GAMES Econ analyses surge pricing in ride-hailing platforms

GAMES Economics has analysed the price formation process and price volatility of ride-hailing platform services (Private Hire Vehicles – PHV). Using a sample of 1,000 rides in the city of Madrid, GAMES Economics has analysed how prices are determined, whether they respond to subjective criteria and how PHV price volatility compares to taxi prices.

Prices for PHV services are dynamic, as set by complex and opaque algorithms, which make prices fluctuate highly. According to ride-hailing platforms, the price of a ride consists of  a “base price”, which depends on the ride duration and distance, and, in periods identified by PHV operators as of high demand, prices are increased by a “high demand surcharge”. Prices for a given ride may vary widely and users lack of the necessary information to assess whether the price of the ride is low or high.

The apparent transparency of PHV prices, which are quoted by the platforms’ apps, actually hides an opaque and arbitrary pricing determination process. “Base prices”  are opaque and unpredictable, as the minimum fares published by PHV operators on their websites are not applied, base fares are variable and, often, the “base prices” quoted by the app do not result from adding up the fares publised by the app.

The “high demand surcharge” is not exceptional: it is activated frequently and its magnitude is extremely variable. In the sample analysed, half of BOLT rides, two out of three CABIFY rides and one out of five UBER rides have high demand surcharges. High demand surcharges increase base prices by between 30% and 50% on average, and can even multiply base prices by up to two and a half.

The  variability of PHV prices is much higher than the variability of taxi prices. While taxi prices vary around ±15% the average price , PHV prices vary around ±50% the average taxi price.

GAMES Economics report concludes that:

• The price determination process for ride-hailing platform services is opaque and arbitrary. For instance, the high demand surcharge is not exceptional and its magnitude varies substantially. PHV operators activate the high demand surcharge on up to two out of three rides. The high demand surcharge increases prices for PHV services between 30 and 50% on average.
• The variability of PHV prices is much higher than the variability of taxi prices. The price for the same PHV ride can be multiplied by up to two and a half depending on the day and time of the day.

The report “Analysis of the prices of PHV services through digital platforms in Madrid: price formation and volatility” has been prepared by GAMES Economics for the Professional Taxi Federation of Madrid (FPTM) and the National Taxi Association (ANTAXI).  The opinions expressed in the report are those of the authors and do not reflect the stand of FPTM nor ANTAXI. See full report in Spanish here.