Uber in Hot Water Again Over Surge Pricing Revelations Uber adds to its string of recent PR disasters with a report that the company created artificial surge pricing conditions by keeping some of its drivers off the road.

By Laura Entis

Opinions expressed by Entrepreneur contributors are their own.

Is all press really good press? Uber may just answer that question for us, testing the limits of the public's tolerance for bad publicity.

The latest stumble in what's becoming a long list of blunders is a report that the company artificially kept rates high on Valentine's Day in San Diego by intentionally keeping some of its drivers off the road. Uber customer Andrew Lane told The Verge that he overheard this text message from the company when it was read aloud over his driver's Ford Sync System: "UberX is very close to SURGE. It's Valentine's Day! People will be out all night and we didn't activate new drivers to make earnings even higher this weekend."

Related: The Outrageously Silly Argument Against Uber's Surge Pricing

The message, to put it mildly, makes the company look terrible. "Surge pricing" is a controversial practice Uber adopts when the demand for rides is especially high. When a weekend snow storm hit New York in December, for example, Uber pounced, raising rates to 7 or 8 times what they would cost on a clear night.

Justifiably or not, people were pissed. Outspoken Uber CEO Travis Kalanick didn't back down though, arguing that surge prices incentivize drivers to take to the road despite less than ideal conditions. While paying seven times more for a ride than usual admittedly sucks, it's a classic expression of supply-demand economics. More cars, more rides. Despite the backlash, Kalanick had a pretty solid argument to stand on.

Not anymore. Uber's decision to artificially control surge pricing instead of letting the market decide -- as Kalanick has claimed is what happens -- is pretty hard to defend.

The company confirmed the text message but quickly backtracked, attempting to paint the whole thing as one big misunderstanding. A company spokesman told The Verge that the number of drivers was never artificially restricted in San Diego; instead, the company simply didn't onboard as many new drivers that week as it could have.

Related: Uber Deepens Discounts on Its UberX Service

Why? During the two previous weeks, Uber had signed up a lot of new drivers, which meant average earnings fell. So while the company didn't specifically restrict the number of its drivers out on the road in San Diego this Valentine's Day, it did manipulate the bigger picture by intentionally limiting the overall number of active drivers.

Uber has insisted that it is completely neutral and always lets the market dictate the price of a ride to ensure maximum efficiency. But as companies that offer the same services continue to pop up and gain traction, Uber is going to have to compete for drivers (it's already apologized for attempting to poach them from competitor Gett). And what keeps drivers happy? Surge pricing.

Surge pricing, of course, makes customers very unhappy. It will be interesting to see Uber attempt the delicate dance of pleasing both its drivers and its customer base.

Related: Uber Incentivizes Drivers to Join by Offering Car Discounts

Wavy Line
Laura Entis is a reporter for Fortune.com's Venture section.

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