# How Uber Sets its Prices



## elelegido (Sep 24, 2014)

There's a lot of talk lately about Uber not knowing what it is doing with these continual fare/earnings cuts, that they are running their business into the ground etc. The sentiment seems to be that they will have to turn things around or go bust.

I disagree. I believe that Uber's pricing strategy is very well thought out and is based on sound economics. Note that I did not say fair, equitable or socially responsible. But economically sound.

Below are four Uber cities, their per capita incomes and their UberX price per mile. They range from Detroit, with an extremely low per capita income and one of the highest poverty rates in the nation, and New York, with an extremely high per capita income (source: US census data 2010-2014):










Graphed, this data looks like this:










The points on the graph fall almost exactly on a straight line, meaning that Uber's prices very closely reflect per capita income in each city. In fact, if we calculate the R squared value of the price vs income, we get a correlation between the two of 95.2%.

This confirms what everyone knew already - Uber sets prices and therefore driver revenue at poverty levels in areas of widespread poverty, and at higher prices where it is prudent to do so. Uber will set the price low in areas like Detroit because it knows that desperate drivers there _will_ work for $4, $5, $6 etc per hour. Of course it's exploitation, but Uber still takes its 20-25% cut all the same.

At the other end of the scale, higher per capita incomes in San Francisco and New York mean that the market cost of labor that Uber must pay is higher; at 30 cents per mile there would be few takers.

In short, Uber's mantra of "we do it because we can" applies to its pricing / driver revenue. With no minimum wage-type government protection to prevent the exploitation of on-demand workers, the rideshare experiment shows exactly what free market economics look like; both the good and bad. The long term outlook for drivers, especially in low income areas, looks very poor indeed.


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## stuber (Jun 30, 2014)

Makes sense. Assuming you're selling a commodity that has roughly equal value regardless of location. Density and infrastructure in different places cause people to value taxis differently. LA has horrible traffic and no parking. Another California city might similar income, but doesn't have the traffic problem. Thus, people will drive themselves more and cabs might be cheaper.


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## bulabula1 (Oct 9, 2014)

many of the counties in the metro detroit area have 2x to 3x the per capita income of Detroit.


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## Oscar Levant (Aug 15, 2014)

Uber is absolute proof that regulation is sometimes necessary.

I therefore recommend a new regulation applying to rideshares should be
at least 4x the IRS mileage deduction per mile ( which would be about 2x driver cost per mile, assuming paid miles runs at about 50% ).


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## elelegido (Sep 24, 2014)

Oscar Levant said:


> Uber is absolute proof that regulation is sometimes necessary.
> 
> I therefore recommend a new regulation applying to rideshares should be
> at least 4x the IRS mileage deduction per mile ( which would be about 2x driver cost per mile, assuming paid miles runs at about 50% ).


I agree. The free market's great, but left totally to its own devices it will exploit all involved; most seriously, the workers. Uber's Detroit guarantee of $10/hr gross is already well below minimum wage when net income is calculated.

Unfortunately no politician is going to want to vote for worker protection. The public likes paying pennies per mile for their rides. The pushback against trying to change this would now be too great.


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## dailypay (Nov 30, 2015)

elelegido said:


> There's a lot of talk lately about Uber not knowing what it is doing with these continual fare/earnings cuts, that they are running their business into the ground etc. The sentiment seems to be that they will have to turn things around or go bust.
> 
> I disagree. I believe that Uber's pricing strategy is very well thought out and is based on sound economics. Note that I did not say fair, equitable or socially responsible. But economically sound.
> 
> ...


This is an absurdly awesome and insightful analysis. And it completely matches our analysis based on our payment data here at DailyPay. Wow, really nice job.


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## Thatendedbadly (Feb 8, 2016)

Actually I think it's a little more than income, if that were the case Uber would have set permanently low rates around just the city and those ring suburbs that have similar demographics. Some suburbs of Detroit are among the richest in the country, in the top ten category, yet they still get .30/.30 base rates. Metro Detroit is a poor public transit area, the only way to grow the business in these parts is to make using Uber almost cheaper than driving. With the exception of Uber there are no reliable and inexpensive public transit options, this is not the case in Miami, New York or LA.


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## elelegido (Sep 24, 2014)

Thatendedbadly said:


> Actually I think it's a little more than income, if that were the case Uber would have set permanently low rates around just the city and those ring suburbs that have similar demographics. Some suburbs of Detroit are among the richest in the country, in the top ten category, yet they still get .30/.30 base rates. Metro Detroit is a poor public transit area, the only way to grow the business in these parts is to make using Uber almost cheaper than driving. With the exception of Uber there are no reliable and inexpensive public transit options, this is not the case in Miami, New York or LA.


Yes, there are rich areas around Detroit. The driver labor pool will come from the poorer areas, while the richer residents in the periphery can afford to pay comparitively more. So we have a situation where there is a labor supply which will work for peanuts, coupled with more affluent customers. What Uber needs is a way of paying the drivers very little, while charging more to their customers. Answer? Booking fee.

Don't forget, price = base + (driver pay + uber fee) + booking fee. In low income areas like Detroit, Uber sets driver pay lower by setting the base low (50 cents) and the per mile rate low. This allows them to pay the drivers poverty rates.

Then, on the revenue side, and this is key to their profitability, they set the booking fee high (this fee is not shared with the driver but kept in its entirety by Uber). Uber's Detroit booking fee is one of the highest I have seen of any city.

This strategy allows Uber to reduce pay to its drivers by a large margin, while decreasing its own revenue per ride by a much smaller amount In fact, in Detroit, Uber's total take on a minimum fare ride is close to 60%. Result: higher gross margin per fare _x_ many more fares = Uber profit.

Detroit's booking fee is 50% higher than it is in San Francisco, where there is a much lower differential between Uber's revenue and its payments to drivers based on its own publicised fares & fees tables.

In addition to per-mile fare cuts, Uber has also transitioned from higher base fares (driver gets 75-80%) to low or zero base fares, replacing them with the aforementioned higher booking fees (again, driver gets 0%). Replacing base fares with higher booking fees has little effect on end fare price to the pax, but it does shift the revenue from the driver's pocket straight into Uber's.

The most genius part of all of it? Uber has implemented this great revenue grab from drivers so stealthily that drivers don't even realize what has been done to them. Look through this forum and you will see post after post saying "I don't care about srf / booking fee; I never see it, it doesn't affect me, Uber can charge the pax whatever fees it wants, or even "it's none of my business" (?!?).

Like I said, it's all very sound economics, and very astute.


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## elelegido (Sep 24, 2014)

dailypay said:


> This is an absurdly awesome and insightful analysis. And it completely matches our analysis based on our payment data here at DailyPay. Wow, really nice job.


 Thanks.

On a different note, some would say that's an extremely monetizeable data set you're building up there!

*cough*
Juno
*cough*


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## Michguy01 (Feb 13, 2016)

People always confuse "Detroit" with "Metro Detroit". If you go downtown during the day, it's mainly business people....I'll guarantee 95% of those people don't live in the city itself! Go downtown on the weekends, casinos, sporting events, concerts whatever.....it's 95% suburbanites, again people that don't actually live in the city itself.

While "Detroit" may be a bankrupt, poor city......The surrounding areas are doing just fine. Piss's me off when I pick someone up from a 500k house that can't throw me a buck or two at the end of a trip.


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## RockinEZ (Apr 29, 2015)

A one minute story about Uber's cuts and business practices made it to national news last week. 
They questioned the cuts, and the way Uber seems to be ignoring or stretching labor laws.


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## Guest (Feb 28, 2016)

elelegido said:


> There's a lot of talk lately about Uber not knowing what it is doing with these continual fare/earnings cuts, that they are running their business into the ground etc. The sentiment seems to be that they will have to turn things around or go bust.
> 
> I disagree. I believe that Uber's pricing strategy is very well thought out and is based on sound economics. Note that I did not say fair, equitable or socially responsible. But economically sound.
> 
> ...


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## Guest (Feb 28, 2016)

You analogy about capitalist economics sounds fine, but what you fail is, that you praise Uber technologies, and do not say a thing about it's "Partners" (drivers) how little money we are making at the beginning of 2016. For what I have noticed, is that I am making 20 to 30% less, compared to last year during the same period without counting gas and maintenance. I have been taken some days of the week and count the hours I am loged in ready to take riders and the take home money I make and divide it by the time and come up with $8 to $9 hr. That is bull shit for somebody that is using his own car; paying registration, gas, !maintenance and my own time as a driver, so I don't know where the partnership is, if all that Uber is doing is screwing drivers left and right. The promise of $15 to $20 an hour is total bullshit, not only they cut milage fares and come up with this ridiculous Uber pool bullshit system, that is nothing but another slap on the other cheek of all drivers, which is a total rip off, because in some ocations I got $1.60 take home, for two people on the same ticket. Even subsidized public transportation charge $2.50 for one person. Uber! If your tirant, slave driving piece of shit CEO is listening to the outcries of drivers! You do not choke your own source of income! You little piece of shit, we are the ones that made you millions you ungrateful pieces of shit! Amen Reverend. Peace I am out!


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## Adbam (Jun 25, 2015)

I think you need to expand beyond 4 cities to prove your theory. I can throw some rocks at it.

City.........Per capita...............price per mile

Los Angeles. ...... 27k.................= .90
Phoenix..............27k...................=.75
Tucson................25k....................=.95
Orlando ..............25 k.................=.65

Here are 4 areas with a million or more people. Tucson has the least per capita but most per mile.

Phoenix and LA's per capita is the same but a .20 difference in per mile.

Orlando has more per capita than Miami but less per mile.

I like your graph and data but there are other factors in place than what you state.


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## I_Like_Spam (May 10, 2015)

Uber sets its prices to maximize its corporate revenues. Period.

The incremental cost to Uber of running a trip is very low, the biggest cost is the money the credit card banks take from them as a fee.

The cost of running a vehicle, wear and tear and the price of oil, tires and gasoline are irrelevant to Uber, they don't pay those expenses.


Upward pressure on prices for Uber can occur if the number of drivers decrease enough they can't meet the demand, or if raising prices will result in more revenue (in spite of higher prices meaning less demand for rides). Finding the "sweet spot" on the Demand/Supply graph where revenues are maximized is what Uber is trying to do


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## uberdriverfornow (Jan 10, 2016)

Same old Uber, only caring about riders, not caring about drivers. No innovation whatsoever. Costs before profits. Manipulate ridership numbers to bring in more blind investor funds.


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## elelegido (Sep 24, 2014)

Adbam said:


> I think you need to expand beyond 4 cities to prove your theory. I can throw some rocks at it.
> 
> City.........Per capita...............price per mile
> 
> ...


I thought someone would say that small sample size casts doubt on the conclusion. Of course, you're right; it does. In order to prove conclusively that price is related to per capita income it would be necessary to have a larger sample. I'm confident though that there would be a high degree of correlation between the two. Not 0.95 as above (due to, as you say, the other factors), but high nonetheless.


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## elelegido (Sep 24, 2014)

I_Like_Spam said:


> Uber sets its prices to maximize its corporate revenues. Period.


That's a very bold statement. It's also not correct. If Uber's _only_ consideration when setting prices was revenue, it would very simply lower the price to the point which gives the highest revenue on the price:revenue parabola. That price would be much, much lower than it is today in any market; maybe around 10 cents per mile. Drivers would be retained by giving them hourly "guarantees", which would in effect subsidize the below-cost rides. This would increase Uber's costs exponentially to enormous levels. But this wouldn't matter in your scenario, because "Uber sets its prices to maximize its corporate revenues. Period." _Nothing_ else matters, only revenue. No... it doesn't take a genius to see that this is wildly incorrect. It would be business suicide to set prices which maximize revenue without taking costs into account.

Profit is a business' goal. Revenue is certainly important; it is obviously a fundamental part of the simple profit = revenue - costs equation. But Uber sets its pricing to maximize its profit, not its revenue.



> the biggest cost is the money the credit card banks take from them as a fee.


Costco quotes me merchant fees of around 2% of revenue. I'm sure that Uber's merchant processor offers them better rates than that. Drivers are paid, minimum, 60% of Uber's revenue; as a percentage of revenue this cost is 30 plus times that of processing fees.



> The cost of running a vehicle, wear and tear and the price of oil, tires and gasoline are irrelevant to Uber, they don't pay those expenses.


In this you are almost 100% correct. Uber assumes responsibility for servicing of the vehicles it owns via the Xchange program, but I am sure that is not a material cost.



> Upward pressure on prices for Uber can occur if the number of drivers decrease enough they can't meet the demand


This contradicts what you said above about the only factor in price setting is maximizing revenue. But as you say here, price is also set according to the driver supply curve, along with other considerations.



> Finding the "sweet spot" on the Demand/Supply graph where revenues are maximized is what Uber is trying to do


No, again, as demonstrated above, revenue maximization is not the goal.


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## Guest (Feb 28, 2016)

elelegido your brainwashing analogy does not make any sense. go back to Uber tech. to figure out a new strategy to fool people!


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## elelegido (Sep 24, 2014)

ricowic1 said:


> You analogy about capitalist economics sounds fine


I have not made an analogy in this thread.


> what you fail is, that you praise Uber technologies, and do not say a thing about it's "Partners" (drivers) how little money we are making at the beginning of 2016.


??? This thread is about how Uber sets its pricing (and fees) so that driver profit is at poverty levels in areas of low income/high poverty.  Anyway, given that this site is used by a wide spectrum of people, I added in my post the following, just to make sure. Maybe you missed it:


> Note that I did not say fair, equitable or socially responsible.





> You little piece of shit


Intelligent comment only, please!


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## elelegido (Sep 24, 2014)

ricowic1 said:


> elelegido your brainwashing analogy does not make any sense!


Don't worry; you've made it very clear that you cannot make sense of any of the points raised here.


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## elelegido (Sep 24, 2014)

ricowic1 said:


> I have not yet, found any inteligenge on your post. Other users replies seem to make more sense and are a far better rebuttal and absolutely crush your ******ed and manipulative post.


LOL, ok. Thanks for taking part anyway.


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## Sea&Sky (Nov 4, 2015)

After all I've read above with so many intelligent and elaborate analysis of uber and their mischief one question lingers....Why are you still driving ?


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## elelegido (Sep 24, 2014)

Sea&Sky said:


> After all I've read above with so many intelligent and elaborate analysis of uber and their mischief one question lingers....Why are you still driving ?


I love the flexibility.


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## secretadmirer (Jul 19, 2015)

"After all I've read above with so many intelligent and elaborate analysis of uber and their mischief one question lingers....Why are you still driving ? "

Because the sky is purple that's why.


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## Sea&Sky (Nov 4, 2015)

elelegido said:


> I love the flexibility.


The flexibility ? you are joking right ? as far as I could read their's no flexibility from their part...I'm pretty sure you must have meant Your flexibility to get exploited...


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## secretadmirer (Jul 19, 2015)

Good accounting requires some creativity.
Mathematics can be debated 
in some shape or form. 
For example 7 x 13 = 28. 
Here's a video that proves it.

The secretadmirer is chortling.


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## Sea&Sky (Nov 4, 2015)

secretadmirer said:


> Good accounting requires some creativity.
> Mathematics can be debated
> in some shape or form.
> For example 7 x 13 = 28.
> ...


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## Guest (Feb 29, 2016)

I drive because I can! That does not mean I agree with Uber slave-conomics. I am in the process of getting hired by lyft. I will drive full time for lyft and one day of the month for Uber and we will see how well uber's business model work.


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## stuber (Jun 30, 2014)

Oscar Levant said:


> Uber is absolute proof that regulation is sometimes necessary.
> 
> I therefore recommend a new regulation applying to rideshares should be
> at least 4x the IRS mileage deduction per mile ( which would be about 2x driver cost per mile, assuming paid miles runs at about 50% ).


Not sure about government setting price, but I certainly don't feel Uber should. The rates should be set by passengers negotiations with drivers.


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## Sea&Sky (Nov 4, 2015)

Good accounting requires some creativity,yes,yes that's why....I love it...


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## Sea&Sky (Nov 4, 2015)

Is it not funny that the most derisory premise about the discussion is the one that best depicts uber drivers beliefs ?


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## I_Like_Spam (May 10, 2015)

elelegido said:


> I love the flexibility.


There was always flexibility in the cab driving business as well, yet it never drew the number of people that Uber does. When I was driving in the 90's, I sometimes went out for a shift on a weekday evening if I needed to earn a little more scratch. (I was only working steady on Friday or Saturday evenings, and of course Sundays.


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## 20yearsdriving (Dec 14, 2014)

elelegido said:


> I agree. The free market's great, but left totally to its own devices it will exploit all involved; most seriously, the workers. Uber's Detroit guarantee of $10/hr gross is already well below minimum wage when net income is calculated.
> 
> Unfortunately no politician is going to want to vote for worker protection. The public likes paying pennies per mile for their rides. The pushback against trying to change this would now be too great.





elelegido said:


> There's a lot of talk lately about Uber not knowing what it is doing with these continual fare/earnings cuts, that they are running their business into the ground etc. The sentiment seems to be that they will have to turn things around or go bust.
> 
> I disagree. I believe that Uber's pricing strategy is very well thought out and is based on sound economics. Note that I did not say fair, equitable or socially responsible. But economically sound.
> 
> ...


Makes Sense

But

It's like being governed by North Korean law 
While in US territory.

All that crap does not apply unless you submit to it

The uber genius is how they find people to willfully take it .


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## 20yearsdriving (Dec 14, 2014)

I_Like_Spam said:


> There was always flexibility in the cab driving business as well, yet it never drew the number of people that Uber does. When I was driving in the 90's, I sometimes went out for a shift on a weekday evening if I needed to earn a little more scratch. (I was only working steady on Friday or Saturday evenings, and of course Sundays.


You miss the fact that cabs tried to balance out supply vs demand 
Usually kept artificially low

Uber just floods the market , resulting in extreamly low rates because of "artificial oversupply "


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## elelegido (Sep 24, 2014)

20yearsdriving said:


> The uber genius is how they find people to willfully take it .


Agreed. They are good propagandists. I've had email exchanges with US staff about rate cuts. They give their spiel about cuts being done to increase our "earnings" and I tell them that what they are saying is literally total nonsense, but they always stick rigidly to the company line.

I am sure that the support staff actually believe the propaganda on rate cuts and "earnings". There are always going to be people desperate for money though, ready to be exploited, otherwise there'd be no need for minimum wage laws.


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## 20yearsdriving (Dec 14, 2014)

elelegido said:


> Agreed. They are good propagandists. I've had email exchanges with US staff about rate cuts. They give their spiel about cuts being done to increase our "earnings" and I tell them that what they are saying is literally total nonsense, but they always stick rigidly to the company line.
> 
> I am sure that the support staff actually believe the propaganda on rate cuts and "earnings". There are always going to be people desperate for money though, ready to be exploited, otherwise there'd be no need for minimum wage laws.


Movie Django Unchained
Scene : Servitude


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## Guest (Mar 3, 2016)

No good deed goes unpunished! Uber charges fees like $1.35 for safe rides they say and $1.55 booking fee, which are charged to riders "on behalf of drivers" yet keeping it all and not giving the driver a Pennie. Also they only pay drivers the amount after Ubers cut, but it all is reported on the drivers 1099, as gross income, some of it which are Uber fees, like the safe rides fee,which none of it is ever given to drivers. I am surprised the IRS has not looked into it, or the justice dept. has not looked into the labor laws violations, since the court in California ruled that Uber X and XL are Uber employees and not partners. A lot of policies look like tax evasion schemes and labor laws violations. At the end the law will prevail and Uber thech. will pay all its dues to drivers and fines by the government.


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