For third year running, Uber reducing January fares

Selling it as a means of increasing earnings for drivers in a slow period, Uber is dropping fares

Trying to save money after the holidays? Uber wants you to know it’s there for you.

For the third year in a row, Uber is reducing its fares for the month of January in over 100 U.S. and Canadian cities to help keep demand high. The aim, says Uber, is to boost driver earnings in this quiet time:

With the big spending holidays over and the weather more wintery than ever, Uber every January finds itself facing a significant slowdown in the number of rides for the month. By reducing fares, the company says it’s able to push demand back toward normal levels.

In a sense, it's the opposite of surge pricing, where prices skyrocket because everyone in one area is looking for a ride and so all the drivers are busy. The first month of the year finds most drivers without passengers, so Uber drops prices to spur demand.

The one strange line in the announcement is this line: “And if drivers aren’t busier, prices will go back up again.”

If I’m interpreting that correctly, it means:

• In City A, Uber lowers prices in January, demand goes up, everyone is happy.
• But in City B, Uber lowers prices in January, but demand doesn’t go up. So Uber just returns the prices to their normal state, making drivers happy but charging passengers more than they’d pay in City A.

There’s nothing particularly immoral about this situation except it does feel strange to take away discounts from passengers in City B because not enough of their peers are helping to spur demand. From Uber's blog post:

"Of course, it doesn’t always work as we had hoped. Last year, for example, earnings fell in some cities and we changed back. In Charlotte, for example, we pulled a 40 percent price cut back to 29 percent, and earnings for drivers grew by nearly 20 percent in 2015. And in two cities, including Seattle, we ended up reversing the price cuts entirely when it became obvious that prices were already low enough. Earnings have remained stable since."

Uber is essentially trying to balance prices paid by passengers, earnings collected by drivers, and overall demand. By constantly tweaking its algorithms—not on a global scale but on local levels—it ultimately wants passengers to pay the most they’re willing to pay in order to keep them away from competitors, to make sure drivers are satiated with their earnings, and to make Uber the top ridesharing app on the market.

It’s a delicate balance to strike.

We’ve reached out to Lyft to see if they plan to enact a similar price reduction for the month and will update when we hear back.

Though we don’t know if they do the same January price reduction, we do know that most (if not all) ridesharing companies are engaged in some degree of price wars right now, which partly explains the astronomical funding rounds they raise. It costs a lot of money to undercut your competitors in this fierce market.

In fact, the head of Uber recently criticized Didi Kuaidi (its main competitor in the Chinese market) for spending $80 million weekly on “subsidies,” or discounts to its rides.

"We're clearly spending less than Didi in subsidies," said Uber founder and CEO Travis Kalanick. "We're spending less per trip, and we have a larger balance sheet."

We can’t verify the claims because both companies are still private, but Didi Kuaidi has called Kalanick’s claims “wildly creative.”