The Value of Time: A Study of Pricing Strategy on A Ride-Sharing Platform”, with Ying Lei and Xing Li (Submitted to Journal of Marketing Science)

    Time, or waiting time, is one type of costs that customers have to pay in many purchase occasions. Examples include the long queue outside the entrance of Universal Studio park, shipping days after placing the order in Amazon, and waiting time for Uber in rush hours. Marketers may offer various service packages correspondingly, such as premium pass, 1-day delivery, and priority order. How does waiting time affect passengers’ decision? How to optimize the time-dimension design? In this paper, we use anonymized and normalized data on orders from Didi – an online ride-hailing company and estimate the value of waiting time in riding scenarios. We find that the value of saving one standardized unit of waiting time is equivalent to lowering 0.97 standardized unit of price for an average passenger. As a reference, upgrading to a higher level of car type is equivalent to lowering price by only 0.5 standardized unit. The marginal value is decreasing when the time horizon is short, but there exists a kink point at about 1.5 standardized time unit. When the waiting time is less than 1.5 unit, the marginal utility is decreasing; whereas when it is more than 1.5 unit, passengers exhibit an increasing marginal value in waiting time. The existence of such a kink point makes the waiting time different from traditional product features with decreasing marginal utilities. Furthermore, we find a higher kink point in rush-hour orders, and in weekday orders. Our study provides new insights on understanding the value of time, and is also practically relevant for managerial decisions on product design and pricing.