Left-Digit Bias at Lyft

Abstract

Left-digit bias (or 99-cent pricing) has been discussed extensively in economics, psychology, and marketing. Despite this, we show that the rideshare company, Lyft, was not using a 99-cent pricing strategy prior to our study. Based on observational data from over 600 million Lyft sessions followed by a field experiment conducted with 21 million Lyft passengers, we provide evidence of large discontinuities in demand at dollar values. Approximately half of the downward slope of the demand curve occurs discontinuously as the price of a ride drops below a dollar value (e.g. $14.00 to $13.99). If our short run estimates persist in the longer run, we calculate that Lyft could increase its profits by roughly $160M per year by employing a left-digit bias pricing strategy. Our results showcase the robustness of an important behavioral bias for a large, modern company and its persistence in a highly-competitive market.