Matching and Pricing in Ride Hailing: Wild Goose Chases and How to Solve Them

65 Pages Posted: 28 Dec 2016 Last revised: 16 Feb 2024

See all articles by Juan Camilo Castillo

Juan Camilo Castillo

University of Pennsylvania - Department of Economics

Daniel T. Knoepfle

Uber Technologies Inc.

E. Glen Weyl

Plural Technology Collaboratory, Microsoft Research Special Projects; Plurality Institute; GETTING-Plurality Research Network

Date Written: February 13, 2024

Abstract

We show that ride-hailing markets are prone to a matching failure (“wild goose chases") in which high demand sets off a harmful feedback cycle of few idle drivers, high pickup times, and low earnings, drastically reducing welfare. After characterizing these failures theoretically and showing empirical evidence of their relevance, we analyze how platforms can avoid them. Raising prices brings demand back under control. Platforms can thus set a uniform high price, or they can use high “surge" pricing during high demand times while keeping prices low at other times. Some adjustments to the matching algorithm can also avoid the problem, but surge pricing performs better than them.

Keywords: Ride Hailing, Market Design, Matching, First Dispatch, Surge Pricing

JEL Classification: D47, L91, R41

Suggested Citation

Castillo, Juan Camilo and Knoepfle, Daniel T. and Weyl, Eric Glen, Matching and Pricing in Ride Hailing: Wild Goose Chases and How to Solve Them (February 13, 2024). Available at SSRN: https://ssrn.com/abstract=2890666 or http://dx.doi.org/10.2139/ssrn.2890666

Juan Camilo Castillo (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

HOME PAGE: http://www.jc-castillo.net

Daniel T. Knoepfle

Uber Technologies Inc. ( email )

1455 Market St
San Francisco, CA 94103-1331
United States

Eric Glen Weyl

Plural Technology Collaboratory, Microsoft Research Special Projects ( email )

11 Ellsworth Ave, #2
Cambridge, MA 02139
United States
8579984513 (Phone)

HOME PAGE: http://www.glenweyl.com

Plurality Institute ( email )

GETTING-Plurality Research Network ( email )

124 Mount Auburn Street
Suite 520N
Cambridge, MA 02138
United States

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