The ride hailing app, Uber, has had its challenges in recent years. In some countries, accusations that the company did not take its responsibilities seriously in looking after the welfare of passengers meant Uber losing its licence pending changes to its working practices. There have also been complaints from workers that they are not self-employed but have a relationship with Uber which makes it more like an employer.
For many customers, however, the app and the service provided by Uber supply many benefits. In cases where customers need to get from point A to point B quickly, Uber provides a value proposition which users are prepared to pay for. Uber is a good example of the willingness to pay principle. The app tells the customer how long the car will be and what price they will have to pay. In cases where demand for rides is high, the price rises. In such cases, customers must decide whether the price they are facing is worth paying or whether it is too high. Customers will often be in a situation where they are subconsciously calculating their consumer surplus. Just how much are they prepared to pay and to what extent does the price they are being offered represent their willingness to pay?
In fact, Uber has some advantages in this respect. As it is a technology focused business, it can collect large amounts of data on its customers and of patterns of demand. It can match these patterns of demand to its available supply and set prices accordingly. In many respects, it is exploiting the willingness to pay of consumers and pushing the exploitation of consumer surplus to a maximum.
In a paper written by Peter Cohen, Robert Hahn, Jonathan Hall, Steven Levitt and Robert Metcalf in September 2016 for the National Bureau of Economic Research (NBER), the authors investigated the extent of the consumer surplus for Uber users in the United States. They looked at around 50 million observations and used statistical methods to estimate that in 2015, Uber generated around \($2.9\) billion in consumer surplus in the four cities which formed the basis of its investigation. They estimated that each consumer gained \($1.60\) in consumer surplus for every \($1\) they spent on the service. The authors then extrapolated their calculations to estimate that the overall consumer surplus across the United States as a whole was some \($6.8\) billion in 2015.

Critical Thinking Questions
1 Two of the authors of the report cited above are from Uber, two are from the University of Chicago and the other is from the University of Oxford. Does this knowledge influence your views on the research and its conclusions?

2 As part of their analysis and estimation of consumer surplus, the authors note that they make a number of ‘simplifying assumptions’. What questions might you ask of the authors about the way they arrived at these assumptions and what limitations these present on their conclusions?
3 Is the consumer surplus of a user of Uber likely to be higher when it is late, dark and raining, or when it is in the middle of the day and sunny? What factors might affect your answer to this question?
4 Uber uses the data generated by its users to help calculate the prices it charges. When demand is high, price rises. Use a diagram to show what happens to consumer surplus as demand rises. What does the size of the consumer surplus in your analysis depend upon?
5 If the size of the consumer surplus estimated by the authors of the report is accurate, and if this magnitude of consumer surplus is replicated in other countries that have this service, would this strengthen the argument for Uber to retain its licences in countries in which it operates? Give reasons for the judgements you make in your answer.