I came across this article earlier today recently and it got me thinking about the impact of dynamic pricing in wage inflation, of which, most was made possible with the advancement, proliferation and adoption of technology, or use of technology there of. Imagine
In essence, the # of Uber and Lyft drivers (supply side) are still substantially below the pre-COVID levels but riders (demand side) is ramping up faster than expected, at least, relative to the supply side. In fact, that’s why these companies are spending big $ to incentivize drivers back into the platform with incentives, bonuses and massive public campaigns. This substantial imbalance of supply to demand side will need to be resolved soon or we will face a chicken-or-egg problem here, one in which, the existing supply side will capture relatively more margin than before while the demand side is getting priced out of the market. If a rider is paying 2-3x on a consistent basis versus that of before, the rider will likely seek alternative means of transporation. But it’s worth also noting handful of riders will pay a premium for convenience aka price-alone is not a sole decision making variable.
Though there is one caveat in this whole equation, and that is that Uber/Lyft and other comps will and can likely absorb some of the incremental cost to the rider and/or add more margin to the driver (assuming median pre-pandemic pricing is “x”, today’s pricing is “1.65x”. The company will either take out same cut as before and drive more margin to the drivers to further balance out the driver supply side, or take less cut than before but also managing the pricing dynamics for rider demand side, or somewhere in between)
All of this made possible with dynamic pricing, or in case, the real-time adjustment of pricing to balance out supply and demand side of the marketplace. This would not have been possible in other industries such as restaurants or construction etc. On the menu side, there is a switching cost and on the wage side, there is the region macro wage competition.
Right now, we are going through similar dynamics in most industries (i.e. companies and SMB business owners are debating whether and more importantly, how much, increase of wage should there be to get the right talent in. The only difference here is that dynamic pricing (both on the menu and employee wage end) is not possible.
One has to wonder whether this wage and product price inflation is transitory, when demand ramp up substantially outpaced supply of employees (4.28.2021 – Fed keeps key rate near zero, sees inflation as ‘transitory’) or is this here to stay (the old saying, “once the genie is out the bottle, it’s hard to put it back”). It would be great if there is some level of dynamic pricing in the employment market.
It’s interesting to think of lines, wait times, and product outages as a form of transitory inflation. Few industries use dynamic pricing, but it has become more common with the rise of digital marketplaces and so it’s easier to see delays = inflation.
Intersection notepad 