From Knowledge@Wharton, June 29:
Soaring prices and longer wait times are frustrating customers of Uber and Lyft as the ride-hailing companies scramble to meet demand that is slowly returning to pre-pandemic levels.
But Wharton’s Gad Allon wants to let those customers in on a little secret: The fact that prices are surging is a feature of the gig economy, not a bug.
“I think no one is happy at this point. Customers are not happy, drivers are not happy, and Uber is not happy,” he said. “There’s a big debate, ultimately, on their employment model.”
Allon, a professor in the department of operations, information, and decisions, wrote about Uber’s disposition in a blog post and spoke about it during an interview with Wharton Business Daily on Sirius XM. (Listen to the podcast above.) He said the long break in ride-hailing that was caused by the COVID-19 pandemic has spotlighted the gig platform and the role consumers play in ensuring fair competition in the marketplace.
Where Are the Drivers?
Like many other service-based companies, Uber and Lyft have said they are struggling to find enough workers as the economy roars back to life. Uber reported that it had 22% fewer drivers in the first quarter of 2021, compared with the same period last year, and announced a $250 million investment to recruit them through incentives and bonuses.
The loss of supply (drivers) and increase in demand (rides) has pushed fares into the stratosphere. Research firm Rakuten Intelligence found the cost of rides on Uber and Lyft was about 40% higher in April than a year ago.
Allon cited several reasons why drivers aren’t getting back behind the wheel in droves, including continued worries over health risks and the small financial cushion provided by the federal stimulus. But the biggest factor is the realization that working for a gig platform isn’t all that beneficial.
He said the pay, conditions, and overall treatment of drivers deteriorated over time as Uber scaled back spending during the run-up to its IPO to show investors that it was viable. Now, as the company tries to bring drivers back with promises of more money through surge pricing and incentives, those drivers are questioning whether the work is worth it....
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