wendy’s cheeseburger.
As companies gather more data available on consumer preferences, the process of algorithmically adjusting prices rapidly based on supply and demand will get easier, affecting all sorts of goods and services we’ve grown to count on. And there’s a case study in how this affects not only consumers but the workers who serve them. You encounter it every time you hit up your phone to find a way home.
IN RECENT YEARS, “SURGE PRICING” has been mostly associated with rideshare companies like Uber and Lyft. It was one of Uber’s earliest sources of bad press, even back when the tech press mostly penned breathless paeans to genius founder-disruptors. Uber took advantage of dysfunctional taxi systems in cities like Washington, D.C., to win goodwill, according to Kafui Attoh, associate professor of urban studies at the City University of New York’s School of Labor and Urban Studies and co-author of Disrupting D.C.: The Rise of Uber and the Fall of the City.
The pricing system was justified as a way to encourage drivers to come out at peak times by offering them more money, something that a regulated taxi system could not offer. It worked, ostensibly, by some combination of three incentives: reducing demand for rides because fewer people could afford the higher price; offering drivers a higher rate if they hit the road; and getting already-working drivers to head to the high-rate zone.
But regulated taxi systems at least offered a steady price that users could count on, whereas Uber’s sudden price spikes turned a short ride home into a luxury good. Uber spokespeople would suggest that riders simply wait for prices to fall again, but anyone who’s ever been stranded at closing time or missed the last subway knows that waiting sometimes isn’t an option.
Defenders of the practice consider it just an updated version of the same old capitalist supply and demand. “Get used to it, consumers!” wrote Peter Fader, professor of marketing at the University of Pennsylvania’s Wharton School of Business, nearly a decade ago. “Surge pricing is here to stay, and that’s a good thing in most circumstances. It is a more natural way for markets to operate, and smart retailers can learn a lot about the value of their customers (and the value of their products/services) from it.”
Uber can notice a sudden spike in calls for cars in a certain part of town and spike rates within minutes.
Utpal Dholakia, a professor of marketing at Rice University, suggested in 2015 that Uber “rebrand” surge pricing with another name, perhaps part of the reason we hear more about “dynamic pricing” these days. But Uber’s problems didn’t have so much to do with a name. Its lightning-fast response to incoming data allowed it to spike prices quickly, before customers could react or adjust, in ways that seemed unfair.
While public transit, Attoh noted, might have a simple “peak” and “off-peak” fare system, those are at least predictable; customers during peak commuter hours pay peak commuter fares, encouraging those whose plans are flexible to take a later, cheaper train. But Uber can notice a sudden spike in calls for cars in a certain part of town—maybe there’s a subway outage, maybe a torrential downpour—and spike rates within minutes.
Returning to the Wendy’s context, it’s the difference between a standard happy hour or “early bird special” at a set time, and a free-for-all of minute changes in customer orders leading to surges, in ways nobody can anticipate. Attoh noted that particularly in moments of acute need—during natural disasters and the like—customers would be especially enraged at Uber’s price hikes. Price rebellions, he pointed out, have a long history.
The secrecy of the price-setting process is another part of the problem: Users often have no idea how the multiplier is calculated for a surge, or how long it will be in effect. And the increasing sophistication of the data these companies are extracting makes the whole practice seem less than honest.
For instance, in 2016, Keith Chen, Uber’s head of economic research, let slip that the company is aware that “one of the strongest predictors of whether or not you are going to be sensitive to surge … is how much battery you have left on your cell phone.” A desperate passenger about to lose the ability to call an Uber, in other words, was one who would pay any price. Chen insisted that Uber “absolutely” didn’t use that knowledge to spike prices, but what was curious was why Uber was tracking user battery life to begin with.
A later investigation seemed to contradict Chen’s denial. Last year, the Belgian newspaper La Dernière Heure “conducted a test using two smartphones, one with 84% battery and the other with 12%, to request a ride from their office in Brussels to Tour & Taxis in the centre.” The phone with the low battery was offered a price a euro higher for the same ride. Uber once again responded that it never used battery data to determine rates.
FOR APPS LIKE UBER, OBSCURING how pricing is determined is a core part of the business model. Because Uber is controlling both its ostensibly independent labor force and also its riders’ demands for services through an algorithm, it is in real time determining both the wage rate and the fare, and those two things are not always as closely related as they might seem.
In some ways, of course, the interests of drivers and riders are opposed. Nick Srnicek, a lecturer in digital economy at King’s College London and the author of Platform Capitalism, recalled one story of Uber driver organizing in which drivers would coordinate turning off their apps at the same time in a high-demand area in order to get the algorithm to kick in surge pricing, raising their rates for the same trips. In a more individual fashion, drivers sometimes “chased the surge,” Attoh noted, which is of course what Uber was ostensibly trying to incentivize with surge pricing in the first place.
“The only way for some people to make working for Uber work was if they were able to get enough surge rates,” Attoh said. “And so that meant trying to figure out, OK, today’s a baseball game, so I’m going to drive to this area because I’m going to get more money that way.” There were also apps that attempted to predict pricing on the rideshare apps; and perhaps even (though Attoh never confirmed this) a consumer-side app that would tell you where the surge pricing zone ended. “It’s these competing apps to try to avoid either paying more or getting paid as a worker less than you otherwise could. It was like this technological arms race between consumers and drivers.”
Other research by Nicholas Diakopoulos, a professor of journalism now at Northwestern University, found that surge pricing did less to change the supply of drivers in the moment and more to move drivers from one area to another. Again, it was the variability and rapidity of prices at play: Surge prices jump too quickly to get drivers to stop anything else they might be doing and leap into the car to speed toward the surge spot. (In other words, drivers have lives.)
Diakopoulos noted that an Uber spokesperson cited the long-term value of such pricing, teaching drivers where and when the “highest-value times are for driving.” It served, Srnicek said, to press workers to internalize ideas of where and when surge pricing might apply in order to shape their working schedules, without the company having to assign them shifts and otherwise treat them as employees.
A Belgian study presented evidence that Uber increases rates on riders when their batteries are low.
Meanwhile, Uber’s recent profitability was built on the backs of its workforce. According to Forbes, Uber quietly reduced per-trip base pay for drivers by 12 percent in 2023, while increasing its take rate from each fare to 40 percent. The cuts were concealed through a new pay policy powered by artificial intelligence that sets the rate up front, through data points unknown to the driver. In addition, drivers bid for trips in a real-time auction known as Trip Radar, putting them in competition over taking the least amount of money for a ride.
It can be hard to convince people who are thinking as consumers to have sympathy for drivers, especially when higher rates for those drivers means higher fares. But most of us are both worker and consumer at different times, and those two roles together make up not just our economic existence but our lives. Wages are nothing more than the price of labor, and those prices can be just as easily manipulated, algorithmically, at the boss’s whim. And in the case of Uber, driving down wages for workers and locking them in a state of desperation has a knock-on effect for all of our working lives.
Veena Dubal, professor of law at University of California, Irvine and one of Uber’s most prominent critics, has described the way Uber and other companies set wages as “algorithmic wage discrimination.”
Dubal told me that Uber also has many methods to “gamify” wages. For example, the company offers token bonuses that she referred to as “wage products.” As Dubal explained, “If you do this many rides or this many tasks in X amount of time, you get this little token that gives you X percentage off on your insurance or gives you a hundred dollars or whatever. And if we’re talking about net wages or even a net hourly wage, then that stuff really matters.”
Algorithmic pricing, in other words, is part of a broader system of labor discipline when it comes to the gig economy. It’s a new form of scientific management, Dubal said, designed “to control how workers behave, how they move and when they move and what they do … It’s literally manufacturing consent in a way that is rooted in behavioral science, rooted in what we know about human behavior, rooted in literally theories of manipulation.”
The fluctuating price of labor pits drivers against one another, making collective organization harder (though certainly not impossible). It creates assumptions that drivers who earn more are simply working harder to master the system, an individualized mentality that cuts against solidarity. But in the end, it just confuses workers, because they don’t understand why they’re getting paid and what underlies that decision.
To Dubal, variable pricing has a much more insidious effect on workers than on consumers. “I don’t like talking about it in the same breath as I like talking about consumer prices, because when a worker is selling their labor … It is about livelihood. It is about dignity. It is about the ability to survive.” And that variability on the wage side is creeping into sectors where we might least expect it, even in professions where workers have access to basic wage and hour protections.
Take health care. Hospitals, Dubal said, have begun using apps to allocate tasks based on increasingly sophisticated calculations of how workers move through space and time. Whether the task is done efficiently in a certain time frame can impact a worker’s bonus. It’s not surge pricing per se, but a more complex form of control that often incentivizes the wrong things. “It might not be the nurse that’s really good at inserting an IV into a small vein that is the one that’s assigned that task,” Dubal said. “Instead, it’s the nurse that’s closest to it, or the nurse that’s been doing them the fastest, even if she’s sloppy and doesn’t do all the necessary sanitation procedures.”
Uber has made Americans more comfortable with Uber-ized prices. And that’s useful for brick-and-mortar retailers.
With technological labor pricing, then, what workers are paid and the services customers receive (and pay for) are becoming disconnected. The Uber app is calculating my price based on what it thinks I will pay, and it’s calculating the driver’s rate based on what it thinks they will accept for the trip I want to take. These calculations operate at cross-purposes, but similarly overextend consumers and workers for the company’s benefit.
“What’s interesting,” Dubal continued, “is that all of these practices have emerged out of this particular sector because really there’s no enforcement of existing employment laws in the sector, and there’s been so much experimentation as a result, and therefore you have these really problematic Tayloristic practices that emerged that now leave us in this complete dystopia of digitalized pricing.”
It’s not impossible for drivers and users to express solidarity. During protests against Donald Trump’s Muslim ban in 2017, when New York City taxicab workers showed their support by refusing to take airport fares, Uber announced that it would halt surge pricing at the airports. Some consumers surely took advantage, but #DeleteUber trended on social media, and some 200,000 people deleted the Uber app in support of the taxi strike. New York Taxi Workers Alliance leader Bhairavi Desai told me at the time, “People out there know that taxi drivers are really hardworking and that people really struggle day-to-day to make ends meet. The idea that they would put their incomes on the line and it would be a workforce that is so vulnerable, particularly in these times, to surveillance and deportations and further policing … It seemed to really touch people and we were so moved by their reaction.”
But the apps make it difficult to express that solidarity on a day-to-day basis, because riders and drivers have been set apart. Riders cannot easily compare data with drivers, to show how much you’re being charged versus how much they’ve been paid. That makes it hard for riders to recognize the plight of the drivers.
And the mechanisms for control that the algorithm provides are often deeply inefficient. Drivers are kept in a loop, circling and waiting for fares, in order to push down the price they’re willing to accept; riders are kept waiting rather than offered the driver nearest them. “It’s not just about an evaluation of objective supply and demand, it’s also an evaluation of our varying individualized willingness to wait to exploit ourselves, to put up with different environments,” Dubal said. “It’s really a digitalized evaluation of who we are in some sense, and as it relates to the company’s profitability.”
UBER WAS UNPROFITABLE FOR YEARS, subsidized by venture capital to grow its market share. They’ve now managed to achieve record profits, but, Srnicek said, “they’ve done it by slashing what workers receive and jacking up prices to the point where in London, it’s not much cheaper than a black cab anymore to get an Uber.” Forbes’s data shows that rides have surged in price to well beyond even the elevated rate of inflation post-pandemic.
Despite the odes to Econ 101 that surge pricing’s fans offer, Srnicek said that the company’s success is really due to anti-competitive behavior: driving out all competition from the market, colluding at times with rivals to crush public options or traditional taxis or regulation, and then becoming the only option for transit. (The day I went to meet Srnicek for our interview in outer London, I walked into the Liverpool Street station to massive ads telling me to book my next train journey through Uber.)
Digital platforms, in other words, succeed when they get to saturation, and they wring profits out of increasingly sophisticated data collection that becomes possible only at that saturation point. We see this in food delivery apps—in which Uber is a player—which have consolidated and then exploded in price, just as more and more users have gotten hooked on one-click lunch and dinner.
These apps of convenience are not stable, profitable businesses, and they can only succeed by making their services unaffordable yet unavoidable. (We know the stories about delivery apps listing restaurants without their permission, to the detriment of those businesses.) Uber hides behind surge pricing; Uber Eats and DoorDash and Grubhub behind a wall of unexplainable fees. Either way, the push is toward higher prices.
Those bowling alleys and fast-food joints and other businesses are places where the customer still does often walk in from the street. People have not previously had to use the mental energy to think about what prices will be at particular times of the day for a physical product, rather than a ride or a ticket. But Uber has made Americans more comfortable with Uber-ized prices. And that’s very useful for brick-and-mortar retailers, economist James Meadway believes.
“One prospect with surge pricing being used more widely,” Meadway said over WhatsApp, “is that in situations where there are (1) few suppliers, so suppliers have some market power and (2) inelastic demand (i.e. people carry on buying even when price rises), there could be a ratchet effect—prices surge, but then as the pressure point eases companies don’t simply put them down to where they were before.” Meanwhile, workers don’t usually share as the revenues go up. In fact, they suffer from the monopoly or near-monopoly too; just on the other side of the equation.
NDZ/STAR MAX/IPX
Uber drivers are also affected by algorithms that manipulate their take-home wages.
IT’S BECOME SOMEWHAT POPULAR to say that today’s economy has changed so much that we’re no longer in an age of neoliberalism, or even, if you believe Yanis Varoufakis, capitalism. But the direction in which we have been pointed by the gig economy’s pricing models is actually in many ways neoliberalism’s apotheosis, where each of us is a number evaluated by various algorithms, with our behaviors used to inform our prices, without our even knowing it.
Uber’s effects on existing systems have been a continuation of neoliberal attacks on regulation and shredding of both worker and consumer protections. The road to monopoly power has been paved with broken laws and decimated transit systems. Price regulations are scoffed at; minimum-wage laws lead Uber to declare that it will exit an entire market. The technology is certainly helping bring dynamic pricing to a shop near you, but the real problem here remains brute force and a lack of political will to change.
Attoh and his co-authors’ research bears that out. They started out, he said, intending to look at Uber drivers’ working conditions, but at the time, the company was battling a bill in D.C. that would have put a price floor on fares. “In response, they encouraged everyone who had taken Uber—they have their contact information—to write into their city council person. And so they killed the bill,” Attoh said.
That turned their research to the question of how Uber exploits gaps in the social safety net and manipulates our expectation of public versus private, regulated versus the free market. Uber, Attoh noted, becomes part of our transportation infrastructure, not just a private service provider, which increases its ability to set prices. “There has been a real shift in what people expect just given the technology,” he said. “This phone gives them access to a whole servant class with immediate one click on demand.” But what happens when you become dependent on a service and then the price goes through the roof?
As I write this, the state of Minnesota is negotiating with Uber and Lyft to keep operating after the companies threatened to pull out to avoid paying a minimum wage to drivers in Minneapolis. The city passed an ordinance requiring a pay rate of at least $1.40 per mile in the city limits. The rideshare companies freaked out. Price increases are one thing. Regulations, it seems, are quite another.
Yet wouldn’t all these sophisticated pricing algorithms have an easy enough time calculating the minimum rate and setting prices accordingly? Surely they’re capable of such a thing. But that’s not the point of the screaming and wailing and threats. Rather, the point is once again that the company’s right to set prices should not be impinged upon by human beings’ pesky needs, whether that be to move around the city or to make a living wage.
The flip side of the ongoing job precarity, for gig workers and Wendy’s workers alike, is a new pricing precarity, where you never really know what anything will cost and it becomes impossible to make a budget, to plan ahead at all. This is why people worry about inflation, and this is why gig work, as Veena Dubal pointed out, is so particularly dehumanizing.
In this sense, the fight for Minneapolis Uber drivers’ wages is actually a fight that affects all of us, because it is a fight over who will run the city: the elected government, or corporate power.
POSTSCRIPT: In May, Minneapolis and Uber reached agreement to keep the company driving in the state. While the agreement requires a lower minimum wage than the city of Minneapolis wanted, Eid Ali, president of the Minnesota Uber/Lyft Drivers Association, said, “for now, it was one absolutely important and crucial step that was taken towards the right direction.” A few days later, London drivers, complaining about the opaque pay system, alleged to Wired that Uber was using surge pricing not just during times of peak demand, but all the time.
