Tip suggestions and service efficiency

Abstract

That customers respond to tip suggestions is well-documented, but less is known about how changing tip suggestions impacts service quality. Leveraging the unique setting of New York City taxicabs, we document that increasing tip suggestions improves driver efficiency (e.g., shorter distance) only when total fares are fixed. Findings from this paper thus provide novel evidence that changes in tip suggestions can impact supply-side behavior, such as service efficiency. Our results show, however, that the effect will likely vary based on the market setting, particularly the pricing mechanisms and the opportunity cost of slower service.