Your Uber Is Arriving: Managing Independent Workers through Surge Pricing, Forecast Communication and Worker Incentives
Management Science, Feb 2019
49 Pages Posted: 10 Jan 2017 Last revised: 24 Nov 2019
Date Written: February 8, 2019
On-demand platforms (e.g., Uber, Lyft) often rely on independent workers, who are not directly under the platform’s control, to be available at the “right” time and locations to serve consumers at short notice. To manage fluctuating demand across market locations (zones), on-demand platforms share market forecasts with workers to inform them where they should be available, and use surge pricing—wherein the price at a particular zone is temporarily raised above the regular price. We analyze these platform strategies in an on-demand marketplace where independent workers can move between adjacent zones, explicitly accounting for the strategic interaction in their moving decisions. We show that, contrary to conventional wisdom, surge pricing can be useful even in zones where supply exceeds demand. Specifically, because workers are strategic agents facing costs to move and competition from other workers who move, simply informing workers where they should be available may not ensure that enough workers move to that zone. Interestingly, more workers can be made to move from a zone with excess supply of workers by strategically using a surge price to throttle demand in that zone. Such strategic surge pricing can increase total platform profit across zones, and even be more profitable than offering workers bonuses to move. Surge pricing in a zone with excess supply can also be useful to credibly communicate the need for more workers to move. In other instances, such surge pricing may be useful to avoid too many workers from moving. Our analysis offers insights for effectively managing on-demand service with independent workers.
Keywords: Demand Throttling, Forecast Sharing, Gig Economy, On-Demand Economy, Peer-to-peer Platforms, Signaling, Spatial Pricing, Surge Pricing
JEL Classification: C72, D21, D40, D82, L11
Suggested Citation: Suggested Citation