This is interesting, but as an economist it immediately struck me that something in this argument feels wrong.
Thinking it though, it may work, but there is a potential problem. You're suggesting you expand the supply side in a surge by ensuring the the driver makes more money. So that means the company makes more profit during non-surge. But doesn't that open up an opportunity for a second company to come along and charge lower rates during non-surge periods?
Oh! I know! Regulate so that only Uber can operate in a given market, maybe issuing coins or tokens or medallions, anyway something so you know the driver is legit and safe to use. Thus keeping the whole industry safe and reasonably profitable for all those involved.
And then let the people who have owned the medallions gouge those who don't by charging them $40,000/year to rent a car they don't even get to keep.
Get rid of any incentive to act in the customer's best interest: Make sure that no drivers are compelled to go to less desirable areas, do a shift change right at rush hour, allow drivers to reject the rides they don't want, create no feedback loop, allow cash payments so they can pretend like the credit card machine is broken for extra tips, allow drivers to rip off visitors who don't know the area by taking longer and less direct routes, and don't increase the number of medallions ever.
Not necessarily. Goods & services can be differentiated by qualitative as well as quantitative measures. For example, and just a personal anecdote, I like Lyft more than Uber, as a company, but generally use Uber because it generally has quicker pickup times. I don't have a clue as to what the price differential might be. "Reliability" is an especially important component in this type of market, because you're trying to get somewhere for some reason and willing to pay, so there is less price elasticity overall for this product. A small increase in price for 95% of the time (averaged out over geographical-time units) would not likely be sufficient to outweigh the gain in reliability and convenience.
There are other explanations / scenarios of course. I have a degree in economics, and, well, respectfully this seems more like a business/marketing domain issue. The change I was proposing would be at the same time too small of a price change and too muddled with other (real world, real time) variables to be well-modeled in the realm of economics.
> "Reliability" is an especially important component in this type of market, because you're trying to get somewhere for some reason and willing to pay, so there is less price elasticity overall for this product.
Not sure about the low price elasticity. The article argues that demand for uber-rides varies drastically with price.
Thinking it though, it may work, but there is a potential problem. You're suggesting you expand the supply side in a surge by ensuring the the driver makes more money. So that means the company makes more profit during non-surge. But doesn't that open up an opportunity for a second company to come along and charge lower rates during non-surge periods?