The novel coronavirus pandemic has hit us all hard, but for some, the risk can be unbearable. The elderly and those who have underlying conditions should certainly not be risking their lives to travel anywhere. Personal delivery services, offered by Amazon and Shipt, have been a godsend to many people at risk.
However, since everyone wants to use these services, they have been increasingly unavailable and have not been able to meet demands. Personal delivery services and other in-demand products and services should be able to use Uber-like surge pricing to rebalance the market at this time. Wikipedia explains surge-pricing, as such:
Dynamic pricing, also referred to as surge pricing, demand pricing, or time-based pricing is a pricing strategy in which businesses set flexible prices for products or services based on current market demands.
Wikipedia
This model is different from price gouging because it’s systematically raising rates commensurate with demand. The model benefits consumers and the companies by offering lower prices when demand is low and higher costs to keep up with demand.
Uber has been the modern ideal of the surge pricing model. At Uber, depending on demand, you could score a ride for as low as $2.20 and as high as $350 in New York during New Year’s Eve. Their dynamic pricing model has allowed some driving contractors to make an average of $80,839 per year in New York City. While in other cities with lower demand, the drivers most likely make considerably less.
Although the surge pricing model has been used for centuries, other industries have been less opaque than Uber, such as the airline and the hotel industry. It would be necessary for the enterprises adopting a surge-pricing model during this pandemic to be clear about the price adjustment. To clearly show that 100 people are attempting to buy the same set of rolls of toilet paper, and the cost is set at a rate that matches demand. The enterprise should also clearly show that some of the profits are going to help switch the commercial supply chain towards the consumer supply chain.
Using the example of toilet paper, Georgia-Pacific, the makers of Angel Soft, said that consumer demand for toilet paper would increase 40% based on the stay-at-home orders. Despite the media’s narrative that people are hoarding, people are actually using more consumer products rather than commercial products available at restaurants and offices.
The supply chain could have a better chance of restoring itself through surge-pricing services and goods. This dynamic pricing would temporarily raise the prices to allow companies the additional finance to pivot away from the commercial industry. If enterprises were transparent about the pricing differentials, the public could understand that this is our time to all do our part to help the nation adjust.
Although some individuals are addressing the problem from a socialist standpoint, the obvious solution is always capitalism. The socialists want to nationalize Amazon, but their asks seem incredibly small in comparison to this monumental pandemic.
Even the Democrats’ lighter socialist proposal of securing $25,000 in additional government aid for essential workers is not as much money as capitalism can naturally provide.
Surge pricing is more than trinkets of temporary benefits. It’s cash, and as much cash as people are willing to offer during this time. We know the real heroes of this time are the ones who are the personal delivery drivers, who are often paid contractors, starting small businesses for themselves that have unlimited earning potential. We will need more, and our free-market will have to adapt to this pandemic’s age. They should be rewarded by increased earnings that could be offered through surge pricing. I would be happy to see them all earning six figures by implementing surge pricing for this period of crisis.
Dynamic pricing, particularly for Amazon’s Delivery Service Partners (DSP), would help support the earning potential of these small businesses supporting delivery to help meet consumer demands. The average DSP makes $75,000 to $300,000 per year, according to Amazon. The dynamic pricing model could increase their profit potential at this time to help meet demands and encourage these small businesses to stay open. Amazon has everything it would need to help capitalize on this time. They should be able to readjust their pricing strategy for their contractors quickly but could develop a model for their warehouse workers as well.
Amazon’s DSP logistics managers and the employees that they take on are keeping our economy going and bringing everyone the essential goods required for an American way of life. Surge pricing would allow these types of companies to pay the prices that the market demands and to provide protective gear that keeps employees safe.
Surge pricing for delivery services would also encourage more corporations to stay in the shipping industry. As Amazon, recently decided to pause its Shipping pilot program, presumably to focus on medical shipments, because they do not have the resources to continue this program for third-party sellers.
At Amazon, we regularly evaluate the requirements of our businesses to ensure we are structured in the best way possible to meet the evolving needs of our customers. After careful consideration, we have decided to pause our Amazon Shipping service in the US. Our last day for pick-ups will be June 5th.
Amazon
Surge pricing would also lower demand for grocery shoppers. Grocery shoppers who are not at high-risk would be less likely to use delivery services for non-priority trips. This free-market solution would allow individuals who are at high-risk to be more likely to use the personal delivery services that they would require.