SPEAKER_01: Amazing, fascinating stories of inventions, ideas and innovations. Yes, this is the podcast about the things that have helped to shape our lives. Podcasts from the BBC World Service are supported by advertising.
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SPEAKER_06: 50 things that made the modern economy with Tim Harford.
SPEAKER_03: In the 1950s, the New York subway faced a problem that will be familiar to users of public transport all over the world. At peak times, it was overcrowded. At other times, the trains were empty. The mayor commissioned a report which concluded that the problem was that subway riders paid a flat fare. No matter where you boarded, how far you travelled or when you made your trip, it would cost you 10 cents. Might there be some more sophisticated approach? Perhaps so. A forward to the report singled out one of the 17 authors.
SPEAKER_08: It is to such questions that Mr. Victory has addressed himself and with a degree of skill which we predict will command the admiration of the reader. The abandonment of the flat rate fare in favour of a fare structure which takes into account the length and location of the ride and the hour of the day is obviously a sensible step provided the mechanical problems involved can be solved. Mr. Victory's basic idea was simple. When the trains were busy,
SPEAKER_03: charge more. When they were quiet, charge less. The peaks in demand would become less spiky. The subway would be more comfortable and reliable, could carry more people without having to build new lines and could raise more money all at once. A great idea. But how to charge all these different prices? Not with an army of ticket clerks and inspectors that would take too much time and money. Some automated solution must be found. Mr. Victory submits several highly interesting and stimulating suggestions. Suggestions which
SPEAKER_08: in our judgement deserve the most careful examination and consideration.
SPEAKER_03: What was needed was a coin operated turnstile that could charge different rates for different journeys at different times. But in 1952 this would not be simple. To give a sense of the challenge consider a dilemma faced by the Coca Cola company. A Coke had cost a nickel 5 cents for decades. Coca Cola would have liked to increase the price by a cent or two, but it couldn't. Why? Their 400,000 vending machines took only nickels and redesigning them to take two different denominations of coin would be a logistical nightmare. In 1953 Coca Cola tried instead to persuade President Eisenhower in all seriousness to introduce a 7.5 cent coin. But Mr. Victory wasn't daunted and he described a contraption to solve the problem. To have passengers put a quarter in the entrance
SPEAKER_08: turnstile, get a metal check with notches indicating the zone of origin to be inserted in an exit turnstile which would through electromechanical relays deliver an appropriate number of nickels according to the origin and time of day. It sounds clever and you may be wondering
SPEAKER_03: why you haven't heard of it. A clue comes from the title of a speech in which Mr. Victory gave that description. He began that speech thus. The variable price electromechanical
SPEAKER_03: vickry turnstile was never built. So why are you listening to a program about a non-inconsistent invention? It's because the idea itself was so important even if it seemed too complicated to realise. William Vickrey's fellow economists often said that he was just too far ahead of his time. He eventually won a Nobel memorial prize in 1996 just three days before his death. Vickrey was proposing what is often called peak load pricing by economists and dynamic pricing by management consultants. In its simplest form it's an old idea. Early bird specials offering a cheap deal to restaurant diners at quiet times date back to the 1920s. It's an easy sell to customers and requires no electromechanical wizardry. But the idea has appeal in far more complex settings. Whether you're running a subway system or an airline, trying to fill a concert hall or balance an electricity grid, it can be very costly to add extra capacity just to meet a short term peak in demand. And it's wasteful to carry unused capacity around at other times. Varying prices make sense. US airlines were early pioneers after being deregulated and forced to compete fiercely in the late 1970s. By 1984 the Wall Street Journal reported that Delta Airlines alone employed 147 staff to incessantly tweak prices. Peak load pricing no longer requires an army of pricing specialists. A company such as Uber can effortlessly match supply and demand with an algorithm. Uber's surge pricing promises to end that painful three hour wait for a taxi on New Year's Eve. There's always a price at which you can get a ride right now. But consumer acceptance may be more of a problem. You're almost at their peak. You're almost at their peak. You're almost at their mercy because you don't want to wait longer for a cab. That's
SPEAKER_08: the wine of one passenger after paying $247.50 for a 21 kilometre ride in Houston, Texas.
SPEAKER_03: Although he only had to pay because he couldn't bear to wait. Consumers feel exploited by some forms of dynamic pricing. Especially when, as with Uber, prices could double by half in a matter of minutes. A 1986 study by behavioural economists Daniel Kahneman, Jack Knech and Richard Thaler showed that people found price surges infuriating. Having once despaired over the lack of a 7.5 cent coin, Coca-Cola pushed technology beyond what customers would swallow when, in 1999, it flirted with a vending machine that on sweltering days would raise the price of an ice-cold Coke. But peak load pricing is likely to play an increasing role in the economy of the future. Consider a smart electricity grid fed by intermittent power sources such as wind and solar power. When a cloud covers the sun, your laptop might decide to stop charging, your freezer to switch itself off for a minute, and your electric car might even start pumping energy into the grid rather than sucking it out. But all that would require those devices to respond to second-by-second price changes. A favourite example of William Vickery's was congestion pricing on roads, designed, just as the turnstile was, to smooth out demand and ensure that limited capacity was used well. That's now becoming a practical idea. Drivers near Washington, D.C. can switch into a free-flowing lane if they're willing to pay the variable charge, which can be as much as $40 for 15 kilometres when traffic is particularly bad. Vickery had tried to show that it could work in the mid-1960s. He built a prototype, using a simple computer and a radio transmitter, to tally every time he used his own driveway. But sometimes, good ideas just need to wait for the technology to catch up.
SPEAKER_04: Welcome to 30 Animals That Made Us Smarter, the live show.
SPEAKER_00: Recently, I read an article about how scorpion venom can help surgeons to detect brain cancer. I hope you may want to put this in an episode.
SPEAKER_04: Please welcome to the stage Draco the scorpion. Woah, oh my goodness. So basically, they inject this venom, they liquefy their prey,
SPEAKER_02: liquefy their prey, and then they drink it.
SPEAKER_04: This is disgusting. 30 Animals That Made Us Smarter, from the BBC World Service. This is such a nerd fest.
SPEAKER_04: Yes, I like that. It is a nerd fest. Just search for 30 Animals That Made Us Smarter wherever you get your podcasts. You guys are so lovely.
