IDEAS home Printed from https://ideas.repec.org/a/eee/proeco/v232y2021ics0925527320303108.html
   My bibliography  Save this article

Managing on-demand ridesharing operations: Optimal pricing decisions for a ridesharing platform

Author

Listed:
  • Dong, Zhenning
  • Leng, Mingming

Abstract

We investigate an on-demand ridesharing system consisting of a ridesharing platform, multiple drivers, and multiple passengers. We begin by analyzing a choice problem for a passenger who chooses either a ridesharing or taxi service and also studying a choice problem for a driver who decides on whether or not to serve. Then, we obtain the ridesharing platform’s optimal service price charged to passengers and its optimal wage paid to drivers. We perform sensitivity analysis to draw a number of managerial implications. An increase in the number of potential passengers (drivers) usually results in an increase (a decrease) in both the price and wage. We also find that the platform is better off when both the number of passengers and the number of drivers are higher, and an increase in the passengers’ mental costs for the taxi service can help increase the platform’s profit. Moreover, the dynamic pricing strategy can not only improve the platform’s profit but also generate larger surpluses to passengers and drivers.

Suggested Citation

  • Dong, Zhenning & Leng, Mingming, 2021. "Managing on-demand ridesharing operations: Optimal pricing decisions for a ridesharing platform," International Journal of Production Economics, Elsevier, vol. 232(C).
    • Handle: RePEc:eee:proeco:v:232:y:2021:i:c:s0925527320303108
    DOI: 10.1016/j.ijpe.2020.107958
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0925527320303108
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijpe.2020.107958?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Gérard P. Cachon & Kaitlin M. Daniels & Ruben Lobel, 2017. "The Role of Surge Pricing on a Service Platform with Self-Scheduling Capacity," Manufacturing & Service Operations Management, INFORMS, vol. 19(3), pages 368-384, July.
    2. Shi, Ying & Lian, Zhaotong, 2016. "Optimization and strategic behavior in a passenger–taxi service system," European Journal of Operational Research, Elsevier, vol. 249(3), pages 1024-1032.
    3. Terry A. Taylor, 2018. "On-Demand Service Platforms," Manufacturing & Service Operations Management, INFORMS, vol. 20(4), pages 704-720, October.
    4. Judd Cramer & Alan B. Krueger, 2016. "Disruptive Change in the Taxi Business: The Case of Uber," American Economic Review, American Economic Association, vol. 106(5), pages 177-182, May.
    5. Stiglic, Mitja & Agatz, Niels & Savelsbergh, Martin & Gradisar, Mirko, 2016. "Making dynamic ride-sharing work: The impact of driver and rider flexibility," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 91(C), pages 190-207.
    6. Agatz, Niels A.H. & Erera, Alan L. & Savelsbergh, Martin W.P. & Wang, Xing, 2011. "Dynamic ride-sharing: A simulation study in metro Atlanta," Transportation Research Part B: Methodological, Elsevier, vol. 45(9), pages 1450-1464.
    7. Jiaru Bai & Kut C. So & Christopher S. Tang & Xiqun (Michael) Chen & Hai Wang, 2019. "Coordinating Supply and Demand on an On-Demand Service Platform with Impatient Customers," Manufacturing & Service Operations Management, INFORMS, vol. 21(3), pages 556-570, July.
    8. David Gabel, 2016. "Uber and the Persistence of Market Power," Journal of Economic Issues, Taylor & Francis Journals, vol. 50(2), pages 527-534, April.
    9. Furuhata, Masabumi & Dessouky, Maged & Ordóñez, Fernando & Brunet, Marc-Etienne & Wang, Xiaoqing & Koenig, Sven, 2013. "Ridesharing: The state-of-the-art and future directions," Transportation Research Part B: Methodological, Elsevier, vol. 57(C), pages 28-46.
    10. Tianjun Feng & Yinghao Zhang, 2017. "Modeling Strategic Behavior in The Competitive Newsvendor Problem: An Experimental Investigation," Production and Operations Management, Production and Operations Management Society, vol. 26(7), pages 1383-1398, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Paolo Delle Site & André de Palma & Samarth Ghoslya, 2021. "Social optimality and stability of matchings in peer-to-peer ridesharing," THEMA Working Papers 2021-17, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    2. Zhao, Meng & Li, Bin & Ren, Jiali & Hao, Zhihua, 2023. "Competition equilibrium of ride-sourcing platforms and optimal government subsidies considering customers’ green preference under peak carbon dioxide emissions," International Journal of Production Economics, Elsevier, vol. 255(C).
    3. Kim, Youngsoo, 2022. "Taxi driver’s learning curves: An empirical analysis," Transportation Research Part A: Policy and Practice, Elsevier, vol. 166(C), pages 1-13.
    4. Meijian Yang & Enjun Xia, 2021. "A Systematic Literature Review on Pricing Strategies in the Sharing Economy," Sustainability, MDPI, vol. 13(17), pages 1-28, August.
    5. Chen, Mingyang & Zhao, Daozhi & Gong, Yeming & Rekik, Yacine, 2022. "An on-demand service platform with self-scheduling capacity: Uniform versus multiplier-based pricing," International Journal of Production Economics, Elsevier, vol. 243(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ke, Jintao & Yang, Hai & Li, Xinwei & Wang, Hai & Ye, Jieping, 2020. "Pricing and equilibrium in on-demand ride-pooling markets," Transportation Research Part B: Methodological, Elsevier, vol. 139(C), pages 411-431.
    2. Ke, Jintao & Yang, Hai & Zheng, Zhengfei, 2020. "On ride-pooling and traffic congestion," Transportation Research Part B: Methodological, Elsevier, vol. 142(C), pages 213-231.
    3. Sun, Luoyi & Teunter, Ruud H. & Babai, M. Zied & Hua, Guowei, 2019. "Optimal pricing for ride-sourcing platforms," European Journal of Operational Research, Elsevier, vol. 278(3), pages 783-795.
    4. Ye, Fei & Ni, Debing & Li, Kevin W., 2021. "Competition between manufacturers and sharing economy platforms: An owner base and sharing utility perspective," International Journal of Production Economics, Elsevier, vol. 234(C).
    5. Zhong, Yuanguang & Yang, Tong & Cao, Bin & Cheng, T.C.E., 2022. "On-demand ride-hailing platforms in competition with the taxi industry: Pricing strategies and government supervision," International Journal of Production Economics, Elsevier, vol. 243(C).
    6. Jacob, Jagan & Roet-Green, Ricky, 2021. "Ride solo or pool: Designing price-service menus for a ride-sharing platform," European Journal of Operational Research, Elsevier, vol. 295(3), pages 1008-1024.
    7. De Munck, Thomas & Chevalier, Philippe & Tancrez, Jean-Sébastien, 2023. "Managing priorities on on-demand service platforms with waiting time differentiation," International Journal of Production Economics, Elsevier, vol. 266(C).
    8. Xingyuan Li & Jing Bai, 2021. "A Ridesharing Choice Behavioral Equilibrium Model with Users of Heterogeneous Values of Time," IJERPH, MDPI, vol. 18(3), pages 1-22, January.
    9. Hu, Xinru & Zhou, Shuiyin & Luo, Xiaomeng & Li, Jianbin & Zhang, Chi, 2024. "Optimal pricing strategy of an on-demand platform with cross-regional passengers," Omega, Elsevier, vol. 122(C).
    10. Benioudakis, Myron & Zissis, Dimitris & Burnetas, Apostolos & Ioannou, George, 2023. "Service provision on an aggregator platform with time-sensitive customers: Pricing strategies and coordination," International Journal of Production Economics, Elsevier, vol. 257(C).
    11. He, Shan & Dai, Ying & Ma, Zu-Jun, 2023. "To offer or not to offer? The optimal value-insured strategy for crowdsourced delivery platforms," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 173(C).
    12. Liu, Yang & Li, Sen, 2023. "An economic analysis of on-demand food delivery platforms: Impacts of regulations and integration with ride-sourcing platforms," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 171(C).
    13. Daganzo, Carlos F. & Ouyang, Yanfeng & Yang, Haolin, 2020. "Analysis of ride-sharing with service time and detour guarantees," Transportation Research Part B: Methodological, Elsevier, vol. 140(C), pages 130-150.
    14. Stiglic, M. & Agatz, N.A.H. & Savelsbergh, M.W.P. & Gradisar, M., 2016. "Enhancing Urban Mobility: Integrating Ride-sharing and Public Transit," ERIM Report Series Research in Management ERS-2016-006-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    15. Xing Wang & Niels Agatz & Alan Erera, 2018. "Stable Matching for Dynamic Ride-Sharing Systems," Transportation Science, INFORMS, vol. 52(4), pages 850-867, August.
    16. Sunghi An & Daisik Nam & R. Jayakrishnan & Soongbong Lee & Michael G. McNally, 2021. "A Study of the Factors Affecting Multimodal Ridesharing with Choice-Based Conjoint Analysis," Sustainability, MDPI, vol. 13(20), pages 1-14, October.
    17. Sun, Hao & Wang, Hai & Wan, Zhixi, 2019. "Model and analysis of labor supply for ride-sharing platforms in the presence of sample self-selection and endogeneity," Transportation Research Part B: Methodological, Elsevier, vol. 125(C), pages 76-93.
    18. Alnaggar, Aliaa & Gzara, Fatma & Bookbinder, James H., 2021. "Crowdsourced delivery: A review of platforms and academic literature," Omega, Elsevier, vol. 98(C).
    19. Lei, Chao & Jiang, Zhoutong & Ouyang, Yanfeng, 2020. "Path-based dynamic pricing for vehicle allocation in ridesharing systems with fully compliant drivers," Transportation Research Part B: Methodological, Elsevier, vol. 132(C), pages 60-75.
    20. Yan, Pengyu & Lee, Chung-Yee & Chu, Chengbin & Chen, Cynthia & Luo, Zhiqin, 2021. "Matching and pricing in ride-sharing: Optimality, stability, and financial sustainability," Omega, Elsevier, vol. 102(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:proeco:v:232:y:2021:i:c:s0925527320303108. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ijpe .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.