Uber’s “upfront” pricing is helping it overcharge passengers

Image: Reuters/Danish Siddiqui
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We’ve written several times about how Uber plays games with its fares. The transportation app charges riders when they book a car by estimating how much the trip will cost. But it calculates driver pay based on actual miles and minutes. Estimating prices is a tricky business and Uber’s “upfront” fares don’t always match the time and distance fare. Sometimes a rider pays less than what the meter says and Uber absorbs the loss. Other times a rider pays more and Uber keeps the difference.

Since Uber introduced upfront pricing widely in the US last summer, it has repeatedly declined to comment or provide data on whether the system has led to gains or losses in the rides business. Instead, Uber has said it aims to break even over many trips. The company has also repeatedly dodged questions about whether upfront fares must fall within a certain range of the final metered price, to limit how much a customer might be overcharged.

Ride-hailing is a high-volume, low-margin business, which means that even a slight difference in Uber’s favor could translate to a lot of extra money for the company. Uber charged for 78 million rides in the US in December, the latest month for which it disclosed data, and it’s tough to know what’s actually going on without access to company data. But the team at The RideShareGuy, a popular blog for Uber drivers, recently got an idea when it ran an experiment in New York City.

RideShareGuy founder Harry Campbell worked with Data & Society researcher Alex Rosenblat to analyze five weeks of earnings from an Uber driver in New York who agreed to share his data. Driver receipts show earnings as well as other deductions on the ride, such as the 8.875% sales tax that Uber pays in New York. This tax is calculated on the sale to the rider and Campbell and Rosenblat used it determine what the customer had paid. They then compared customer fares with the time-and-distance fare seen by the driver to see who came out ahead.

In short: Uber. Over 165 trips from early March to early April, Uber overcharged this driver’s passengers by a total of $85.54. In other words, the total upfront fares paid by riders were that much higher than the fares used to calculate driver pay. The company lost money overall on UberPool, its carpooling service, but more than made it up by overcharging customers who booked trips on UberX and its other private ride options.

Uber has said it often loses money on Pool trips, and the data analyzed by The RideShareGuy bore this out. The company lost a total of $108 on 49 UberPool trips over those five weeks, and $10 or more on seven different Pool trips. But the single biggest pricing difference in Uber’s favor also happened on Pool. In that case, the rider paid $91.84 while the time-and-distance fare, plus tolls, came out to $50.60. On another Pool trip, Uber overcharged a rider by $26.78. Pool’s matching algorithm is still very much a work in progress so it makes sense that fare estimates on that service would be more volatile. The numbers often work in the rider’s favor, but not always.

UberX is a different story. Uber overcharged riders by a total of $162.56 over 82 UberX rides. It overcharged passengers by $20 or more on four different UberX trips, but only lost $10 or more on one ride. Per-ride losses were actually more frequent then per-ride gains, as you can see in the distribution, but the few instances when Uber significantly overcharged a rider more than compensated for that. UberX is the cheapest private ride the company offers and one of its oldest services.

Michael Amodeo, an Uber spokesman, said in a statement that the company disagreed with The RideShareGuy’s “overarching conclusions, which are based on the experience of one driver over a small sample of trips.” Uber has said in the past that upfront pricing is designed to break even not only for the company, but also for individual drivers, over many trips. Amodeo declined to comment on whether upfront pricing has made or lost money for Uber since the system debuted last summer. He added: “We understand that drivers have questions about their earnings.”