Surge Pricing Solves the Wild Goose Chase

53 Pages Posted: 28 Dec 2016 Last revised: 24 Mar 2018

Juan Camilo Castillo

Stanford University - Department of Economics

Daniel T. Knoepfle

Uber Technologies Inc.

E. Glen Weyl

Microsoft Research New York City; Princeton University - Julis Rabinowitz Center for Public Policy and Finance

Date Written: March 20, 2018

Abstract

Ride-hailing apps usually match more efficiently than taxis, but they can enter a failure mode anticipated by Arnott (1996) that we call wild goose chases. High demand depletes the platform of idle drivers, so cars must be sent to pick up distant customers. Time wasted on pick-ups decreases drivers’ earnings, leading to exit and exacerbating the problem. Raising prices, either by keeping them consistently high or “surge” pricing only at high demand times, brings demand back under control and avoids these catastrophic failures. Banning surge pricing would thus likely result in always-high prices. Alternative solutions would undermine ride-hailing’s brand promise.

Keywords: wild goose chases, ride-hailing, surge pricing, dynamic pricing, hypercongestion

JEL Classification: D42, D45, D47, L91, R41

Suggested Citation

Castillo, Juan Camilo and Knoepfle, Daniel T. and Weyl, Eric Glen, Surge Pricing Solves the Wild Goose Chase (March 20, 2018). Available at SSRN: https://ssrn.com/abstract=2890666 or http://dx.doi.org/10.2139/ssrn.2890666

Juan Camilo Castillo

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

Daniel T. Knoepfle

Uber Technologies Inc. ( email )

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

Eric Glen Weyl (Contact Author)

Microsoft Research New York City ( email )

641 Avenue of the Americas
7th Floor
New York, NY 10011
United States
8579984513 (Phone)

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

Princeton University - Julis Rabinowitz Center for Public Policy and Finance ( email )

Princeton University
Princeton, NJ 08544-1021
United States

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