Just now
Summary:
- Dynamic Pricing Keeps Rides Affordable and Reliable: Uber’s surge pricing helps match riders with drivers efficiently, ensuring those who need a ride can get one without making overall prices too high. Plus, Uber’s advanced pricing means drivers get more information and riders continue to enjoy reliable, affordable rides.
- More Information for Drivers: Upfront fares give drivers more information to decide what type of trips they want to accept.
Surge is proven to help riders and drivers
Key takeaway: Surge has been proven in multiple studies to benefit all users by only increasing prices during periods of high local demand while keeping rider prices affordable overall.
Drivers on the Uber platform pick which trips to accept. Pricing technology can make customer requests more appealing to drivers, reducing rider wait times and increasing reliability.¹
Surge pricing — a dynamic pricing technology that automatically goes into effect when there are more riders in a given area than available drivers — has been used by Uber for more than a decade to help those who most need a ride get one.² What’s less understood though is that surge pricing actually keeps prices affordable overall for customers.
When there is a sudden influx of ride requests and not enough drivers, it can trigger what researchers have called a “wild goose chase.” Since most drivers are busy, those who are available would have to drive longer to pick up new rider requests, and longer pickups create more delays as new trips come in. The growing imbalance between the number of riders and drivers means some ride requests go unfulfilled. A simple way to reduce rider wait times and prevent this “marketplace unraveling” would be to raise prices across the board, but this would hurt both riders and drivers since fewer people would use Uber all around and drivers would have less work.³
Surge pricing, in contrast, benefits everyone by selectively increasing prices only when and where the system is at risk of overload — when there is a big increase in demand for rides in a specific part of a city where there are not enough drivers at that time, like after a concert in Madison Square Garden in New York City. By adjusting prices hyper-locally, surge helps align supply and demand within cities while keeping prices affordable overall. And affordable prices are a key part of what makes platforms like Uber attractive to riders, creating more work for drivers.
Upfront Pricing for Drivers Too, Not Just Riders
Key takeaway: Uber’s advances in dynamic pricing technology are unlocking new transparency features for drivers while maintaining service reliability and affordability for riders.
Before 2021, drivers in the US had to mentally calculate at the start of a trip how much they would earn for completing it. Understandably, drivers wanted more information upfront about how much they could expect to earn for the trips they accepted — just like riders know upfront how much they will pay. In 2021, Uber introduced transparent offer cards in several pilot cities, along with a new pricing technology for calculating upfront driver fares. This was a major change in the Uber app interface that allowed drivers to make better choices for themselves with more information on each trip.
To understand the impact of this change, we compared the results in these pilot cities to similar cities where no changes to offer cards or pricing technology were made. While the results of such market-level tests are imprecise and need to be interpreted with caution, the outcomes were encouraging. As expected, drivers valued and used the new information. They became more selective about the trips they decided to take, with the trip acceptance rate decreasing by about 17 percent. The share of drivers saying that the Uber app gives them the information they need to decide what type of trips they want to accept increased by over 20 percentage points.
However — and perhaps surprisingly — we actually saw directional improvement in a key measure customers care about the most: the share of trip requests that were successfully completed. This measure is indicative of service reliability, and it stayed high thanks to our advanced dynamic pricing technology (more on that below). Following the pilot, Uber expanded this new pricing technology: today, most drivers in the US and globally see upfront prices and trip information when deciding which ride requests to accept.
Balancing Transparency and Service Reliability Is Challenging Without Advanced Dynamic Pricing
Key takeaway: When prices are set by a simple formula, rider reliability can degrade because of driver cherrypicking, which can reduce long-term demand and therefore work opportunities for drivers.
Under a simple pricing system based solely on time and distance rates plus surge, some offers are very attractive (“cherries”) to a typical driver and others are less attractive (“lemons”). For example, two trips of equal length and time would be priced the same, but the one going to a busy area with a high likelihood of a return trip is going to be much more attractive to the typical driver than one going to a quiet destination.
Transparent information empowers drivers to make well-informed choices about the trips they want to take, but “cherries” are likely to be accepted quickly while “lemons” might not be accepted at all. Some riders have to wait longer because a simple pricing formula makes their request less attractive to drivers, and may even cancel their request altogether and not come back.
As we have previously written, advanced pricing tech is not personalized. In contrast to a simple pricing formula, it looks at aggregated, anonymized trip patterns to make all trips more consistently attractive to drivers. You can read more about how upfront fares are formulated in this blog post. Advanced pricing tech helps keep service reliable for riders, which helps protect long-term demand and therefore work opportunities for drivers.
Lessons from Poland: The Risks of ‘Simple’ Pricing with Upfront Information
Key takeaway: Real-world examples show how rider reliability decreases when driver-offer-card transparency is paired with simple pricing.
A natural experiment from Poland allowed us to study this in the real world. In 2021, Uber introduced transparent offer cards to drivers in Warsaw showing trip start and end zip codes as well as estimated earnings. Offer cards in other Polish cities did not change.
In the figure below we compare the share of trip requests that were completed, a key reliability measure, in Warsaw versus in Krakow. Both had simple pricing based on time, distance, and surge. Krakow — the second largest city in Poland — makes a good “control group” since both cities can be expected to be similarly affected by large market changes and external factors at play during the time period, which includes (i) the Covid pandemic that severely affected the rideshare industry and (ii) the subsequent recovery period.
The result: after upfront information was introduced in Warsaw in late 2021, the trip completion rate dropped, indicating a significant decline in service reliability as more customers could not get a ride request fulfilled. This example illustrates how upfront driver information with simple pricing based only on trip time and distance plus surge can lead to severe degradation of Uber marketplace reliability.
Advanced Dynamic Pricing: A Win-Win for Riders and Drivers
Key takeaway: Advanced pricing allows drivers to enjoy greater transparency without sacrificing rider experience or future demand.
Riders want an affordable, reliable ride every time they open the app. Meanwhile drivers want more information when deciding which trips to accept. The two examples discussed above — one from the US, and one from Poland — clearly show that the introduction of upfront trip information for drivers works much better when it is coupled with advanced pricing technology that adequately reflects trip characteristics. Finding prices that balance the expectations of riders and needs of drivers is challenging, but advanced pricing helps platforms like Uber improve outcomes for all while adjusting to a world in motion.
Note. Some of the features described on this page do not apply or are not available in all markets. As we work to improve the marketplace, we may test functionality and pricing in ways not described in this blog.