Ride-hailing is a service that many people commonly use on a daily or weekly basis. Ride-hailing refers to the process of the customer ‘hailing’ or hiring a driver to pick them up and take them to an exact location, commonly through a mobile application with a variable fee. The concept was popularized by the company Uber and has since grown significantly with other major companies joining the industry and becoming a major part of the so-called ‘gig economy’ where individuals such as drivers can work for themselves using Uber’s platform (Blystone, 2021). Approximately 36% of U.S. adults have indicated using ride-hailing services, with the percentage increasing to over 50% for ages 18 to 29 (Jiang, 2019). This paper will analyze the market supply, demand, and pricing for ride-hailing services.
Supply and Demand
Ride-hailing is a service which fulfills the purpose of getting the client from point A to point B. Various factors influence the demand, ranging from broad influences to more short-term factors. However, ride-hailing remains the same method of transportation, which is influenced by the influx of passengers at certain times such as peak hours of travel to and from work, major events in the area, and weekends/holidays, particularly when other methods of transportation are not easily available. These factors are influential in the demand for ride-hailing services, and it is increasingly popular in urban areas where people may not have their own vehicles.
Other general factors influence demand for ride-hailing services in lieu of public transportation or taxis. There is the element of comfort and accessibility, allowing to hail drivers to virtually any location to take the consumer to another place, with the application eliminating many nuances of having to search out taxis or public transport. In some markets or scenarios, demand is increased by factors such as variable pricing (that can be at times lower than standard taxi rates) or availability, since the nature of the platform makes it so virtually any time of day, there is an available driver in the area (Fauvelle, 2019). Ride-hailing is a service that was created to fill the gap and improve existing transportation networks, thus generating demand among specific demographics or geographic areas.
Supply for the ride-hailing service depends on the primary factor of the number of drivers that are willing to sign up and participate through the platforms of the popular companies in the sector, such as Uber and Lyft. Ride-hailing companies do not typically hire drivers as employees, rather drivers are gig workers, similar to independent contractors, who simply use the platform to be matched with clients for which the company takes a fee from the driver’s revenue. Although the model has been criticized as abusive, in most jurisdictions, it remains so, and drivers operate on their own schedule and freelance basis.
Therefore, supply is constantly shifting based on the number of drivers on the road and available to take orders in a given area at certain times. Companies attempt to use various factors to stimulate available supply, such as better machine learning to guide drivers to high-demand areas, incentives for drivers to join in regions where ride-hailing is underdeveloped, and as discussed next, shifting pricing based on demand in an area.
Unlike many other products or services, even in the transportation industry, ride-hailing does not necessarily have a steady equilibrium price. It is constantly shifting during a 24h and weekly period. While it is possible to identify average prices over long-term, the model is based on a constantly shifting price that is directly dependent on supply and demand. Ride-hailing apps do set a minimal standard price per mile traveled in a non-high demand time. However, at any point when demand begins to increase, prices begin to grow steadily. If demand is excessive, the apps maintain what is known as price surges, where the price remains at a high level.
This is done automatically based on the calculations by computed systems with the aim to either increase supply as more drivers may be likely to start driving with a higher potential to earn or decrease demand as consumers will be put off by higher costs. The price remains high until supply and demand begin to even out, at which point it once again drops until an equilibrium is reached.
Therefore, ride-hailing is actually a perfect representation of market forces of supply and demand with their influence on pricing in real time. It is a complex system behind the scenes, with ride-hailing companies including multiple factors in their algorithms such as location, peak hours, waiting times, number of customers searching for drivers, number of customers getting ready to order, drivers shift planning, and others. However, at the basis of it, and by far the most influential aspect on pricing is whether supply can match demand at that point in time.
Changes in the Future
Global and economic factors significantly influence supply and demand for ride-hailing services. Obviously, in 2020, in the midst of the COVID-19 pandemic, the demand was extremely low. However, as the pandemic is receding, and people return to traveling and socializing, there is suddenly a spike in demand for ride-hailing. At the same time, supply remains low as some people are still cautious of close-quarter contact with multiple clients per day, while others were forced to find other jobs after ride-hailing declined. As a result, prices are up, with a 40% increase on average than a year or two ago (Conger, 2021).
The nature of ride-hailing and the gig economy is that the major companies of Uber and Lyft can pass the cost directly unto the consumer because of the unique type of service it provides and comfort of use. However, despite multiple efforts and large investments by companies to increase the supply of drivers, there is little effect in the current status quo of an ongoing pandemic and fiscal support from the government. Going forward, supply may increase as vaccinations are now more commonplace, and the economy is opening back up, or if demand continues to outstrip supply with high costs for the service, the demand may eventually decline as well with people looking for alternatives to their transportation needs.
Blystone, D. (2021). The story of Uber. Investopedia. Web.
Conger, K. (2021). Prepare to pay more for Uber and Lyft rides. The New York Times. Web.
Fauvelle, L. (2019). Market research: Who are the customers of ride-hailing applications?. Into the Minds. Web.
Jiang, J. (2019). More Americans are using ride-hailing apps. Pew Research Center. Web.