To bidding's efficiency.

of price rising sharply in the peak demand

Uber's 4 years in the face of criticism, the government chafed at its arrogance over regulation, and taxi companies upset it to grab jobs. But the most strident criticism comes from an unlikely place: the client.

Its dynamic pricing, which sharply inflated prices at peak demand, has been criticized for profiteering and exploiting customers.

But bidding's approach is not Uber initiative. There has been a pattern of price differentials (differential pricing) in the economy. For example, matinee movies are cheaper than night, and newly-marketed clothes usually wait until the price is reduced if you like. But the pioneer of dynamic pricing in strict terms was Crandall, the then CEO of American Airlines in the 1980, who, in order to compete with cheap airlines such as the People's MRT, offered discounts for advance bookings, the longer the lead time, the higher the discount. Over the decades, such revenue management has become an integral part of the business model of aviation, hotel, car leasing and other industries, and the increasing computing power and the refinement of data analysis have turned the pricing of these industries into an extremely complex process. (Dynamic pricing also makes websites such as Priceline and Hotwire fire up, because hotels often prefer to cut prices when they meet a vacancy). More recently, dynamic pricing has become commonplace in other industries as technology has made market segmentation and real-time price adjustments easier. In the field of sports, many professional teams use dynamic pricing to sell tickets, and the competitive price of a strong team is higher than that of the weak, and the concert prices will be adjusted with demand.

Since dynamic pricing is not particularly special, why is Uber so much criticized? The reason is partly due to history: in the early days of Uber, pricing was less transparent, so customers occasionally found that fares were outrageous, as in the case of storms, because people didn't like bidding in their hearts. In 1986, studies by Daniel Kahneman, Jack Knetsch and Richard Thaler found that most people thought it unfair to raise prices in the absence of ready-made alternatives. "Uber is the case, in a blizzard in New York, the price of Uber soared to 8 times times the original, the customer's irritation can be imagined." Thaler pointed out that as long as the price increase of more than 3 times times will be beyond the psychological capacity of people.

It is also important that Uber prices do not fall because they are more likely to accept discounted dynamic pricing. For example, the prime-time fare is a few dollars more than the normal fare, while the matinee is a few dollars less. When American Airlines introduces dynamic pricing, it is possible to set a 3-week advance booking to get a super money-saving ticket and a discount on the bar. These frameworks do not change the underlying economic or price structure, but have a significant impact on customer response. In 1999 years, for example, Coca-Cola CEO Douglas Ivester proposed a dynamic pricing that would increase the price of cola in hot, demanding weather. The move immediately led to a sharp rebound in consumers, and the company was forced to immediately clarify that Ivester's remarks were only conceived. If Ivester said that Coca-Cola would adopt dynamic pricing in the cold weather to reduce prices (even if it had raised the base price), consumers might react differently. Uber's rival, Lyft, seems to have realised the power of the framework: the company recently introduced so-called concessionary-time pricing to offer discounts at off-peak business hours.

Uber ultimately faces the industry's challenge: The price of the industry has historically been regulated and fixed (as in New York's price for 6 o'clock in the morning to 5 o'clock in the afternoon). Uber pricing is more complex and difficult to understand, so even if the Uber dynamic pricing is transparent will also make some people annoyed. In addition, Uber challenged another traditional notion that traffic is, in a sense, a public facility, so it is hard to accept that charging passengers a much higher cost than usual. But there are a lot of alternatives for passengers besides Uber, so this kind of complaint seems a bit hard to understand (bad for other tools). But that's the way it is.

So it's not hard to understand why Uber is at the mouth of a troubled storm. Ironically, the company actually offers the most economical and useful dynamic pricing of today's economy.

After all, in most cases, dynamic pricing is a way for companies to maximize profits through the use of demand-the highest bidder. As MIT Professor Yossi Sheffi, dynamic pricing is "the science of squeezing every penny in a client."

This is because most dynamic pricing of the industry inventory is relatively limited (flight seating limited, hotel rooms are limited), so always hope that the hands of the resources to make as much money as possible. But Uber is different. Although Uber also wants to make more money, it uses dynamic pricing not only to take advantage of demand but also to increase supply.

Although the number of potential Uber passengers is more than Uber, the company's algorithm set the price is in balance between supply and demand. Uber's algorithm, which has been improving since 2011, is the company's most important innovation, which allows companies to identify attractive prices for drivers. Because the driver is an independent contractor, Uber cannot order these drivers to go on the road, while the attractive price is the only force that drives the driver, but the Uber pricing is not too high to be acceptable to the passengers. This balanced division algorithm is effective, according to Uber board member VC Bill Gurley revealed that 2012 Uber for the first time in the Boston test dynamic pricing, its capacity increased 70~80%.

We all tend to think that drivers are willing to go on the road as long as they have money, but that's not true: Several studies have shown that drivers have several decisions to make on the road. And often the most need to take a taxi when it is the highest risk, the driver the most annoying time. such as rush hour, New Year, Blizzard, and so on-often drivers are reluctant to go on the road. But if the price given is attractive enough, the driver would prefer to go on the road.

As a result, the dynamic pricing of Uber not only raises the cost of a taxi, but also increases the number of people who can hit it. Customers are paying more, but they can finally get on the bus. This is how the market is expected to operate: demand growth should spur supply increases.

Uber, of course, has been making this point for some time, but this does not assuage the complaints (though complaining, Uber's service is still popular and is now valued at more than $17 billion trillion). So authorities have prescribed some prescriptions for Uber to solve this PR problem.

Uber should not be charged at peak hours (at present Uber 20%) so that all the money goes to the driver. or control the pricing of consumers, but give drivers a higher price, subsidizing these people on the road during the peak. Or if prices soar too far, Uber should donate to charity.

These are mostly interesting ideas. But in terms of dynamic pricing, it would be a mistake for Uber to let public relations overwhelm the economy. The recent agreement between the company and the New York judicial authorities to curb peak pricing in "emergency situations" is meaningful because the list of emergencies is relatively rare but has a huge negative impact. But dynamic pricing must not be independent of the supply and demand relationship. A basic reality reflected in the Uber business model is that when you most need to play, you are often the most expensive. This is going to be annoying, just like the price of a flight that's going to fly is so outrageous. But as time shifts, the attitude towards dynamic pricing may be gradually calmed down.

In addition, utilities are also starting to implement dynamic pricing, such as the introduction of electricity prices. A start-up called Boomerang Commerce (created by a former Amazon engineer) began helping online retailers set prices dynamically. Despite the rough road ahead, dynamic pricing is the future.