![]() ![]() This is exactly what ridesharing companies strive to do: be seen as a reliable ride by ensuring that there are enough drivers available to meet the demand. Indeed, in one study, economists found that drivers extended their sessions and provided significantly more rides when they saw surge pricing in a particular geographic area. Another study’s comparison to New York City taxicabs, where there is no dynamic pricing (only slight peak-hours fare increases twice a day), showed that the number of Uber and Lyft rides rose by 22 percent during rainy hours compared to just 5 percent for ordinary taxis. Drivers see that they can make good money servicing a particular area at a particular time, and this encourages them to supply rides where they are needed. There are people who need the ride, and they are willing to pay handsomely. ![]() The second effect of the higher price is that it serves as a signal to Uber drivers to get out on the road. And it helps to ensure that those who need or value the rideshare most take that ride. ![]() In other words, surge pricing is a way of asking customers: “Do you really need to take this ride right now?” This rationing by price helps to minimize the number of riders using the service frivolously during the high-demand time. Beyond irritating customers, this algorithm-generated high price serves two important purposes: First, some customers who merely had a slight preference for the Uber may reconsider it and decide to walk instead, cancel evening plans or stay longer in the office until the price falls again. No case is clearer than that of ridesharing, where dynamic pricing strategies and a flexible labor supply are at the core of the business.įor example, when there is a mass transit malfunction in your area, the price of your Uber will undoubtedly increase. Economists agree that the main benefit of dynamic pricing strategies is that it can help balance supply to meet customer demand. ![]()
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