Jan 27, 2015 · 3 minutes

The "Hashtag-Blizzard-of-2015" has come and gone in New York. And despite dire warnings from meteorologists that the city would be blanketed in 20-30 inches of snow, the final snow-counts across the 5 boroughs were more in the 6- to 10-inch range. (Long Island, however, was not so fortunate).

But while New Yorkers stocked up on whiskey and toilet paper, the tech community was focused on venture-funded car services like Uber and Lyft. During a particularly bad snowstorm last Winter, Uber was slammed for raising its prices by up to seven- to eight-times the normal rates. Yesterday morning, Mayor Bill de Blasio warned merchants of all stripes that “Price gouging in the context of an emergency is illegal.” Shortly thereafter, Uber and Lyft announced they would cap surge pricing at 2.8 times and 2 times, respectively.

But how did Uber arrive at the 2.8 multiplier? Why not 3? Or 4? And just because it's capped, doesn't that still constitute "price gouging" by law? Finally, should a for-profit company really be the one deciding these caps as opposed to a government body that presumably has the public's interest at heart?

As it turns out, Uber wasn't the one that selected the 2.8 rate -- it was selected for them by an agreement made with the city last July. The full agreement is posted below, but here's the section dictating how Uber will conduct surge pricing during emergencies:

To determine the price cap for a transportation option in a city and surrounding area, Uber shall first identify the three highest prices it set, on different days, during the sixty days preceding the commencement of the abnormal disruption of the market.

The price cap shall be the next highest price that was set for the same transportation option, in the same city and surrounding area, during the sixty days preceding the commencement of the abnormal disruption of the market (not including the days on which the three highest prices were set). That's a rather wonky way of saying Uber's surge pricing cap will be set at the fourth-highest multiplier it used in the preceding 60 days. This time around, that rate was 2.8. When the next emergency happens, it could be higher or lower. Furthermore, the agreement states that on all other dates Uber's prices must be determined algorithmically based on supply and demand, barring it from artificially raising prices with the intent of also raising any forthcoming price cap. Whether or not we can trust a company as morally dubious as Uber to comply with that stipulation is an open question. However, the agreement requires the company to provide "all information and documentation necessary for the OAG to verify compliance with this agreement."

Lyft, it seems, has no such agreement with the State of New York, and the Attorney General's press office would not comment on whether a similar agreement is in the works.

So there you have it: Uber's pricing cap was neither a kind gesture nor a savvy PR move, but was in fact explicitly stipulated by the state -- though its decision to donate the proceeds of surge pricing to the Red Cross appears to be Uber's alone. It's also yet another indicator of Uber CEO Travis Kalanick's evolving playbook, the title of which might read: "Break the rules, governments be damned, until we have a foothold in a market." Uber has proven time and again that only once it has the leverage that comes with winning the hearts and pocketbooks of customers is it willing to negotiate with these government bodies.

So while it's nice to see Uber working with governments in the interest of public safety and fairness, that doesn't necessarily mean its recklessness in newer markets won't continue.

[illustration by Brad Jonas]

Uber Letter Agreement