Who Benefits from Surge Pricing?

71 Pages Posted: 24 Sep 2018 Last revised: 27 Oct 2020

See all articles by Juan Camilo Castillo

Juan Camilo Castillo

University of Pennsylvania - Department of Economics

Date Written: October 26, 2020

Abstract

In the last decade, new technologies have led to a boom in real-time pricing. I analyze the most salient example, surge pricing in ride hailing. Using data from Uber, I develop an empirical model of spatial equilibrium to measure the welfare effects of surge pricing. The model is composed of demand, supply, and a matching technology. It allows for temporal and spatial heterogeneity as well as randomness in supply and demand. I find that, relative to a counterfactual with uniform pricing, surge pricing increases total welfare by 1.59% of gross revenue. Welfare effects differ substantially across sides of the market: rider surplus increases by 5.25% of gross revenue, whereas driver surplus and platform profits decrease by 1.81% and 1.77% of gross revenue, respectively. Riders at all income levels benefit, while disparities in driver surplus are magnified.

Keywords: Surge Pricing, Dynamic Pricing, Ride Hailing

JEL Classification: L11, R41, D47

Suggested Citation

Castillo, Juan Camilo, Who Benefits from Surge Pricing? (October 26, 2020). Available at SSRN: https://ssrn.com/abstract=3245533

Juan Camilo Castillo (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

HOME PAGE: http://www.jc-castillo.net

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