June 14, 2017
How Uber is leveraging AI to perfectly price discriminate
By: Eleonore Cossery

How Uber is leveraging AI to perfectly price discriminate
On the 19th of May, during a Bloomberg interview, Uber admitted using AI to price discriminate in the first degree.

First degree price discrimination is the act of charging customers a different price for the same product or service, depending on who they are and how wealthy they seem, to capture as much consumer surplus as possible. This means that Uber could be charging you £10 for a ride, when your manager is offered the same ride for £25.

First degree price discrimination is the hardest to enforce, as it requires the seller to have perfect information on the customer, which is where Uber’s use of AI comes in.

BBy leveraging knowledge from its in-house economists and statisticians, Uber has developed an effective algorithm on which to base fare prices. This is achieved by applying machine learning to a series of aggregated data variables such as time of day, route requests and neighbourhood wealth, and analysing it for maximum willingness to pay.

According to the Chris Knittel, a business professor at MIT, this announcement will mean little loss of business for Uber: “Society is more willing to accept wealthy people paying higher fares." Dr. Knittle did, however, warn that this may impact Uber’s brand if it transpires that better service is provided to more wealthy customers, or if "lower fares in lower-income places results in longer wait times."

The interview did at no point mention the leveraging of openly available information on social media platforms. In the future it is, however, worth considering how publicly available data could be mined to contribute to the AI price algorithm.


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