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Taxi Commission proposed own Uber-style "surge pricing"

Late yesterday afternoon, the DC Taxicab Commission (DCTC) announced that taxis could charge an extra $1 per passenger when Nats playoff games are in town. Confusion and outrage ensued, and within 2 hours, Mayor Gray rejected the plan, and the commission has rescinded it.

Photo by JL08 on Flickr.

Ironically, this move has a lot in common with Uber's "surge pricing," which proposed regulations from the Taxicab Commission would forbid. It would apply from 2 hours before games start until 4 am the following morning.

The Taxi Commission posted a short notice last Thursday about the surcharge, but with few other details. It did not notify the media at the time.

The PR snafu, short notice, and poor timing sank the proposal, but had the commission handled the rollout better and avoided the firestorm, would this charge have worked?

What did the commission want to accomplish? Linton said in the news release,

We expect multiple riders to be using taxi services. The additional fare provides a fair compensation to drivers. It will also offer an incentive to deal with the increased congestion around the ballpark that could otherwise depress service, as well as assure service in other parts of the city.
At first blush, these reasons seem nonsensical and contradictory. The commission wants to encourage drivers to operate around the ballpark, so they have a surcharge to create an incentive for drivers to head to the ballpark. But then, they want drivers to not all cluster around the ballpark, so they have a surcharge for drivers to go elsewhere. Don't these just cancel each other out?

Commenters online seem to feel the same way. On the City Paper post, commenter "One City!" wrote, "I love this city so much. Whenever you think we've reached the height of absurdity, the DCTC is there to show you we still have room to grow." RedLineHero said on the Washington Post site, "What the H-E-double-hockey-stick kind of harebrained idea is that? a surcharge during the playoffs? You have GOT to be kidding me. Good on Mayor Gray for shooting that down."

Uber "surge pricing" gets more drivers on the road

This surcharge is actually a lot like popular car service Uber's "surge pricing." If demand gets high, Uber increases its fares, first to 1¼ normal, then 1½, and so on. Anyone who books a car gets a notification about the higher pricing before the car is dispatched. All of the extra money goes to the drivers.

At the recent hearing, Uber CEO Travis Kalanick defended the practice. He said that the primary reason is to increase supply. They don't want riders unable to book their cars. At busy times, by raising the price and giving drivers the money, he said, it encourages more of their drivers to get out on the road and serve customers.

By that logic, the surcharge makes some sense. Many drivers work at different times of day. A bonus for working at this likely busy time could actually encourage drivers to switch their schedules around if they can, and be available during games. Some could go to Nats Park and serve fares there, but since the surge price applies all around the city, it will also encourage drivers to serve other neighborhoods.

DCTC's explanations don't hold water

If this was the DCTC's thinking, they certainly didn't make it clear. Will Sommer at the City Paper wrote, "Taxi Cab Commission spokesman Neville Waters says the extra charge has two functions: ensuring that the city's cab drivers don't just swarm Nationals Park, and making trips more profitable for drivers who are stuck in stadium traffic." He quoted Waters saying that without the surcharge, drivers would only drive to the ballpark and nowhere else.

These reasons don't match the policy. If DCTC is worried drivers will only drive to the ballpark, why would a surcharge that applies in all neighborhoods have any effect? It doesn't make trips around the ballpark more or less appealing compared to others.

As for the second argument, compensating drivers for traffic is why the rates include both time and distance. The playoff games probably won't cause traffic jams any worse than other events in DC, and the commission doesn't authorize surcharges every time there's a motorcade. If the DCTC believes that large traffic jams cause drivers to unfairly lose money, then they should raise the per-minute idling rate instead of using surcharges.

However, if the DCTC actually just wants to get more cabs on the road, this surcharge isn't a bad way to do that. It would just help a lot for them to actually articulate the economic reasons.

Wakehead commented at the Post, "How about they have more taxis work for the Nats games? Or is the target service model 'lines and surcharges'?" A rational answer to this could be, "Actually, the surcharge does get more taxis to work the games; it's lines OR surcharges, not lines AND surcharges, and we chose surcharges over lines."

We don't know what was going on inside the Taxi Commission's heads, but they are behaving as though they have some vague and general sense of the economic levers they have at their disposal, but aren't able to actually discuss it in clear terms.

The same dynamic played out at the recent taxi hearing, when people like Kalanick seemed to be speaking one economics-based language, and Linton and members of the DC Council a different law-based language. Ultimately, they agreed with one another, but it took hours (and some taxi drivers who didn't speak in economics) to break through the language barrier.

DCTC might actually want to consider trying a surcharge at a future event, like the Inauguration, but explaining it better. Trying a surcharge could also help them gauge how much supply it adds; Uber is able to monitor their supply and demand in real time and adjust prices accordingly, but the Taxicab Commission can't do that.

If the commission does come to recognize that it's using demand-based pricing, perhaps that will also make it less hostile to practices like Uber's "surge pricing" and other innovative pricing arrangements from mobile apps and sedan services.

Update: Uber DC manager Rachel Holt wrote in with some helpful information from their surge experience:

From what Uber has seen, during big games demand during the game is usually extremely low. Most people in DC are watching the games—whether at the stadium, or in bars, or at home, etc. By mandating the additional charges during the game, itself they are just further depressing demand (probably more than the amount of the increase), thus making drivers worse off during this period.
Erik Weber has been living car-free in the District since 2009. Hailing from the home of the nation's first Urban Growth Boundary, Erik has been interested in transit since spending summers in Germany as a kid where he rode as many buses, trains and streetcars as he could find. Views expressed here are Erik's alone. 
David Alpert is the founder of Greater Greater Washington and its board president. He worked as a Product Manager for Google for six years and has lived in the Boston, San Francisco, and New York metro areas in addition to Washington, DC. He now lives with his wife and two children in Dupont Circle. 


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I don't think surge pricing makes sense in for Uber or taxis. Isn't the fact that it'd be extremely easy to find a fare enough of an incentive? Why do they even need an incentive? Are drivers going to say "ehh, I don't like the fact that I will basically be guaranteed a fare, plus I'll be compensated for the extra time it takes to be in traffic. So no, I'm not going to drive my taxi today."

by Tim on Oct 4, 2012 2:06 pm • linkreport

Might only fly if there was a converse drop in prices where cab ridership is currently low or during off times (early morning pickup to the airport a bit cheaper because so few fares are awake? lots of people would buy in). Neighborhoods with less cab service would rally in support.

by no can do on Oct 4, 2012 2:31 pm • linkreport

Kudos to Gray for vetoing this nonsense.

I bet taxi drivers across the city are going absolutely crazy about Uber coming in and charging 50% more than they do while not having to abide by all the DCTC regulations. I doubt they'll rest until they can charge the same as Uber.

by renegade09 on Oct 4, 2012 3:55 pm • linkreport

This was an attempted money grab, plain and simple. There's not any economic justification for it. Time-and-distance metering ensures that cab drivers are already compensated for sitting in traffic. Plus, there's nothing that beats a line of post-event customers, waiting in a single location. Except maybe an event that's broadcast on the radio so you can listen from the cab and only show up right as demand peaks!

by Jimmy on Oct 4, 2012 5:17 pm • linkreport

I guess I could understand some kind of surcharge for picking people up AT the stadium during/after a game - that would be an incentive for more cabs to go to the stadium looking for customers. It would be similar to the airport charge. That said, a dollar per passenger is just silly, there's no reason to charge more people more money, the price to operate the cab is the same whether you have 1 passenger or 4.

Without a surcharge a subset of drivers who might otherwise have gone to the ballpark will decide to try to fill in the gaps in other areas vacated by drivers going to the ballpark.

I do find it funny that we (and I include myself) react with this outrage when the cabs decide to implement surge pricing, but when Uber does it, not remotely as transparently I might add, "hey, that's business!"

by MLD on Oct 4, 2012 5:30 pm • linkreport

Are drivers going to say "ehh, I don't like the fact that I will basically be guaranteed a fare, plus I'll be compensated for the extra time it takes to be in traffic. So no, I'm not going to drive my taxi today."

That's the crux of the issue. Are there taxi drivers out there that would be idle during the playoffs without the surcharge? Does the surcharge effectively increase supply by motivating available drivers to work? Even with a guaranteed fare, I suspect that at any given time (especially late in the evening when a game ends), there are drivers (and cars) not working who could be working. But, we don't really know because DCTC doesn't track "taxis on the road" like Uber does.

I suspect if DCTC followed MLD's below idea, there would be an increase in supply:

I guess I could understand some kind of surcharge for picking people up AT the stadium during/after a game - that would be an incentive for more cabs to go to the stadium looking for customers. It would be similar to the airport charge.

Also, the comparison to Uber -- if they can do it why can't DCTC? -- seems reasonable at first. But, otoh, Uber is an entirely private outfit which gives it more flexibility. The standard taxi service is sort of a quasi-public utility with regulated rates, and thus, should operate somewhat in the public interest.

That said, we do allow other regulated utilities to use peak demand pricing. For example, electric companies can charge more during peak periods. Then again, that mainly curtails demand during periods of limited supply, and doesn't directly increase supply.

I think the biggest problem with charging more for "special events" is that most people don't know when it's a special event. So, it's way too easy for a dishonest driver to take advantage of unsuspecting tourists, etc. and tell them at the end of their trip, "oh, it's a special event, so you owe $3 extra." Suddenly, every Nats game, not just playoffs, become a "special event" if you're an unsuspecting passenger.

by Falls Church on Oct 4, 2012 6:06 pm • linkreport

@MLD When Uber does surge pricing, you have a choice, you can choose not to use Uber. With cabs, you have to pay the going rate. As for airport surcharges, I don't understand why we should have to pay them. It just seems like a rent-seeking monopoly to me.

by renegade09 on Oct 4, 2012 6:09 pm • linkreport

When Uber does surge pricing, you have a choice, you can choose not to use Uber. With cabs, you have to pay the going rate.

Actually, you can choose to not ride cabs as well.

by Falls Church on Oct 4, 2012 7:39 pm • linkreport

@Fall Church,
In principle you can choose not to use cabs, but for many DC residents e.g. the disabled, those who can't afford a personal vehicle, taxis play an essential transportation service. Hence they are regulated as an essential service, as is the case for electricity provision. Now, as to whether the regulation is effective...

by renegade09 on Oct 4, 2012 7:58 pm • linkreport

This story helps illustrate why I am much less inclined to trust DCTC regulations (or any "small" state/local regulations, for that matter).

Generally, a Federal department must propose their regulations in a public notice. The notice must meet clarity and specificity criteria and must justify the government's proposed rule. If the justification is missing or otherwise deficient, the rule can be overturned in court. For example, the Department of Education proposed certain repayment percentages that for-profit graduates needed to hit in order for the colleges order to maintain eligibility for federal student loans. The rule was tossed out because:

If the Department had chosen to disqualify the bottom ten percent of programs, or the bottom half, it would have offered the same rationale: the rate chosen disqualified the percentage of programs that it was intended to disqualify, and to have disqualified fewer would have made the test too lenient while disqualifying more would have made the requirement too stringent. This is not reasoned decisionmaking.

This is exactly what the DCTC did. Why is the surcharge one dollar? Why not two dollars, fifty cents, or five dollars? Did the Commission have any reason for selecting a dollar? Did they have any evidence a surcharge was necessary or preferable to other alternatives? No. DCTC proposed a dollar for absolutely no justifiable reason.

The notice-and-comment system has serious flaws (it's highly legalistic, extremely complicated, expensive, volunerable to regulatory capture, and slow, to name a few drawbacks). However, the core reasons behind the system are sound. Most regulations are generally better because of it. I have no faith in DCTC's ability produce any good regulation except by chance alone.

by WRD on Oct 4, 2012 11:12 pm • linkreport bikeshare.

by M!Lk on Oct 7, 2012 1:48 am • linkreport

Why on earth does Uber get such a free ride from the city? Either regulate it or don't regulate taxis (I support the former).

by neutrino on Oct 7, 2012 6:04 pm • linkreport

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