Anomalous supply shortages from dynamic pricing in on-demand mobility

Abstract

AbstractDynamic pricing schemes are increasingly employed across industries to maintain a self-organized balance of demand and supply. However, throughout complex dynamical systems, unintended collective states exist that may compromise their function. Here we reveal how dynamic pricing may induce demand-supply imbalances instead of preventing them. Combining game theory and time series analysis of dynamic pricing data from on-demand ride-hailing services, we explain this apparent contradiction. We derive a phase diagram demonstrating how and under which conditions dynamic pricing incentivizes collective action of ride-hailing drivers to induce anomalous supply shortages. We identify characteristic patterns in the price dynamics reflecting these supply anomalies by disentangling different timescales in price time series of ride-hailing services at 137 locations across the globe. Our results provide systemic insights for the regulation of dynamic pricing, in particular in publicly accessible mobility systems, by unraveling under which conditions dynamic pricing schemes promote anomalous supply shortages.