UBER & LYFT: Why are Prices So High?

It was 9:43pm. Rushing to get ready, I called my friends anxiously asking what time they were heading to Boston for the night. “We’re leaving Cityside in 15 minutes, so hurry”. Realizing I had zero time to walk from my Boston College dorm to CitySide Bar, I opened up my Uber app to search for a ride and to my surprise, each ride cost a minimum of $35.

I REPEAT $35. The ride from my dorm to CitySide is a 1.5 mile drive. This 1.5 mile drive cost $35.

Before this weekend, I heard prices for Uber or Lyft had increased, but going from a usual $5 or $10 Uber to $35 fare had me exploring reasons as to why.

Here’s some reasons why your Uber and Lyft Rides might be going through the roof:

1. Driver Shortage. 

The main reason for price increases is the shortage of drivers. At the early onset of the pandemic, demand for ridesharing essentially fell off a cliff. Driven by the partly government mandated and partly consumer driven shut down, demand shocks sent hard hits to Uber and Lyft. Americans hunkered down for the pandemic and in turn, Uber bookings dropped approximately 75% (shown in the graph below). Within recent months, however, socially-distanced sensitive spending (i.e restaurants, airline travel, hotel tourism) has increased dramatically; people are vaccinated, stores are opening up, and society is eager to return back to pre-pandemic life. As the states have opened up, demand for rides has returned faster than the supply of drivers, leading to price spikes in many cities across the U.S. July 2021 statistics illustrated drivers still fell 40% below capacity (depsite demand rising back to pre-pandemic levels).

2. Unemployment Insurance

With the world still slowly returning to normal life, half of U.S states are still paying federal covid-related unemployment benefits. In states that ended employee benefits (i.e. Miami, Houston, Atlanta), however, Uber and Lyft are seeing drivers return and prices go down. A select segment of the drivers revealed that the stimulus checks have created a financial safety net for mainly, part-time drivers, who aren’t as reliant on the income from Uber. Some drivers even outwardly disclosed they’re fine riding it out on stimulus checks or unemployment for now, while vaccination levels continue to rise. Uber and Lyft have tried to compete with the unemployment benefits – by offering various monetary incentives – to attract drivers back to work, although the statistics support the concept that all drivers won’t return until COVID unemployee benefits fizzle away.

3. RideShare Competition Among Drivers & Other Services

Given the limited number of drivers, rideshare companies must also compete for the limited number of drivers while fighting against the attraction of food delivery services. Food delivery services inherently offer safer working conditions. Drivers don’t have to worry about social distancing or risk contracting COVID, they eliminate the risk of crazy customers with no concern for people entering your car, and they avoid getting a driving performance rating (rather a simple food delivery rating).

How do RideShareing Companies plan on bringing employees back?

With unemployment insurance and fierce competition, Uber & Lyft have increased driver bonuses to attract workers back to the platform. Both Uber and Lyft have spent millions to offset demand with substantial supply. Uber allocated $250 Million to promote driver incentives while Lyft spent $572 Million on driver incentives through the second quarter of 2021. Lyft noted a 50% increase in rides due to the three-month incentive offering; it remains unclear, however, whether the increase was caused by new drivers or existing drivers eager to take advantage of the incentives.

Can we expect prices to go down in the near future?

As drivers return to the road, Uber and Lyft hope that prices will begin to stabalize, however the rideshare price projections forecast continuing expensive fares moving forward.

Regardless of the pandemic, ride-hailing companies solely focus on long-term profits. Analysts expect customers to pay more per ride compared to the discounted rates prior to the pandemic due to low returns. Uber and Lyft began phasing out discounts to users (even before the onset of the pandemic) with increasing investor pressure to perform better. The user discounts caused millions in net losses and ultimately hurt investor return, making investors agitated and eager for a business model shift. Investors highly encouraged a more sustainable model for future profits than their current subsidy model.

Uber and Lyft currently focus on a subsidy model for their respective ride-sharing platforms. Subsidized organizations provide incentivized offerings in an attempt to get traction for their early startup, all of which is needed to attract customers quickly and establish a dominant market position. Subsidy models rely on startups, raising venture capital, and using those funds to track customers with deep discounts. These subsidies could come in many forms, from low shipping rates for e-commerce sites to coupons for free food delivery; all of these services attract customers to their site. For ride-sharing companies like Uber and Lyft, subsidies involve attracting users with deep discounts and then incentivizing drivers to provide those rides. Part of what’s happening, however, is that as demand for user services has soared, companies that once had to compete for customers now deal with an overabundance of them. In order to deal with the overabundance, Uber and Lyft have begun phasing out those rider discounts to shift subsidies over to the supplier side, offering increased driver incentives and mitigating user incentives.

12 comments

  1. interesting read, thx for posting! I too have noticed this… to your point of making work more attractive for drivers: i wonder if these companies will consider providing things like health insurance (their whole model is that drivers are contractors, not full time employees, and thus they aren’t required to provide it). Given the fact we have a pandemic going on, it’s no surprise that people wouldn’t be incentivized to work in a high-risk job with no health coverage, regardless of how much a single ride may pay them relative to say, 2019 pricing.

  2. I’ll be interested to see how these services respond to policies meant to limit the numbers of cars on the road. Some on Beacon Hill (none of whom take public transformation of course and lease their cars with our tax dollars) want to introduce measures similar to Lodon (more bike only lanes and such) to limit the number of cars on the road. I think that the profitability of ride share services are likely to increase as the cost of owning a car for the average citizen. Obviously that upward demand would boost prices but hopefully that would also see more drivers jumping on to try and catch the wave as thus balance things out. Honestly though I’d steer (pun intended) clear of either because I’ve almost died in several Ubers.

  3. When it comes to rideshare the reliability was what attracted customers. If Uber and Lyft manage to bring on more people willing to drive their cars, will it also be able to get back the customers they lost due to the unreliableness? I noticed the surge as well and I also noticed by Uber Eats and GubHub orders being cancelled or delayed tremendously due to shortage of drivers. I deleted the take out apps recently because it is more time efficient for me to pick up the food myself or to drive myself instead of using the apps.

  4. There’s no such thing as a free lunch. The labor shortage attributed to those who, as you mention, are “fine riding it out on stimulus checks or unemployment for now” should be reminded of such. While incentives to get those people back to driving for Uber, and other incentives such as healthcare and what have you could arguably be founded, I find it frustrating that I, as the consumer of these rideshare apps, will naturally have to pay for such incentives and benefits — in addition to the raised fees amidst the shortage.

  5. I have not ridden Uber since the pandemic started. I hope that the platform will be able to return to its former excellence before long. I do think the booming delivery industry has also cut into drivers availability.

  6. Shannon, Wonderful blog I am glad you did some research on this topic. I went on a business trip two weeks ago and I couldn’t believe it when I saw t the price tag after requesting an Uber, I ended up taking a taxi (cheaper and faster). This was the first time since 2016 that I got into a taxi. I was amazed to see that they have done some improvements in the taxi industry like offering simple entrainment onboard and easy payment methods. Uber is losing its novelty, its customers, and their employees. Uber brand used to be associated with a premium service, but its image has been jeopardized by its former CEO and multiple negative presses. I think Uber has to work on improving its image and keep pushing for its technology to differentiate themselfeves.

  7. Like you, I understood that prices may increase due to driver shortages and other factors related to the pandemic we have been working through but I had no idea how much they would go up. Its almost impossible to rely on these services now and its forced people to think about a night out in a completely different way. Users can no longer rely on a convenient lift home. I think that the loss of faith in these services has caused the problem to proliferate even more, as users like me no longer even look at these apps to see where prices are. After a couple bad experiences, I’ve had enough.

    This summer I was forced to walk home from South Boston to Charlestown at midnight due to the fact that there were simply no rides available. I spent an hour on Lyft and Uber, and the few times I was able to secure a ride with a 20+ minute wait time the driver ended up cancelling. In another tough experience, I found out it would cost 95.00 to secure a ride home from the airport (to Charlestown), and the closest driver was over 20 minutes away. Fearing the same thing would happen, we had to wait in the cab stand line with everyone else experiencing the same issue. We were in line for almost an hour! I really hope that someday I can rely on these services like I used to.

  8. Yes! This blog definitely hit on one of my biggest covid related pet peeves. I’ve lived in the North end for the past 4 years and the reduction of traffic in the city was a real relief last year. I could’nt understand why the Uber Prices continued to be so high when the demand (i.e. people left the city) had gone down. Finally came to the realization that the number of drivers had dramatically decreased. If prices stay up, I’m happy to take a cab, bluebike, my own car, or the T :)

  9. I wonder if there’s anything particular to Massachusetts and why we’re seeing these massive spikes in uber prices, well beyond the 1.5x that the WSJ was reporting on. As you stated, your fares were 3x what you were expecting and everytime I’ve opened up the uber app in the past few months, it’s been consistenty more than double what I used to pay. At the same time, after recently traveling in states like California, I did not notice any noticeable increase in price compared to pre-pandemic prices. Maybe what I’m sharing is anectodal, but from my experience these price increases have only really been felt in Massachusetts.

  10. This is a great post! I had a very similar experience the other day; I checked Uber for a short ride, and the fare was an astronomical $65 for a 2-mile ride! That made me wonder why prices went up dramatically, and this post explains it all. You mentioned the unemployment benefits being part of this problem as drivers are not returning to work; I wonder whether these benefits are still necessary with the economy restarting the availability of vaccines. Will we ever go back to “normal”?

  11. I wonder what the impact of prop 22 has on this nationally. The quick version of the story is that Uber and Lyft spent millions of dollars on ensuring that all the drivers would not qualify as employees but as independent contractors. As mentioned above, it is really risky to demand that someone who does not have guaranteed access to health insurance is driving around people and directly interacting with them, since they would not always have access to the help they need if they were sick. Additionally, and almost obviously, there is an increased likelihood that a driver would come to work sick if they did not have paid sick time and needed the money.

    These shortages are creating really difficult situations for riders who would like to be safe in their travels home, but I think considering the employee’s choice for either being at risk or finding an alternative job where benefits are available is a simple choice to imagine.

  12. This post is extremely relevant is this has clearly been an issue across Boston and many cities. My experience has been such that around May and June it was extremely difficult to find drivers to pick me up. Now that is not as much of an issue but the prices are exorbitant. Uber changed the way many people function in their daily life and, in my opinion, the technology has added extreme value to my life. However, the increased barriers of usage has caused me and many others to rethink using ride sharing applications and turning back towards other modes of transportation.

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