The Upstarts: How Uber, Airbnb, and the Killer Companies of the New Silicon Valley Are Changing the World

by Brad Stone

a.m. On Friday and Saturday nights, their drunken clientele staggered onto the street in unison. Cabdrivers wanted nothing to do with this ritual and would promptly head home at that hour to keep their lives free of drama and their backseats free of vomit. Uber drivers, naturally, were exhibiting the same behavior. After thinking it over and fretting he would never be able to grow Uber’s business in Boston if he couldn’t solve the challenge of closing time, Pao started running experiments. For a week he held fares steady for passengers but increased payments to drivers at night. In response, more drivers held their noses and stuck around for closing hours. It turned out drivers were in fact highly elastic and motivated by fare increases. Pao then spent a second week confirming the thesis by breaking Boston’s Uber drivers into two groups. Some saw surging rates at night while others did not. Again, drivers with higher fares during peak times stayed in the system longer and completed more trips.

Surge pricing works