Your Uber Is Arriving: Managing On-Demand Workers through Surge Pricing, Forecast Communication and Worker Incentives
Management Science, Forthcoming
49 Pages Posted: 10 Jan 2017 Last revised: 19 Apr 2018
Date Written: January 15, 2018
A fundamental challenge for on-demand platforms (e.g., Uber, InstaCart) is to ensure that independent workers, who are not directly under the platform’s control, are available at the right time and locations to serve consumers at short notice. We study the role of surge pricing (dynamically raising the price at a particular location above the regular price) in managing worker availability across market locations, explicitly accounting for how workers strategically move between locations. We show that, contrary to conventional wisdom, surge pricing can be useful even at locations with excess supply of workers to improve worker availability across locations. Specifically, because workers face costs to move and competition from others who move, simply informing workers about where they are needed is not sufficient to ensure that enough workers move to that location. Surge pricing at a location with excess supply of workers lowers workers’ revenue potential of serving that location, and hence can induce more workers to move to where they are needed. Even though such surge pricing reduces platform profit at the location where it is used, it can increase total platform profit across locations, and can even be more profitable than offering workers bonuses to move. Surge pricing at a location with excess supply may also serve as a credible signal of higher demand for workers to move. It may also be used to avoid too many workers from flocking to a location with shortage of workers. Our analysis offers insights for effectively managing on-demand platforms relying on 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