Myopic Price Promotions in IPOs: Evidence from Ride-Hailing Platforms

Abstract

The year 2019 witnessed two unicorn IPOs from ride-hailing platforms: Lyft at a $24.3 billion valuation and Uber at a $82.4 billion valuation. Did these platforms strategically adjust their marketing decisions before their IPOs to appease investors? To answer this question, we use a comprehensive, granular, panel dataset with 13 million rides completed by 250,000 consumers between January 2018 and July 2019. Using each IPO filing day as a natural experiment, we examine how these two events influenced the price promotional decisions of Lyft and Uber. Using several econometric models, we quantify the IPO impact on platforms' decisions (promotion strategy) and performance metrics (number of rides). We find strong evidence that both platforms substantially adjusted their price promotions before their IPO filings. Lyft and Uber increased their price promotions by 49% and 68% respectively. We find that the impact on performance metrics was different for Lyft and Uber, given Lyft's first-mover advantage. In addition, we find that online platforms boosted their pre-IPO performance by personalizing their price promotional decisions based on customer characteristics such as loyalty, price sensitivity, deal-seeking behavior, tipping behavior, riding frequency, trip length, and geographical location to appease prospective investors before their IPOs.

Keywords: IPO, pre-IPO performance, price promotions, pricing, marketing-finance interface, customized marketing, online platforms, natural experiment