Price, Wage, and Fixed Commission in On-Demand Matching

77 Pages Posted: 10 Apr 2017 Last revised: 1 Sep 2020

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: August 31, 2020

Abstract

Motivated by the emerging sharing economy, we study an on-demand matching platform that 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 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. We examine the effect of the elasticities of demand and supply on the performance of the fixed commission contract and provide a lower bound on its performance as a function of those elasticities. Our theoretical bounds also allow us to assess the worst-case performance of the fixed commission contract based on the empirical findings in the economic literature on demand and supply elasticities for ride-hailing services.

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 (August 31, 2020). 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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