The Role of Surge Pricing on a Service Platform with Self-Scheduling Capacity

Recent platforms, like Uber and Lyft, offer service to consumers via “self-scheduling” providers who decide for themselves how often to work. These platforms may charge consumers prices and pay providers wages that both adjust based on prevailing demand conditions. For example, Uber uses a “surge pricing” policy, which pays providers a fixed commission of its dynamic price. With a stylized model that yields analytical and numerical results, we study several pricing schemes that could be implemented on a service platform, including surge pricing. We find that the optimal contract substantially increases the platform’s profit relative to contracts that have a fixed price or fixed wage (or both), and although…