Uber Can Learn From Netflix on Pricing: Mohammed

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Feb. 21 (Bloomberg) -- Rafi Mohammed, founder at Culture of Profit, discusses the business plan of Uber and complaints of price gouging on Bloomberg Television’s “Bloomberg Surveillance.”

Really?

You like it.

I do.

It's important to emphasize that most of the time uber, especially uber ex, is cheaper than taxis.

In boston, it's cheaper.

The question is, is this surge pricing really a negative for them and is it going to kill the business?

It comes down to what uber stands for.

Is it low prize or is it we'll get to you in five minutes?

In other words, uber service.

So adam, what would do you if you were the c.e.o. and all the sudden there's a lot of high demand during a snowstorm, and you can't meet your service levels at one or two?

In other words, it's a market economy.

We live in a market economy much this is unregulated.

If people are willing to pay it, you charge it more.

I understand that, but somehow it doesn't ring true.

What's the compromise, raffi?

How do you balance that?

An economist said i think the max should three times the price.

But the problem is, once you do that, you're going to hurt your service levels.

It's a decision.

I would agree, uber's sort of brand is everyone's private driver.

That's not true during the surge.

The most interesting thing in this uber article, in new york with taxis, once they hit their target of revenue for the day, they're done.

So in a rain storm, they're done very early.

So uber, in essence, is the only car on the road, and therefore, market forces force them to ask for more money.

There's a recent article where someone complained about paying $73 for 3/4 of a mile.

You could have walked t. or tried to hail a cab.

What is this about?

They teach this in fancy economic courses.

It's about price discrimination, which is a valid theory.

We see that on airplanes every day.

What is wrong with an economy, business class and first class, in limos?

I don't understand why uber is a bad person for getting whaver they can get.

Well, i don't think there's anything wrong with it.

I think what they've done a poor job of is explaining the strategy.

This week you talk about netflix, and remember what happened to them a couple of years ago.

Then all the sudden their consumer ratings are high, and netflix has toughed it out, and what uber needs to do is explain the strategy and get people to understand it better.

And understand demand, as economists would say -- excuse me, elasticity is a jargon alert.

It's a massive jargon alert.

But people will pay a little more.

They might pay a little more, but there's a point at which they stop paying.

You think the number is three times?

No, they have an algorithm where they're constantly flexing the multiple.

So they are trying to figure it out by the minute.

And revenue is growing -- and revenue is growing 20% a year, so they clearly have not hit the point.

Well, if it's profitable, we'll see more competition and that will bring prices down.

Welcome to the friday edition of bloomberg microeconomics.

We've got it for you here on "surveillance" this morning.

Unreal.

The latest issue of "bloomberg business week," you can download it, plus you can go to the free app.

It's on the ipad, of course, and you can read all about uber, again, the latest issue.

This text has been automatically generated. It may not be 100% accurate.

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