Arriving at Boston’s Logan International Airport after a tiring journey, Mia opened the Uber app to find a ride home. Her relief at seeing the message “Your Uber driver is arriving in 3 minutes” was short-lived because the driver canceled. In the next 30 minutes, half a dozen Uber drivers accepted her ride request, then canceled, before one eventually arrived. What was happening?
Uber, like many platform companies, needs to efficiently match service providers (drivers) and customers (riders). To do so, it must ensure that pricing is competitive enough for riders to choose the service and for drivers to have the incentive to deliver it. Mia struggled to get a ride because Uber had started providing more earnings transparency for drivers by allowing them to see their expected compensation and route destinations before picking up riders. A change intended to benefit drivers had a significant downside for riders: More drivers began canceling rides they deemed unprofitable.
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The question of who sets prices, and what discretion other parties in the transaction have to alter them in order to achieve mutually beneficial outcomes, is complex and nuanced for platform operators. In the case of Uber, the platform sets the price for the ride, and though drivers can opt out if their earning potential is unattractive, both drivers and riders have no flexibility for proposing different pricing. It’s one of the drawbacks to having the locus of control primarily in the hands of the platform provider.
While algorithmically determined prices set by the platform operator are common among ride-hailing and food delivery services, other kinds of platform businesses allow service providers or customers to set prices. Fiverr, an online marketplace that matches high-skilled service providers with customers for tasks such as programming or graphic design, lets freelancers name their rates.
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