Final answer:
Surge pricing is utilized by companies like Uber and Lyft to counter the perishability of services by adjusting prices according to demand, ensuring services are consumed when available and reducing wasted capacity.
Step-by-step explanation:
Surge pricing, as employed by companies like Uber and Lyft, is a pricing strategy used to mitigate the effects of the perishability characteristic of services. This refers to the fact that services cannot be stored for later use; they are perishable in that they are only valuable when demand exists. Surge pricing increases prices during times of high demand to balance the supply and demand of available drivers, thereby maximizing the utility of the service when it is in use and minimizing wasted potential when demand decreases.
For example, if a messenger company experiences a drop in gasoline prices, they can deliver services at a lower cost, thereby potentially increasing their supply of services by expanding their delivery area. In contrast, surge pricing operates on the demand side of the equation by increasing prices during peak demand times rather than increasing supply.
For example, during peak hours or high-demand situations, surge pricing increases the price of rides to incentivize more drivers to be available. This helps reduce the variability in the availability of drivers and ensures that rides are always accessible to users even during busy periods.