by Ho Ching (Crystal) Lam | September 24th, 2021

What is surge pricing, and how it differs from wait time charge?

Have you ever noticed that you are being charged drastically different prices at different times of the day when you are traveling between the same locations using a rideshare app?
This is because rideshares adopt a surge pricing model, which would adjust fares based on the number of people looking for rides at a particular time. Perhaps some might think that this additional cost is used for compensating drivers for waiting in unbudging traffic. However, the two concepts are different. Let’s look at what rideshare surge pricing is and how it differs from the taxi wait time charge, which compensates the driver when traffic is highly congested.

What is surge pricing?

In simple terms, surge pricing is the additional cost passengers have to pay when there is a high demand for rideshare services but a low volume of drivers available to meet that demand. This added cost is determined by a complex algorithm, which would add a multiplier to the standard fare. In other words, when the rideshare system sense an increase in demand for rides during times, such as the daily rush hour or during a sudden rainstorm, it could double, triple, or more, the base rate a single trip would normally cost. Such increases can last for a few minutes to over half an hour, sometimes even longer. It is also extremely regional-based with neighborhoods from the same city experiencing different levels of surge pricing at the same time.
The logic behind implementing a surge pricing system is to better connect drivers with those who require a ride, as individuals who are not in a rush can choose to wait till both demand and pricing drop. Drivers are also incentivized to drive towards areas with surge pricing, as they could benefit from the higher income. The decrease in rideshare requests and the increase of drivers will help rebalance the demand and supply levels, pushing prices back to the standard rates.

Taxi fare: wait time charge

Unlike rideshares, which adopt a surge pricing model that could continually fluctuate based on the volume of supply and demand, taxi fare is determined by the distance traveled. Taxis will only charge an additional wait time fee when traffic is bad, and a passenger has boarded the cab. This wait time fee applies when traffic is either moving very slowly or is at a complete standstill to compensate for the taxi driver’s time.
The wait time fee is regulated by governmental bodies, and taxis operating within the City of Vancouver are uniformly charged $34.46cad per hour of wait time or an equivalent of approximately $0.57cad per minute. Unless there is a regulation change, the wait time fee taxi charges will remain unchanged.

Case study: From Gastown Steam Clock to Stanley Park Rose Garden

Someone looking for a ride through a rideshare app from the Gastown Steam Clock to Stanley Park Rose Garden on a given afternoon can be charged different rates each time they search on a rideshare app. At 2:30 pm it would cost the individual $15cad and 9 minutes to travel. One hour later, it would cost $21cad and 10 minutes. In hopes of a cheaper price, the individual waited 8 minutes till 3:38 pm and searched for a ride again, this time it would cost $28cad and 10 minutes of travel time. In this situation, instead of benefiting from a better rate by waiting for the surge pricing to decrease, the total cost increased due to an even greater mismatch between the supply and demand levels. Later in the evening, at around 7:00 pm, when demand finally decreases the pricing reduces to $10.71cad for an 8-minute trip.

As for a taxi ride, the trip between Gastown Steam Clock and Stanley Park Rose Garden will cost approximately $10cad for the 3km distance, and even with bad traffic (over 15 minutes in traffic), the total cost per trip will be less than $20cad, a much more predictable range of fares.
While in theory the surge pricing model could help better connect passengers with urgent travel needs to a rideshare driver, it is more difficult for one to determine when it is a good time to wait for a better fare and when it isn’t, as demand and supply levels are unpredictable. Whereas the standard pricing model adopted by taxis does offer greater certainty when it comes to planning for your trips.

If you are interested in booking a taxi ride today, please call 6047311111 or download the Black Top Vancouver app and book your ride through the platform.

Notes: Rideshare and taxi fares outlined in this article are estimates taken from 20th September 2021 and might differ from the rates you will be charged when traveling between Gastown Steam Clock and Stanley Park Rose Garden on a different date.