Surge Pricing Solves the Wild Goose Chase

Abstract

Ride-hailing applications (apps) like Uber and Lyft introduced a matching technology and market design that recent research has found is more efficient than traditional taxi systems [2]. However, unlike traditional street-hailing taxi systems, they are prone to a failure mode first anticipated by [1]. In this paper we model and empirically establish the existence of these dynamics. We then show how surge pricing and, to a lesser extent, other market design interventions can prevent this problem from crippling a ride-hailing market.