Price, Wage and Fixed Commission in On-Demand Matching

52 Pages Posted: 10 Apr 2017 Last revised: 21 Mar 2019

See all articles by Ming Hu

Ming Hu

University of Toronto - Rotman School of Management

Yun Zhou

McMaster University - Michael G. DeGroote School of Business

Date Written: March 17, 2019

Abstract

Motivated by the emerging sharing economy, we study an on-demand matching platform which crowdsources a service from independent suppliers and sells it to customers. The platform offers a wage to the supply side and charges a price to the demand side. We consider a set of market conditions, under each of which the volume of participating demand and supply depends jointly on the price and the wage. We study the performance of the widely practiced, flat, across-the-board commission contracts, under which the platform takes a fixed cut, and thus the wage is equal to a fraction of the price, regardless of what price is charged. Under a mild condition, we show that by using the optimal flat-commission contract, the platform achieves at least 75% of the optimal profit when there is no pre-committed relationship between the price and wage that leads to tying hands in responding to varying supply and demand conditions. We also study a number of extensions, such as an alternative objective function that jointly considers the profit and matching volume, the piecewise commission contract, and the impact of enforcing a minimum wage.

Keywords: Sharing economy, Two-sided pricing, Supply contract, Performance bound, On-demand matching, Crowdsourcing, Surge pricing, Uber

JEL Classification: D4, D51, D86, E24, J3, J41, L11, L81, L87, L91, R4

Suggested Citation

Hu, Ming and Zhou, Yun, Price, Wage and Fixed Commission in On-Demand Matching (March 17, 2019). Available at SSRN: https://ssrn.com/abstract=2949513 or http://dx.doi.org/10.2139/ssrn.2949513

Ming Hu (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George st
Toronto, ON M5S 3E6
Canada
416-946-5207 (Phone)

HOME PAGE: http://ming.hu

Yun Zhou

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

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