Pricing Efficiently in Designed Markets: The Case of Ride-Sharing∗

In many designed markets, the platform eliminates price dispersion by setting the product market price, yet still allows free entry and exit. Using data from Uber, we show that the price profoundly affects the market equilibrium, but does not substantially change the hourly earnings rate of drivers in the long-run. Tracing out how the market re-equilibrates, we show that following fare increases, drivers make more money per trip—and initially more per hour-worked—and as a result, work more hours. However, this increase in hours-worked has a business stealing effect, with drivers spending a smaller fraction of hours-worked with paying customers. This reduced driver productivity, or “utilization” is the main reason the hourly earnings rate is unchanged. This price/utilization trade-off has implications for the efficiency of ride-sharing markets. ∗Thanks to Josh Angrist, Susan Athey, David Autor, Erik Brynjolfsson, Peter Cohen, Keith Chen, Judith Chevalier, Will Dobbie, Arin Dube, Mark Duggan, Amy Finkelstein, Hank Farber, Andrey Fradkin, Ed Glaeser, Austan Goolsbee, Bob Hall, Steve Levitt, Alexandre Mas, Enrico Moretti, Haim Mendelson Ben Olken, Mandy Pallais, Paul Oyer, Jim Savage, Robin Yerkes Horton, and especially Jason Dowlatabadi for assistance, helpful comments and suggestions. This manuscript was not subject to prior review by any party, as per the research contract signed at the outset of this project. The views expressed here are solely those of the authors. The code and data to replicate this study are or will be publicly available at http://www.john-joseph-horton.com/papers/uber price.data. Both Hall and Knoepfle are employees and shareholders of Uber Technologies. Robin Yerkes Horton is an employee and shareholder of Uber Technologies and is John Horton’s spouse.