The Efficient Queue and 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, to Disney World, to commuter highways, not to mention 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 supplies based on ability to pay. That is both distributively unjust and potentially inefficient. It is also anticompetitive in the sense that it reduces the power of the competitive pricing that prevails before a surge in demand to carry over into the surge period. As such, surge pricing is similar in effect to price fixing, which also prevents competitive pricing from carrying over into periods during which firms have obtained power to raise prices. Courts should therefore rule surge pricing per se illegal under the antitrust laws, just as they do price fixing today.