Fare changes have two competing effects on driver earnings: a fare increase will raise earnings per trip, but in equilibrium, fare increases negatively affect utilization (the share of a driver’s online hours spent on a trip) through both the demand for rides and the supply of driver hours. Using a panel of fare changes in the United States, the authors find that hourly earnings immediately move in the direction of the fare change for the short term, but offsetting changes in utilization cause hourly earnings to return to near their original level within about eight weeks. In fact, price decreases move the market to a new equilibrium with higher utilization and slightly higher take-home earnings (net of costs).
Joshua Angrist, Sydnee Caldwell, Jonathan Hall
Economics and Market Design