UCL School of Management is delighted to welcome Harish Guda, Naveen Jindal School of Management, to host a seminar discussing ‘Your Uber is Arriving: Managing On-Demand Workers through Surge Pricing, Forecast Communication & Worker Bonus’

Abstract

On-demand service platforms (e.g., Uber, Lyft) match consumers with independent workers nearby at short notice. To manage fluctuating supply and demand conditions across different market locations (zones), on-demand platforms share market forecasts with workers, to inform them where they should be available, and use surge pricing, wherein the price in a particular zone is temporarily raised above the regular price. We analyze the strategic role of surge pricing and forecast communication in an on-demand marketplace, explicitly accounting for how they influence workers to move between zones. We show that, contrary to conventional wisdom, surge pricing can be useful even in zones where supply exceeds demand. Specifically, because of the strategic interaction amongst workers in their decisions to move between zones, simply informing workers about where they are needed is not sufficient to ensure that enough workers move to these zones. Interestingly, surge pricing in a zone with excess supply can induce a better distribution of workers by lowering workers’ revenue potential of serving that zone, thereby inducing workers to move to zones needing more workers. Even though such surge pricing reduces platform profit in the zone where it is used, it can increase total platform profit across zones and be more profitable than offering workers bonuses to move. Surge pricing in zones with excess supply may also be used to credibly inform workers about their need to move to adjacent zones, or to minimize the number of workers leaving a zone. Our analysis offers insights for effectively managing on-demand platforms relying on independent workers.