Who Benefits From Surge Pricing?

Juan Camilo Castillo

Econometrica, 2025, vol. 93, issue 5, 1811-1854

Abstract: New technologies have recently led to a boom in real‐time pricing. I study 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 uniform pricing counterfactual in which Uber sets the overall price level, surge pricing increases total welfare by 2.15% of gross revenue. Welfare effects differ substantially across sides of the market: rider surplus increases by 3.57% of gross revenue, whereas driver surplus and the platform's current profits decrease by 0.98% and 0.50% of gross revenue, respectively. Riders at all income levels benefit. Among drivers, those who work long hours are hurt the most, especially women.

Date: 2025
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