Was Uber's New Year's Eve pricing unethical?

Ride-sharing service Uber's "surge pricing," where customers are charged more for rides during peak demand times such as New Year's Eve, is a transparent policy — riders are informed in advance of the inflated price and have the opportunity to accept or reject the ride at the stated price.

It was met with mixed effect this New Year's Eve: In San Francisco, it backfired – revelers took other means of transportation home. But Twitter lit up with "Uber rage" from other cities, where riders complained of paying $100 or more to go just a few miles.

Was this reaction evidence of ethical wrongdoing or merely evidence of a marketplace functioning as intended?

Keith Bedford | Reuters

Revelers toss confetti over Times Square from a hotel balcony as the clock strikes midnight during New Year's Eve celebrations in New York, Jan. 1, 2015.

There was nothing illegal about Uber charging different prices during the wee hours of the New Year from those it charges on, say, Mother's Day. And, from a business perspective, it makes sense for Uber: If the company's projection that millions of riders will accept the peak-demand pricing ends up being right, surge pricing could translate into gross revenue in the hundreds of millions of dollars. But does the transparency of Uber's pricing make it ethical?

In a market economy, demand and price generally move in tandem. When demand goes up for a good or service, price generally goes up as well.

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And yet there is a reflexive disgust at merchants that seek to take advantage of human misfortune by hiking prices in response to elevated demand brought on by emergencies, such as weather-related calamities. About 35 states make it illegal for all or some businesses to charge prices that are unconscionable, defined in various ways, during times of emergency. States with such "price gouging" laws include California, Illinois, Louisiana, New Jersey, and New York.

Colorado is among the states that lack a broad price gouging law. In a Sept. 17, 2013 story, The Denver Post quoted Colorado Assistant Attorney General Jan Zavislan as saying: "The price of a product or service alone is not a scam if it's fully disclosed. If the consumer has the information and has the right to shop around, but the sources in an emergency aren't there, it might be an outrage to people, but there's no specific law on the price itself."

Is Uber's pricing on New Year's Eve more like emergency-triggered price gouging or more like the ethically uncomplicated dynamic pricing used by airlines and others to vary the price of product based on shifting demand? The answer has to be that Uber's pricing is ethically more like the latter than the former.

At bottom, Uber is doing nothing more than setting its prices based on prevailing market conditions in which the customer has a range of other options. If the New Year's Eve partygoer objected to the quoted price of the ride for when he wants to go home, he could have: (1) checked out the price on the competing service Lyft; (2) ordered a ride during off-peak hours; (3) stayed where he was overnight; (4) partied with a designated driver (part of Uber's proceeds New Year's Eve went to Mothers Against Drunk Driving); or (5) ordered a cab for a $10 flat rate through tax-hailing app Flywheel, where available; or (6) used extended-hour public transportation offered in so many places on New Year's Eve. Those are only the most obvious alternatives.

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The point is that the consumer had genuine choice and power that may have been obscured by the sticker shock of the price charged by a particular provider at a particular time. And the consumer's demand for the service was not forced by a political, man-made, or natural disaster. If the consumer made an informed decision to select the relatively expensive transportation option, the provider was no more ethically blameworthy than the airline that charges more for a seat on a plane leaving the day before Thanksgiving than it does for a seat on the same plane leaving the day after Thanksgiving.

So the answer is that transparency does not, by itself, ethically validate Uber's pricing — or the pricing of the provider of any other goods or service where demand is subject to significant fluctuations. Context matters. To accept the premises of a capitalist economy is to accept the ethical neutrality of the choices that consumer and Uber alike made on New Year's Eve.

To absolve Uber of any ethical transgression in its New Year's Eve pricing is not to immunize it from any consequences from the practice. The surge pricing apparently did not yield the expected financial dividends in some places and yielded unexpected damage to the company's image in social and conventional media outlets in other places. That may lead Uber to reconsider surge pricing, at least as the policy is now being used. Such a rethinking would be a matter of market forces, not ethical imperative.

Commentary by Dan Eaton, a partner with the San Diego law firm of Seltzer Caplan McMahon Vitek where his practice focuses on defending and advising employers. He also is a professor at the San Diego State University College of Business Administration where he teaches classes in business ethics and employment law. Follow him on Twitter @DanEatonlaw.