Search
  • Len Sherman

Why we shouldn’t be surprised that the driver shortage is over. At least for now.

by Len Sherman Adjunct Professor and Executive in Residence, Columbia Business School.


Photo by Paul Hanaoka

Uber (and Lyft) have an incentive to deploy as many drivers on the road as are willing to work for the lowest possible base rates and bonuses. More drivers are ALWAYS of benefit to ridehail providers, but for drivers... not so much. As it has turned out, because of financial need, laziness (to not fully think through true net pay) or lack of alternative income sources, there appears to be an ample supply of drivers to meet current demand in many markets.


On the passenger side, there is ample evidence that too many consumers manifest "lazy loyalty," clicking on their preferred service -- usually Uber - and taking the first price offered. Unlike other modes of transportation (e.g. airlines) where trips can be planned in advance, there is no widely used price comparison tool in place to force Uber and Lyft to compete aggressively on comparable pricing (as certainly is the case in the airline industry). One such tool that is gaining popularity, especially since the pandemic, is Obi with over 200k downloads. But price comparison has yet to become mainstream.


Maybe it's just me, but the notion that major providers of urban mobility in hundreds of cities worldwide should be allowed to operate services where passengers have no idea from ride to ride what their cost will be and drivers don't know from hour to hour how much they'll be compensated is not an ideal solution for all stakeholders. I think cities should demand more public disclosure from ridehail providers on their fares, driver compensation and take rates as a precondition to operate. Chicago, Seattle, and New York have moved to some degree in this direction.


This stands in stark contrast to other urban and intercity travel modes which provide copious amounts of information on fares, labor compensation and profitability ratios. For example, see http://web.mit.edu/airlinedata/www/default.html


But in ridehailing, even at a national level (let alone city-by-city), neither Uber nor Lyft currently provide any information as basic as:

> The number of trips and gross passenger bookings received (which would allow computation of average passenger fare)

> Average and distribution of fare levels on a $/trip, $/mile and $/minute basis

> Average and distribution of driver comp per hour by city size

> Average and distribution of provider take rate by fare level, distance and time of day


And at the individual passenger and driver level, Uber's algorithmic decisions on how much to charge and how much to pay drivers on a trip-by-trip basis are deeply guarded secrets.


My hypothesis is that ridehail providers are using asymmetric information advantages in their self-declared non-transparent market to maximize price realization and minimize driver compensation through discriminatory pricing and pay policies. After all Uber and Lyft know which passengers are more or less willing to pay premium prices and which drivers need more or less bonus compensation to be enticed to use their service. There is thus a massive economic incentive for these providers to exploit their asymmetric information advantages with discriminatory price and pay policies.


Uber and Lyft can and often have denied they utilize discriminatory pricing and pay policies, but they aren't willing to back up these denials with hard data to prove their point.


Under the circumstances, the only antidote to Uber and Lyft's presumed discriminatory pricing behaviors are:

1. Passengers

Use a comparative pricing tool like https://www.rideobi.com/ to compare prices on every trip between Uber, Lyft and other providers. I think consumers will be shocked to learn how often there are sizable price differences for essentially identical pickup wait times between providers. Based on over 10,000 ridehail trips taken nationwide over the past three months, smart consumers who use the Obi app, have found that the price difference on their trips with similar pickup times, and at all times of day -- was more than 25%. In New York, where trip costs are higher, users who took just 12 rides in Q4 saved $192 or more. Just think how much daily riders saved. The simple truth is consumers are overpaying by thousands of dollars over just a few years because of lazy loyalty.


2. Drivers Base pay rates for Uber and Lyft are a very bad deal for net income (after expenses). Track the available bonuses (Quests, Consecutive Ride Bonuses and Surge Prices) to decide when and if to drive. If income circumstances allow, stay home when bonuses are low or non-existent. If more drivers are more selective, Uber and Lyft will have no choice but to raise pay rates and bonuses.


3. Metro area governments Most governments are currently tolerating a ridehailing duopoly in their midst, with little or no regulatory or statutory oversight. Citizens and workers are paying the price for governments' laissez-faire irresponsibility. More REQUIRED public data disclosures from ridehail providers are long overdue.