Working Paper: NBER ID: w22627
Authors: Peter Cohen; Robert Hahn; Jonathan Hall; Steven Levitt; Robert Metcalfe
Abstract: Estimating consumer surplus is challenging because it requires identification of the entire demand curve. We rely on Uber’s “surge” pricing algorithm and the richness of its individual level data to first estimate demand elasticities at several points along the demand curve. We then use these elasticity estimates to estimate consumer surplus. Using almost 50 million individual-level observations and a regression discontinuity design, we estimate that in 2015 the UberX service generated about $2.9 billion in consumer surplus in the four U.S. cities included in our analysis. For each dollar spent by consumers, about $1.60 of consumer surplus is generated. Back-of-the-envelope calculations suggest that the overall consumer surplus generated by the UberX service in the United States in 2015 was $6.8 billion.
Keywords: Consumer Surplus; Uber; Surge Pricing; Demand Elasticity
JEL Codes: H0; J0; L0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Uber's surge pricing mechanism (L90) | consumer demand elasticity (D12) |
| consumer demand elasticity (D12) | consumer surplus (D46) |
| price changes (P22) | consumer demand elasticity (D12) |
| Uber's surge pricing mechanism (L90) | consumer surplus (D46) |
| price increases (E30) | demand for Uber services (R22) |