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.
Authors
Alice Lu, Peter I. Frazier, Oren Kislev
Link
Conference
ACM EC 2018
Full Paper
Economics and Market Design
