Friday, September 18, 2015

What would happen if Uber didn't have surge pricing?

Another study by Hall, Kendrick, and Nosko explores what would happen when Uber surge pricing doesn't exist, by exploiting a natural experiment caused by a surge outage on New Year's Eve during a period of high demand. They concluded that:

"we saw that in the absence of surge pricing, key indicators of the health of the marketplace deteriorated dramatically. Drivers were likely less attracted to the platform while, at the same time, riders requested rides in increasing numbers because the price mechanism was not forcing them to make the proper economic tradeoff between the true availability of driver ­partners and an alternative transportation option. Because of these problems, completion rates fell dramatically and wait times increased, causing a failure of the system from an economic efficiency perspective." 

More info on Uber's blog. Thanks to Val Lee for the link!


  1. This comment has been removed by a blog administrator.

  2. yes, I agree that Uber could surge price to attract more drivers to join the platform and make the riders who are willing to pay more money than others to get a ride instantly. However, the mechanism of surging pricing is not quite transparent and Uber doesn't provide any reference information to convince customers that the adjusted price is reasonable and meet the equilibrium between demand and supply. In addition, the interval of surging price is too huge, 5%, and it does not match the set of continuous market equilibrium.