Date of Award
8-2025
Document Type
Thesis
Degree Name
Master of Science (MS)
Department
Economics
Committee Chair/Advisor
Dr. Scott Templeton
Committee Member
Dr. David Drukker
Committee Member
Dr. Molly Espey
Committee Member
Dr. Matthew Lewis
Abstract
Estimating price sensitivity is crucial for premium service providers who face inconsistent client engagement. In this study, I investigate both observed ride demand and periods of client inactivity among ABC Transfer’s customers, meaning individuals who may not book rides in a given period but are not necessarily disengaged. ABC Transfer is a luxury ground transportation firm headquartered in upstate South Carolina. Using an unbalanced panel dataset spanning 2012 to 2024, I estimate a Zero-Inflated Poisson (ZIP) model to distinguish between individuals who might still be clients from those who are not likely to be clients any longer. The model accounts for price sensitivity across client types (personal, corporate, aviation) through interaction terms and incorporates time-fixed effects to control for changes in market conditions.
Results show that price is significantly negatively associated with ride volume, with a one-dollar increase in price predicting a 0.55% decrease in expected ride count for the baseline aviation client. While corporate and personal accounts exhibit similar sensitivity to price, their interaction terms are not statistically significant in the count model, indicating that the effect of price on ride demand does not differ meaningfully between account types after controlling for other variables. Corporate clients take significantly fewer transfer rides overall, with an estimated 72% lower ride activity relative to aviation clients.
In the inflation portion of the ZIP model, which estimates the likelihood that an individual who does not book a ride is no longer an active client, higher prices significantly reduce the probability of disengagement. These results suggest that while price increases may suppress ride frequency, they do not necessarily lead clients to abandon the service. Price sensitivity varies by client type in this regard: both personal and corporate clients are significantly less likely than aviation clients to disengage in response to price increases, indicating a stronger likelihood of remaining engaged with the platform.
Simulations using the Poisson component of the initial model predict that a $100 price reduction would yield the largest increases in ride volume among aviation clients, with more modest effects for corporate and personal clients. Strong temporal effects in both model components reflect market growth over time and cohort effects among clients in early periods. These findings suggest that while price influences ride frequency, it plays a more complex role in long-term client engagement. For luxury transportation providers, differentiated pricing strategies by client type may help maintain participation even as prices fluctuate, highlighting the importance of loyalty among high-value clients and the strategic potential of targeted retention efforts.
A second specification of the zero-inflated Poisson model was estimated to address the possibility that the average price an individual would face while potentially being a client is correlated with unobserved individual characteristics that also influence ride demand. This average price, calculated as the mean of the prices a client did pay or would have paid across observed periods, is included as a Mundlak control. In this version of the ZIP model, the previously negative effects of price on both the number of rides booked and the probability that an individual remains a client are no longer statistically significant. One possible explanation is that ABC Transfer’s pricing may not have varied enough over time or across clients for true effects, if present, to be statistically distinguishable from zero. In light of these findings, the results from the initial model should be viewed as suggestive rather than conclusive. While price is negatively correlated with ride frequency, it may also influence long-term client engagement in a counterintuitive manner.
Recommended Citation
Butenhoff, Sydney, "Estimating Price Responsiveness for Service of a Luxury Transportation Company: A Zero Inflated Poisson Approach" (2025). All Theses. 4598.
https://open.clemson.edu/all_theses/4598