The Case Against Surge Pricing

Surge pricing—using data and algorithms to raise prices in response to unexpected increases in demand—has spread across the economy in recent years, from Amazon and Disney World to commuter highways and, of course, Uber, which is infamous for surge pricing rides. Companies claim that surge pricing equilibrates supply and demand, but that is impossible, at least in the short run when demand unexpectedly outstrips supply. What surge pricing really does is to ration existing supply based on ability to pay. That is both distributively unjust and potentially inefficient. It should also be considered a violation of the antitrust laws because it magnifies the harm to consumers of the shortage and concomitant harm to competition associated with a surge in demand relative to supply. As such, surge pricing is similar to price fixing, which, when used by firms that have already been tacitly colluding, magnifies the harm to consumers associated with the demise of competition in the market in which the firms are colluding. Courts should therefore rule surge pricing per se illegal under the antitrust laws, just as they do price fixing today.