Spatial Pricing in Ride-Sharing Networks

72 Pages Posted: 12 Nov 2016 Last revised: 16 Aug 2018

See all articles by Kostas Bimpikis

Kostas Bimpikis

Stanford Graduate School of Business

Ozan Candogan

University of Chicago - Booth School of Business

Daniela Saban

Stanford Graduate School of Business

Date Written: November 11, 2016

Abstract

We explore spatial price discrimination in the context of a ride-sharing platform that serves a network of locations. Riders are heterogeneous in terms of their destination preferences and their willingness to pay for receiving service. Drivers decide whether, when, and where to provide service so as to maximize their expected earnings, given the platform’s prices. Our findings highlight the impact of the demand pattern on the platform’s prices, profits, and the induced consumer surplus. In particular, we establish that profits and consumer surplus are maximized when the demand pattern is "balanced" across the network’s locations. In addition, we show that they both increase monotonically with the balancedness of the demand pattern (as formalized by its structural properties). Furthermore, if the demand pattern is not balanced, the platform can benefit substantially from pricing rides differently depending on the location they originate from. Finally, we consider a number of alternative pricing and compensation schemes that are commonly used in practice and explore their performance for the platform.

Keywords: Ride-sharing, revenue management, network flows, spatial price discrimination

Suggested Citation

Bimpikis, Kostas and Candogan, Ozan and Saban, Daniela, Spatial Pricing in Ride-Sharing Networks (November 11, 2016). Available at SSRN: https://ssrn.com/abstract=2868080 or http://dx.doi.org/10.2139/ssrn.2868080

Kostas Bimpikis

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Ozan Candogan (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://faculty.chicagobooth.edu/ozan.candogan/

Daniela Saban

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
1,423
Abstract Views
4,491
rank
12,900
PlumX Metrics