Tip Suggestions and Service Efficiency

Abstract

That customers respond to tip suggestions is well-documented, but less is known about how changing tip suggestions impacts service quality. Leveraging the unique setting of New York City taxicabs, we document that increasing tip suggestions improves driver efficiency (e.g., shorter distance) only when total fares are fixed. This response seems to be driven by drivers prioritizing faster turnarounds rather than aiming for higher tip rates. This study offers new evidence that altering tip suggestions can influence service efficiency on the supply side, although the effect may vary depending on market conditions, including pricing mechanisms and the cost of slower service.

Keywords: Tips, Suggestions, Taxi, Service Efficiency