Optimal pricing for on-demand service platforms with heterogeneous customer demand frequencies

On-demand service platforms (ODSPs), which act as mediators between customers and independent service providers, commonly adopt pay-per-service and membership pricing schemes. The pay-per-service scheme charges customers a fee for each service completion. In contrast, the membership scheme charges customers a periodic fee and allows them to make unlimited service requests for a certain period without any extra payment. In this paper, we develop a model framework to explore the optimal pricing strategy for an ODSP with heterogeneous customer demand frequencies, which turns out to be critically affected by the discrepancy between the patience of the ODSP and users (customers and service providers) regarding cash flow. Specifically, the ODSP is expected to adopt the membership scheme only when users are more patient than the ODSP, and the more patient users are, the more the ODSP prefers the membership scheme. In the extreme case when users are patient enough, the ODSP should forego the pay-per-service scheme altogether. Moreover, we investigate a more flexible pricing scheme, the two-part tariff scheme, that combines the per-service and membership fees. Interestingly, this scheme cannot generate more profit for the ODSP than the pay-per-service or the membership schemes, so it is not a wise strategy for the ODSP. Finally, the impacts of cross- and within-group network effects on the ODSP’s decisions are identified. Our analysis reveals that when the cross-group (resp., within-group) network effect is strengthened, the ODSP should raise (resp., reduce) the service fees and wage paid to providers.