Surge Pricing Moves Uber's Driver Partners

24 Pages Posted: 30 May 2018

See all articles by Alice Lu

Alice Lu

Uber Technologies Inc.

Peter Frazier

Cornell University - School of Operations Research and Industrial Engineering; Uber Technologies Inc.

Oren Kislev

Uber Technologies Inc.

Date Written: May 17, 2018

Abstract

We study the impact of dynamic pricing (so-called "surge pricing") on relocation decisions by Uber's driver-partners and the corresponding revenue they collected. Using a natural experiment arising from an outage in the system that produces the surge pricing heatmap for a portion of Uber's driver-partners over 10 major cities, and a difference-in-differences approach, we study the short-run effect that visibility of the surge heatmap has on 1) drivers' decisions to relocate to areas with higher or lower prices and 2) drivers' revenue. We demonstrate that the ability to see the surge heatmap has a statistically significant impact on both outcomes. Ability to see the surge heatmap explains 10%-60% of Uber drivers' self-positioning decisions, attracts drivers toward areas with higher surge prices, and increases drivers' revenue on surged trips by up to 70%. This suggests that dynamic pricing helps drivers move to where riders' demand is largest, and that the resulting reduction in spatial search friction and spatial mismatch improves waiting times and welfare for both riders and drivers.

Keywords: Dynamic Pricing, Ride-Sharing Economy, Labor Economics

Suggested Citation

Lu, Alice and Frazier, Peter and Kislev, Oren, Surge Pricing Moves Uber's Driver Partners (May 17, 2018). Available at SSRN: https://ssrn.com/abstract=3180246 or http://dx.doi.org/10.2139/ssrn.3180246

Alice Lu (Contact Author)

Uber Technologies Inc. ( email )

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

Peter Frazier

Cornell University - School of Operations Research and Industrial Engineering ( email )

Ithaca, NY
United States

Uber Technologies Inc. ( email )

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

Oren Kislev

Uber Technologies Inc. ( email )

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

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