Ride solo or pool: Designing price-service menus for a ride-sharing platform

Jagan Jacob and Ricky Roet-Green

European Journal of Operational Research, 2021, vol. 295, issue 3, 1008-1024

Abstract: A ride-sharing platform (RSP), such as Uber or Lyft, can sometimes offer passengers an option to share (pool) the ride with fellow passengers. On the one hand, a passenger who pools benefits from paying a lower fare and the RSP benefits from increasing occupancy per car, thereby serving more passengers. On the other hand, a passenger who pools takes more time, on average, to reach her destination and may have to share the ride with a stranger, and the RSP gets a lower profit margin per passenger than from solo rides. We develop a queueing model to find the RSP’s optimal revenue in equilibrium when passengers are strategic and drivers are independent agents, and design the RSP’s revenue-maximizing price-service menu. We find that offering both solo and pooled rides is optimal when the distribution of passenger-type is not skewed and congestion is not high. Counter intuitively, when congestion is high, the RSP benefits from offering only one ride choice. Simulation-based results extend these findings when more than one route exists. We provide a numerical example based on real-life data. When the number of drivers is endogenous, equilibrium revenue per driver can decrease when the passenger arrival rate increases.

Keywords: Revenue management; Mechanism design; Strategic customers; Pricing; Two-sided platforms (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:295:y:2021:i:3:p:1008-1024

DOI: 10.1016/j.ejor.2021.03.058

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