This supply/demand equation doesn't necessarily have to involve incentivising increased supply, maybe the increase in capacity from offering the difference to drivers isn't worth it compared to just profiting from the scarcity.
It does if you’re competing for labor and the other guy is paying high wages during surges. I just don’t see how that could work
Is it possible that the lead time for surge reaction is too high to actually react to sufficient surges and it's all demand management?
I think no but it doesn’t matter. If Uber is paying much higher wages for the same labor and you can switch over at the press of a button, why would anyone drive for Lyft during a surge?
I would assume that the reason is that no one can actually perform the ride pickup in the surge.