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Driver Positioning and Incentive Budgeting with an Escrow Mechanism for Ridesharing Platforms

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  • Hao Yi Ong
  • Daniel Freund
  • Davide Crapis

Abstract

Drivers on the Lyft rideshare platform do not always know where the areas of supply shortage are in real time. This lack of information hurts both riders trying to find a ride and drivers trying to determine how to maximize their earnings opportunity. Lyft's Personal Power Zone (PPZ) product helps the company to maintain high levels of service on the platform by influencing the spatial distribution of drivers in real time via monetary incentives that encourage them to reposition their vehicles. The underlying system that powers the product has two main components: (1) a novel 'escrow mechanism' that tracks available incentive budgets tied to locations within a city in real time, and (2) an algorithm that solves the stochastic driver positioning problem to maximize short-run revenue from riders' fares. The optimization problem is a multiagent dynamic program that is too complicated to solve optimally for our large-scale application. Our approach is to decompose it into two subproblems. The first determines the set of drivers to incentivize and where to incentivize them to position themselves. The second determines how to fund each incentive using the escrow budget. By formulating it as two convex programs, we are able to use commercial solvers that find the optimal solution in a matter of seconds. Rolled out to all 320 cities in which Lyft's operates in a little over a year, the system now generates millions of bonuses that incentivize hundreds of thousands of active drivers to optimally position themselves in anticipation of ride requests every week. Together, the PPZ product and its underlying algorithms represent a paradigm shift in how Lyft drivers drive and generate earnings on the platform. Its direct business impact has been a 0.5% increase in incremental bookings, amounting to tens of millions of dollars per year.

Suggested Citation

  • Hao Yi Ong & Daniel Freund & Davide Crapis, 2021. "Driver Positioning and Incentive Budgeting with an Escrow Mechanism for Ridesharing Platforms," Papers 2104.14740, arXiv.org.
  • Handle: RePEc:arx:papers:2104.14740
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    References listed on IDEAS

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    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. Bimpikis, Kostas & Candogan, Ozan & Saban, Daniela, 2016. "Spatial Pricing in Ride-Sharing Networks," Research Papers 3482, Stanford University, Graduate School of Business.
    3. Nikhil Garg & Hamid Nazerzadeh, 2019. "Driver Surge Pricing," Papers 1905.07544, arXiv.org, revised Mar 2021.
    4. Anton Braverman & J. G. Dai & Xin Liu & Lei Ying, 2019. "Empty-Car Routing in Ridesharing Systems," Operations Research, INFORMS, vol. 67(5), pages 1437-1452, September.
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    Cited by:

    1. Varun Krishnan & Ramon Iglesias & Sebastien Martin & Su Wang & Varun Pattabhiraman & Garrett Van Ryzin, 2022. "Solving the Ride-Sharing Productivity Paradox: Priority Dispatch and Optimal Priority Sets," Interfaces, INFORMS, vol. 52(5), pages 433-445, September.
    2. Nikhil Garg & Hamid Nazerzadeh, 2022. "Driver Surge Pricing," Management Science, INFORMS, vol. 68(5), pages 3219-3235, May.
    3. Alex Chin & Zhiwei Qin, 2023. "A Unified Representation Framework for Rideshare Marketplace Equilibrium and Efficiency," Papers 2302.14358, arXiv.org.
    4. Daniel Freund & S'ebastien Martin & Jiayu Kamessi Zhao, 2024. "Two-Sided Flexibility in Platforms," Papers 2404.04709, arXiv.org.

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