(Excerpt from Modern Monopolies by Alex Moazed and Nicholas L. Johnson)
Uber’s “surge pricing”—dynamic pricing that rises in response to high demand—is a direct attempt to balance supply and demand. Surge pricing is designed to increase the number of drivers available on Uber, even as it reduces the number of passengers who can afford the service. Rather than keeping the price constant and facing the prospect of high wait times and unfilled rides for customers, Uber raises prices in order to better balance the number of drivers with the number of people looking for rides.